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 .
Sam 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 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 .
14 HOTELS January / February 2012 www . hotelsmag . com