GLOBAL UPDATE: DEVELOPMENT
Zell
plays
the
cycle
Real estate mogul Sam Zell is
making tactical investments on
two fronts.
By Jeff Weinstein, editor in chief
Sam Zell acquired the
Elysian in Chicago for
50 cents on the dollar.
am Zell, the chairman of
Chicago-based Equity Group
Investments (EGI) — a private,
entrepreneurial investment firm he
founded more than 40 years ago — as
well as Equity International (EI), a separate private investment firm focused
on real estate-related companies outside of the United States, appears to be
taking a shine to the hotel business.
Last November, EGI acquired at a
50% discount to replacement cost the
luxury Elysian hotel in Chicago for a
reported US$95 million, or US$505,000
per key, with partners Hilton Worldwide
and some of the original principals of
the 188-room hotel. The hotel will be
converted to Hilton’s Waldorf Astoria
brand in February. At the same time,
EI made a US$75 million investment in
Samhi Hotels Pvt. Ltd., a newly formed
hospitality property company based in
Gurgaon, India, focused on the development, acquisition and ownership of
select-service, business-class hotels.
Samhi has another US$25 million
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HOTELS January/February 2012 www.hotelsmag.com
infusion from GTI Capital Group,
Delhi, and a US$30 million commitment from Marriott International to
develop a network of Courtyard by
Marriott and Fairfield Inn hotels in
India. Samhi has also announced the
development of a Hyatt Place hotel
and has a pipeline in Delhi, Mumbai,
Hyderabad, Pune and Kolkata.
EI has further interest to develop
hotels in Latin American markets,
according to CEO Gary Garrabrant,
who adds EI is currently pursuing
two hotel investment opportunities
similar to Samhi, only smaller. “We are
intrigued with Peru, Colombia, Brazil
and want to do more in the Andes
region,” Garrabrant says.
Elysian deal
With an estimated net worth of US$5
billion, according to Forbes, Zell
recognized the opportunity presented
by the current cycle and liked the idea
of buying the well-located luxury
Elysian for roughly 50 cents on the
dollar, according to EGI Managing
Director David Helfand. The EGI deal
team chose Hilton and its Waldorf
brand based on their relationships with
Blackstone and Hilton CEO Chris
Nassetta. “It is a good fundamental
asset,” Helfand says.
Helfand says the EGI team is
sourcing other U.S. hotel acquisition opportunities up and down the
segment tiers. “We don’t have a luxury
mindset, or any other,” Helfand says.
“We evaluate investments on their merits, and we don’t fall in love with the
real estate. We are asset-specific, driven
by location, the physical quality of the
asset and what partner we can bring in
to operate whom we can believe in.”
Helfand adds that the “stabilization
money” being used to invest in the
hotel space generally means a five- to
seven-year hold, but EGI is willing to
hold assets longer to maximize returns.
“Our sweet spot is putting between
US$25 million and US$75 million of
equity to work,” he adds.
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The global play
At EI, Garrabrant closed Fund
V last September and has committed about half of the US$650
million to invest on real estate
companies or operating platforms in emerging markets.
“We are sensitive to the
metrics more than the concept,
so the economics will drive our
activity,” Garrabrant says.
Garrabrant says EI is going to
“We are an investor. make Samhi a very big company
We hate competition. with as many as 100 hotels in its
portfolio in the 2.5- to 3.5-star
That goes to our
range. “We see an amazing
early, if not first,
opportunity to build a national
platform where we will be
preference. In fact,
brand-agnostic and yet be an
we prefer to be
institutional owner of hotels,”
the only ones [in a
he notes.
Garrabrant sees Samhi as an
market]. We don’t
acquisition vehicle in India, as
need association, and well. “There are busted deals
across India to give (Samhi prinwe are comfortable
cipals) Ashish Jakhanwala and
with that.”
Manav Thadani another way to
– Gary Garrabrant, CEO,
grow,” he says. “It is rare to find
Equity International
a scenario where there is a marriage between growth and value.
India has spectacular growth potential but with unexpected
changes (to the economy) there is no competition (to acquire),
as the big private-equity players are in full retreat.”
Garrabrant says Samhi could become a company of such
sufficient scale it could access public equity or will attract an
institutional buyer. “There will be a natural conclusion to the
growth capital in eight to 10 years,” he adds.
But for now, exit is not the focus. “The hospitality opportunity hasn’t been obvious to us in the past five to seven years
in part because there was too much capital, and we are not
traders,” Garrabrant says. “We are an investor. We hate
competition. That goes to our early, if not first, preference.
In fact, we prefer to be the only ones [in a market]. We don’t
need association, and we are comfortable with that.”
EI’s participation in the Samhi fund is its first foray into
the hotel space since Fund I in 1998. In the late 1990s with
NH Hoteles, EI created a joint venture to capitalize on the
shortage of quality business-class hotels in Latin America.
The JV created a portfolio of hotels in five countries before
EI converted its ownership interest to public shares in NH
Hoteles in 2006. It completed the sale of its interest in 2007.
Now, EI is coming back to the hotel space in Latin
America. In August, the firm invested US$75 million in
Terranum Development, a private corporate real estate
company in Bogotá, Colombia. Among Terranum’s projects
is Connecta, which will have two hotels, one an Aloft.
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INTERGASTRA Stuttgart
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www.hotelsmag.com January/February 2012 HOTELS
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