Starwood Capital closed its 10th global opportunistic real estate fund in March 2015, with capital commitments from more than 100 investors globally totaling $5.6 billion—the Firm’s largest fund to date. SOF X continues the successful approach of its predecessor funds, with a focus on acquiring, developing and repositioning high-quality assets in nearly every major real estate asset class with strong fundamentals. At the same time, the Fund seeks investments that can generate consistent and growing cash-on-cash returns either sourced directly, in partnerships, or joint ventures. The major change with SOF X’s investment strategy is an increased focus on Europe, as we expect a growing number of opportunities to emerge from the region. Leveraging its robust pipeline, Starwood Capital through SOF X is well-positioned to invest opportunistically in compelling properties around the world, while continuing to be patient and thus avoid rushing to compete for overpriced transactions.
Starwood Capital closed its ninth global opportunistic real estate fund in April 2013, with $4.2 billion of total capital commitments from more than 100 investors around the world. The portfolio is diversified by both geography and product type, and has been constructed to focus on strong cash returns during the investment period. SOF IX has continued the successful strategy of predecessor fund SOF VIII, but with an increased focus on Europe. The Fund’s primary investment themes are centered on distressed debt (loan-to-own), value-add income assets (inflation hedge), corporate transactions and land/development opportunities.
Starwood Capital closed its eighth global opportunistic real estate fund in March 2010, with total equity commitments of $1.83 billion. Due to global uncertainty and volatility during our investment period, we focused on “margin of safety.” One clear measure of this approach is overall leverage that is extremely low for any type of fund, but especially for a real estate opportunity fund. We also sought investments that provided downside protection, asymmetric risk/reward profiles and hedges against inflation. The Fund pursued five major investment themes: land/residential, value-add income assets, distressed debt, corporate transactions and global hospitality. Our transaction sourcing is a key advantage for the Firm—and the vast majority of SOF VIII was sourced off-market in noncompetitive, privately negotiated transactions or through the bankruptcy process.
Starwood Capital closed its seventh global opportunistic fund in December 2005, with total equity commitments of $1.48 billion. SOF VII sought to construct a diversified portfolio by investing in undervalued real estate and real estate-related assets and operating companies globally across all property types, including hotel and leisure, multifamily and residential, office, senior housing and mixed-use developments. In numerous cases, we pursued a strategy that leveraged our best-in-class asset management team to invest capital and create incremental value within the properties.
Starwood Capital closed its sixth global opportunistic fund in February 2002, with total equity commitments of $567 million. SOF VI targeted both corporate opportunities and a variety of niche strategies. The Firm utilized its strong joint-venture platforms to expand its international investments in France, the U.K. and Germany, and to grow its senior housing and residential land investments in the U.S. We also combined the discipline of fundamental real estate investing with our knowledge of operating businesses to pursue compelling investments in the hotel and golf sectors.
Starwood Capital closed its fifth global opportunistic fund in April 1999, with total equity commitments of $516 million. We pursued a diversified strategy with an emphasis on the residential and retail markets, and constructed and/or redeveloped condominium projects in major cities. We also formed a series of joint ventures to acquire and redevelop retail properties. SOF V also featured the Firm’s first investment in the senior housing sector. A major initiative was the formation of investment platforms in Asia and Europe. With these efforts, Starwood Capital established a global presence that continues to expand to this day.
Starwood Capital closed its fourth global opportunistic fund in February 1997, with total equity commitments of $830 million. Our goal with the Fund was to combine Starwood Capital’s successful equity investment strategies with its expertise in high-yielding mezzanine investments. The result was a balanced portfolio with investments across mezzanine debt, hotel debt, mixed-use complexes, residential land development, retail and leisure-related assets. In March 1998, the Firm contributed SOF IV’s debt investments, combined with those of Starwood Mezzanine, to form iStar Financial, Inc., providing investors with increased liquidity in one of the nation’s leading commercial real estate finance companies.
Starwood Capital closed its second fund in November 1993, with $102 million of equity commitments. Utilizing its growing local partner network, the Firm sought to capitalize on opportunities resulting from distressed sellers, over-leveraged or mismanaged assets and the shortage of entrepreneurial capital in the market. The diversified portfolio consisted of hotel, office, land and multifamily assets across the United States. All of these investments were purchased at substantial discounts to replacement cost.
Starwood Capital created its first opportunity funds in February 1991 and March 1993, respectively, with $52 million of equity commitments, to take advantage of capital dislocations in the real estate markets. After extensive bottom-up research, the Firm focused on acquiring multifamily units in domestic markets with improving fundamentals and limited competition. Starwood Capital purchased approximately 6,400 multifamily properties through an aggressive acquisition program that included equity and distressed debt from the Resolution Trust Corp., FDIC, savings & loan associations, over-leveraged partnerships and tax-exempt bondholders. Just 18 months after their organization, the Funds contributed the majority of their multifamily portfolio to an operating partnership controlled by Equity Residential Properties Trust (NYSE: EQR), a newly formed real estate investment trust, in exchange for operating partnership units convertible to shares of EQR stock. EQR went on to become the largest publicly traded apartment owner in the country. This transaction marked the first of numerous leading real estate platforms or companies that Starwood Capital would help create throughout its history.
Starwood Capital closed its second dedicated hospitality fund in March 2010, with total equity commitments of $965 million. Utilizing low leverage, Hotel II focused on four core investment themes: superior cash flow-generating assets, major rebranding/repositioning opportunities, iconic assets and development/redevelopment opportunities in New York City, one of the nation’s strongest hotel markets. Nearly 90% of investments were sourced in noncompetitive, privately negotiated transactions or through the bankruptcy process—and most were purchased at prices significantly below replacement cost.
Following Barry Sternlicht’s departure from Starwood Hotels & Resorts, Starwood Capital raised its first dedicated hospitality fund in November 2005, with total equity commitments of $900 million. Through Hotel I, Starwood Capital continued its acquisition program in the hotel and leisure sector, with investments in luxury and budget hotels, extended-stay hotels, resorts, restaurants, leisure/entertainment properties, and island and hotel development opportunities.
Starwood Capital closed its second debt fund in January 2009, with total equity commitments of $378 million. Operating amid an exceedingly challenging recessionary environment, Debt II sought to capitalize on dislocations in the U.S. and global credit markets. The Fund focused on a full range of performing debt investments, including first mortgages, junior notes, commercial mortgage-backed securities, corporate bonds and mezzanine debt.
Convinced that equity pricing of real estate markets was reaching full value, we were one of the first equity investment firms to shift into the mezzanine market. We closed our third fund in November 1994, with total equity commitments of $220 million. The goal of the Fund was to create a portfolio of high-yielding mezzanine investments with significant current cash flow and positions in the capital structure that were at substantial discounts to replacement cost. Starwood Mezzanine invested across a range of multifamily, hotel, resort, office and land development assets. As a result, Starwood Capital attained a leading position in the developing mezzanine market by combining the Firm’s underwriting strength with its ability to creatively structure custom-tailored financing.