The Wall Street Journal – Starwood Capital Group has hauled in more than $10 billion for its latest pool to invest in distressed real estate such as hotels, office buildings and residential housing.
The Miami Beach, Fla.-based firm said its Starwood Distressed Opportunity Fund XII and related entities collected nearly a third more than a predecessor vehicle, which wrapped up with $7.55 billion in 2018. Fund XII can be invested in the U.S. and Europe, according to Barry Sternlicht, Starwood’s chairman and chief executive.
During fundraising meetings, investors queried Starwood executives about the hospitality sector and the long-term effects of the pandemic, as well as the future of office properties amid the rise in remote working, Mr. Sternlicht said. The campaign took place entirely during the pandemic.
Properties that rely on business travel could face prolonged recoveries, Mr. Sternlicht said. But he noted that demand is strong for hotels and resorts within driving distance of major markets.
He also identified pockets of greater resilience in the office space sector.
“While some major markets are likely to experience a slower recovery in office demand, we continue to focus on high-growth Sunbelt markets that are recovering quickly,” Mr. Sternlicht said. The new fund can invest in properties that aren’t distressed as well, he said.
Starwood expects to generate net internal rates of return of 14% to 16% from Fund XII, according to public documents from the Oklahoma City Employee Retirement System, which committed $15 million to the new fund.
Starwood has already committed to 25 deals involving $3.5 billion of equity from the latest fund, Mr. Sternlicht said. The firm in a news release said it acquired a swath of 4,500 single-family rental homes through an investment from Fund XII.
In June, Starwood and Blackstone Inc.’s real-estate strategy took private hotel operator Extended Stay America Inc. and its ESH Hospitality Inc. real-estate investment trust in a deal valued at around $6 billion. The Wall Street Journal reported that Starwood expected a shift in the chain’s customers to include more construction workers, contractors and professionals such as lawyers and consultants in a rebounding post-pandemic economy.
Real estate-focused firms pursuing distressed or opportunistic strategies found favor with investors during the pandemic. One, Oaktree Capital Management, raised $4.7 billion for Oaktree Real Estate Opportunities Fund VIII, its largest vehicle to date when it closed in March. KKR & Co. collected $4.3 billion for its KKR Real Estate Partners Americas III earlier this month. Both firms surpassed their fundraising goals.
Firms currently raising new funds targeting dislocations caused by the pandemic include Centerbridge Partners, which is seeking $1.5 billion for Centerbridge Partners Real Estate Fund II LP. So far this year, firms have raised $91.3 billion across 179 U.S. real estate-focused private investment funds, while sponsors of 237 similar funds brought in $108.45 billion this year, according to data provider Preqin Ltd.
Starwood plans to make 65 to 85 investments through its new fund, with an average equity check size of $100 million, according to the Oklahoma pension system documents. The firm’s investment targets include multifamily and affordable housing, office, hotel and industrial real-estate properties, the documents show.
Combined with other Starwood investment vehicles, the firm now has more than $95 billion in assets under management, according to the release.