Move over Hilton and Marriott, real estate groups can play this brand game, too.
In what is quickly becoming more trend than fad, real estate and private equity groups are creating their own brands, bypassing branded hotel companies altogether.
Starwood Capital Group, which had success launching its 1 brand, has now announced plans to launch a second brand focused on the UK. This new “urban lifestyle hotel group” will be called Principal and is set to launch on November 1, following a capital investment of approximately £150 million in the Principal Hayley portfolio, which Starwood Capital acquired back in 2013.
The Principles of Principal
Principal, according to its site, is a “collection of city-center hotels based in landmark buildings in exceptional locations” across the UK. In a statement, Barry Sternlicht, chairman and CEO of Starwood Capital Group, said that the renovated buildings would create “dynamic scenes. “The story of each hotel, its amazing history and architecture is the opposite of the mass-produced chain hotel, and provides us with a canvas on which to curate a unique sense of place,” Sternlicht said.
The first hotels in the collection includes The Principal Manchester, which occupies three adjoining buildings dating back to 1895 and has emerged from a £25-million renovation; The Principal York (formerly The Royal York Hotel and pictured above), which dates back to 1878 and has 155 rooms; and The Principal Edinburgh, which has been operating as a hotel since 1881 and incorporates five listed Georgian townhouses built in 1775 as private homes.
The Principal portfolio also includes Principal Partners—hotels that will join the brand over the course of 2017, among them The Grand Central Hotel in Glasgow; The Hotel Russell in London, which is currently closed and is due to reopen next summer as The Principal London; and the former Martins Bank, which will open as The Principal Liverpool in early 2018.
The creation of the Principal brand is a part of Starwood Capital Group’s rebranding of its portfolio of UK hotels under the new name of The Principal Hotel Company, which will have Principal hotels in city centers, and the De Vere brand of contemporary country estate hotels, which is scheduled to launch in spring or summer 2017, following an investment of more than £50 million. Starwood Capital acquired De Vere Venues for £232 million from the De Vere Group more than two years ago.
The Principal Hotel Company, which owns and operates over 40 buildings across the UK, received an investment of more than £200 million following the acquisition by Starwood Capital, and the subsequent acquisitions of De Vere Venues, Four Pillars, the Townhouse Collection and some individual assets.
Real Estate & Hotel Brands
Last year, Starwood Capital launched 1 Hotels with properties in Miami, Manhattan and Brooklyn. Three months ago, it announced plans to sell the properties, either individually or as a portfolio at north of $800 million.
At the time, we noted Starwood Capital's “typical strategy” of getting projects developed, built, opened—and then sold. It's the same gameplan the company had for the Baccarat Hotel, which it sold to China's Sunshine Group, even before the property opened. The company still maintains the Baccarat brand name, however.
Starwood isn’t the only real estate company launching hotel brands. Two years ago, Chicago-based investment company AJ Capital Partners launched a new hotel collection geared toward college towns, aptly named Graduate Hotels. “We wanted to create an inspiring environment where alumni, current and prospective students, parents, professors, visitors and business travelers alike can see themselves spending time and feel a sense of place that’s true to the town,” Ben Werpin, the founder of AJ Capital Partners, said at the time. “Each property will have its own flair that reflects the personality of each community while also fitting into the national scheme and concept of our brand as a whole.”
Earlier this year, Quadrum Global, an international developer and investment firm, announced that it would open a pair of New York City hotels under the company’s new Arlo Hotels brand. “Hospitality has been one of our core investment strategies since we entered the U.S. market in 2009,” Oleg Pavlov, Quadrum’s founder and CEO, said at the time. “Given where the hotel investment market is today, we believe that self-managing our newest crop of hotel projects puts us in a better position to create value for investors and customers over the entire lifecycle of these projects.”
These brands all have one thing in common: Their scope is decidedly small. Graduate Hotels has six hotels open and four in the pipeline. Arlo Hotels has been called a "micro-brand" with only two properties, and while it is poised for growth, Principal will debut with three hotels in its collection. With the Starwood Hotels & Resorts and Marriott International merger set to create the world's largest hotel company, these small collections could prove an appealing alternative for developers looking to take baby steps.
Support from Israel
Starwood Capital in the process of raising its 11th fund, and Globes is reporting that senior executives in the fund are expected to visit Israel next week for a series of meetings with investment institutions.
The company’s target for its 11th fund is reportedly $6 billion, and the executives are seeking “hundreds of millions” from Israel. The money will go to investments in North America and Europe, and will focus on new opportunities—for example, the Brexit and the results (one way or the other) of the U.S. presidential election in November.