• Starwood in take private speculation

The share price of Starwood Hotels jumped by more than 6.5% last week as takeover talk swept the US markets. The speculation suggested that a management buy-out or private equity bid worth up to $19bn may be attempted.

Any such move will only provide a massive push to the already strong trend for hotel assets to be owned privately rather than publicly.

The move in part is driven by the comparative valuation gap between Starwood and some rivals, notably Real Estate Investment Trusts.

Despite recent moves to divest assets, including the $4.1bn disposal to Host at the end of last year, Starwood still owns 88 upscale, full-service hotels.

Analysts at Citigroup estimated the owned assets are worth in excess of $8.5bn although the management and franchise business is worth more than $12bn.

The high proportion of non-owned value is unlikely to deter private equity firms: they are increasingly broadening their focus beyond property transactions to include management companies.

Blackstone has arguable been the pioneer of the trend and it is currently launching its own boutique hotel brand, called Stay Social, that will be part of its US upscale portfolio called LXR Luxury Resorts.

This property, in Fort Lauderdale, Florida, is a $20m conversion of an existing Holiday Inn. A number of other properties have already shed their former brands within the 34-strong LXR portfolio.

There is a huge appetite for property at present, thanks mostly to the huge weight of cash, particularly within private equity firms. Research by Jones Lang LaSalle Hotels, published this week in its latest Hotel Investor Sentiment Survey, shows that buyers of US hotels outnumber sellers five to two.

And this appetite has translated into deals. In separate research, JLL has found that since the start of 2005, private equity firms have taken out 14 US REITs with an enterprise value that totals $50bn.

While REITs over the period have been net buyers of hotel assets, overall public company investors have been net sellers due to the huge sales by conventional companies.

JLL commented in the research (The Hotel Ownership Pendulum in Motion) that the shift to private ownership will continue to be fuelled by public companies trading at a discount to Net Asset Values.

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