Starwood Capital's Sternlicht Launches Luxury Hotel Brand

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. October 14, 2008

GREENWICH, CT, FEBRUARY 06, 2006. Starwood Capital Group late last month announced intentions to launch a new international luxury brand, called the Crillon, which will compete with Starwood Hotels & Resorts, the same company Starwood Capital's chairman and CEO, Barry Sternlicht, acrimoniously left last year.

Starwood Capital in 2005 acquired a controlling interest in the Societe du Louvre, which owned three deluxe hotels and 805 budget hotels, for $3.2 billion. The Crillon brand refers to the Hotel de Crillon, a six-star, 147-room Paris landmark and flagship of the Societe du Louvre portfolio. The undertaking will be spearheaded by Sternlicht, who's already known as an industry trailblazer, a distinction he cultivated while CEO of Starwood Hotels & Resorts. From his 1998 acquisitions of ITT Sheraton-a procurement he made when ITT Corp. rejected a hostile $10 billion bid from Hilton Hotels Corp. in favor of a merger with Starwood Lodging Trust-and Westin Hotels & Resorts, to his seminal "Heavenly Bed" concept, Sternlicht maintains the prescience to continually reshape the hotel industry. "He has the depth and experience of creating two successful brands-the W and the St. Regis-while he was at Starwood Hotels," said Robin Josephs, managing director of Starwood Capital.

Sternlicht left Starwood Hotels after ongoing rifts with current CEO Steven Heyer, whom he brought in to run Starwood's daily operations. Recently, Sternlicht upbraided Starwood and Heyer for selling a portfolio of 38 hotels for $4.1 billion, a price Sternlicht thought was too low. With no noncompete clause in play, Sternlicht seems poised to capture market share in the luxury segment.

The Crillon brand will compete in a segment enjoying a rebound that has capitalized on the return of international business travel, rising room rates and languid supply growth.

"There are three dynamics that support the focus on luxury," said Bjorn Hanson, head of the hospitality and leisure practice at PricewaterhouseCoopers. "Many lodging and other luxury brands believe that there can be levels of facilities and service above today's five-star brands. The premium occupancy levels and both occupancy and rate increases being achieved indicate limited price resistance and increased demand for luxury. International travel is rebounding so international brands can achieve further incremental demand in addition to what is generated in their local markets."

However, Starwood Capital's vision to energize the segment appears ambiguous as its announcement of the new brand offered conflicting messages. On one hand, Starwood Capital said it plans to develop hotels with a distinctive European charm, but also said it plans to infuse the design of each hotel with the surrounding culture of the city it's located in.

Starwood Capital plans to develop Crillon hotels on its own and with partners in such locations as London, Rome, Barcelona, New York, Los Angeles, Chicago, Las Vegas, Tokyo, Shanghai, Beijing, Hong Kong, Delhi, Mumbai, Dubai and Qatar.

Sternlicht announced that he had raised $2.4 billion to back the venture, and launching the endeavor now was important due to the current growth climate within the travel industry. He also is banking on the assumption that the Crillon will appeal to customers in a manner that none of the existing brands in the luxury segment do.