Starwood Capital: Get creative in 2019

IHIF 2019
IHIF takes place March 4-6 at the InterContinental Hotel, Berlin. Photo credit: Questex

At the upcoming International Hotel Investment Forum, March 4-6 in Berlin, Cody Bradshaw, managing director and head of European hotels at Starwood Capital Group will be speaking on a panel entitled, "Money Makes the World Go Around: Identifying the Key Trends in Global Money Movement." 

The panel will examine the state of hospitality investment and trends to come, including key investors and alternative sources of capital and debt, key markets and investment hotspots,

Bradshaw oversees Starwood Capital’s hospitality acquisition and asset management activities across Europe and Asia Pacific. He also handles the company's North America hotel asset management. His portfolio responsibilities have included numerous major lodging investments, including the firm’s ownership of Louvre Hotels, one of the largest hotel chains in Europe with more than 1,000 hotels across more than 40 countries. 

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Ahead of the conference, Bradshaw shared his insights on what investors should expect in Europe (and worldwide) in 2019 and beyond.

1. How would you describe the hotel-investment market in 2019?  

The European hotel sector continues to benefit from solid fundamentals, including record inbound tourism and relatively low-supply growth in most markets. The supply/demand equation across the sector, coupled with low brand penetration and the accretive spread between cap rates and cost of financing, should continue to produce a compelling investment market for both core and value-add investors.   

That said, we should expect more limited transaction volumes in 2019 alongside increased competition for income-producing assets and portfolios, often regardless of location or asset quality, primarily from the increasing number of equity syndicators seeking “safe haven” investments for their foreign-investor base as well as those utilizing various forms of financial engineering, such as ground leases and Propco/Opco structures. This will continue to require the more discerning, value-add hotel investors to remain patient and explore more “outside-the-box” ideas, off-market opportunities and/or move up the risk curve through ground-up developments or heavy redevelopments. 

2. What is Starwood Capital’s position and strategy for the year to come? 

Starwood manages a global opportunity fund, which enables us to shift between asset classes and markets based on where we see the best risk-adjusted returns.  This allows us to be disciplined about when and where to invest in the European hotel sector based on yields, fundamentals, geopolitical risk, etc.   

Within the hotel sector we are fairly unique in that we benefit from extraordinary access to both debt and equity capital as one of the largest real estate private equity players, but we also invest in internal teams dedicated exclusively to the hotel sector, including any number of specialists across design, revenue management, etc. This often enables us to identify upside where others cannot, which, in turn, typically allows us to be an active hotel investor throughout the lodging cycle as our value-add strategies are often less reliant on underlying market growth or capital-market conditions. 

3. What are the biggest challenges faced by hoteliers/investors in the current hotel investment market?  

Opco/Propco structures in the European hotel sector are increasingly prevalent and putting many traditional investors at a distinct disadvantage. These structures create a synthetic bond-like instrument (often with limited covenant strength), which when coupled with record low interest rates, can further suppress cap rates and inflate the value of real estate.   

4. What existing hotel brands do you think are most interesting to watch? 

The next 12-24 months will see an exciting array of high-profile openings for Yotel, YotelAIR and YotelPAD across international gateway cities, which will transform the brand’s positioning and awareness in the eyes of the consumer as well as hotel investors.  As Starwood is a 30-percent shareholder in the Yotel brand and major owners of Yotel real estate, I am personally very excited about what lies ahead for the company. 

I continue to be mesmerized by what our CEO and Chairman, Barry Sternlicht, and our team at SH Hotels & Resorts, led by Arash Azarbarzin, are achieving with the 1 Hotel brand. There is truly nothing like it and I eagerly await the brand’s upcoming arrival in Europe. Barry has managed to revolutionize our industry (yet again). 

5. Who or what is the biggest inspiration guiding your career? 

Hotels are at the intersection of so many great things in life. From history, design, community, fashion, food, technology, people, you name it.  We are all truly blessed to get to wake up every day and dedicate our time to this endlessly inspiring industry of ours. 

During the holidays, I was truly saddened to learn of the unexpected passing of a key mentor of mine. It is incredible when you stop to consider what an impact certain people have had on your career and life journey. Not only are we all blessed to be a part of this fascinating industry, but we should take more time to thank the individuals who provided their wisdom, guidance and friendship along the way as they are the true source of inspiration for all of us. 

6. What are you most looking forward to at IHIF? 

The remarkable efficiency of being able to conduct countless meetings simply by taking a casual stroll through the lobby of the InterContinental (with your conference badge, of course!).   

7. You are speaking on the Investors’ Panel – ‘Money Makes the World Go Around: Identifying the Key Trends in Global Money Movement’ which is always a keenly anticipated session. Can you give us a brief insight into some of the key markets for hotel investment in 2019? 

The top performing urban destinations are often easier to predict based on a high-level supply/demand analysis. Predicting geopolitical risk and other external factors, which may affect that demand, is the harder part, especially when it comes to Europe.   

As to resort destinations, what transpired in 2018 with the remarkable shift in demand within the Mediterranean resort sector was fascinating and yet another lesson on how quickly demand can ebb and flow based on wholesaler activity, safety concerns, currency, etc. We will be closely monitoring the major wholesalers in 2019 as several of them are coming under immense financing pressure, which may have implications for both airlift as well as hotel occupancy in a number of destinations. 

Bradshaw will be speaking on Money Makes the World Go Around: Identifying the Key Trends in Global Money Movement, 3:30 p.m.–4:20 p.m. on Monday, March 4 during the International Hotel Investment Forum (IHIF) which takes place March 4-6 at the InterContinental Hotel, Berlin. IHIF is presented by Questex, parent company of Hotel Management magazine.