Why Starwood Capital is launching a new fund for Europe hotels

Image: Karen Roe / CC by 2.0 (Frogmore will boost Southwark's decreasing hotel room supply with its new hotel plans.)

Looking to take advantage of investment opportunities in the European hotel market, Starwood Capital is launching a new investment company to build a portfolio of European hotels.

If everything goes as planned, the group will seek to raise at least £300 million for the Guernsey-domiciled closed-ended fund, which will be listed on the London Stock Exchange.

The Starwood European Core+ Hotel Opportunities fund will reportedly target a 5.5-percent dividend yield once the proceeds from the listing are fully invested. The team will buy single hotel assets alongside property portfolios.

Opportunity Knocks

With large European hotel brands looking to sell non-core assets, a "pipeline of investment opportunities" is growing across the continent. According to Starwood Capital, a "significant portion" of these assets could generate gross internal rates of return of 10-12 percent on account of their potential for capital growth.

A single investment will not be permitted to account for more than 20 percent of total assets. Outside of the UK, no more than 50 percent can be allocated to a single country. The base currency of the portfolio will be the UK's pound sterling, although the investment team may use currency hedging where they feel it is appropriate.

Starwood Capital has also been offloading some assets. Earlier this week, an arm of the investment firm sold Edinburgh's Bonham Hotel to a U.S. investment firm led by fund manager Richard Driehaus for an undisclosed sum. Starwood Capital purchased the 49-room Bonham Hotel in 2015 as part of the Town House Collection, which included the Blythswood Hotel in Glasgow.