Sternlicht’s Return Means Moolah For StarwoodSnapshot: –

Firm: Starwood Capital

Funds: $1.475 billion Starwood Global Opportunity

Fund VII and $900 million Starwood Hospitality

Fund I

Target industry: Opportunity Fund buys undervalued

real estate, Hospitality Fund buys resort, hotel and

leisure assets

The past 12 months have been kind of splashy for Starwood Capital, which just announced that it’s back in the market with two new funds.

The good news train started rolling last spring when hotel maven Barry Sternlicht returned to work at the private equity firm full time in May . Then on the fundraising side Starwood recently announced that it has raised two new funds-the $1.475 billion Starwood Global Opportunity Fund VII and the $900 million Starwood Hospitality Fund I. The funds bring Starwood’s total capital raised in 2005 to more than $3 billion.

From The Beginning

Sternlicht founded Greenwich, Conn.-based Starwood Capital in 1991. In 1994, the firm founded a platform company named Starwood Hotels & Resorts, which is now the operator of the St. Regis, W hotels and Sheraton brands. At the time Sternlicht thought it would be in his best interest to leave his full-time job at his private equity firm and become Chairman and CEO of Starwood Hotels & Resorts while functioning part time at Starwood Capital. He stayed with the Starwood Holels for about 10 years.

Sternlicht brought in former Coca Cola Co. president Steve Heyer to run Starwood Hotels in Oct. 2004, but the partnership failed. Sternlicht clashed with Heyer before departing and has criticized the company since leaving. When Sternlicht left his position as executive chairman it was abrupt and surprising, though as of recently he still owned considerable stock.

But since leaving Starwood Hotels, Sternlicht has found more than enough to occupy his time at Starwood Capital, knocking out one high profile deal after another. In 2005 alone, Starwood acquired interests in more than 250 hotels, added six new partners and opened three new offices in the U.S.

In late July, it bought Societe du Louvre hotels and Baccarat jewelry brand, for $1.5 billion in cash, reportedly beating out The Blackstone Group and Carlyle. Starwood is now running a sales process with the help of Rothschild to exit the Taittinger champagne assets it acquired in that deal, which is one of France’s oldest brands. Starwood also completed the largest deal in the ski resort business ever with the high profile purchase of Mammoth Mountain last fall. In January, Sternlicht said he would start a luxury hotel brand that would compete with Starwood Hotels, called Crillon.

With all the positive changes, needless to say, fundraising was no problem for firm. “It was a huge attraction for LPs to know that Barry was back full-time as he is a true visionary and leader in the hospitality industry,” said Robin Josephs, a Starwood managing director who was one of the lead fundraisers. Fund VII had a large number of re-ups, drawing capital from public and private pension funds, some foundations and endowments and a few high net worth individuals.

Starwood hasn’t been slow to move ahead with the capital it has raised. The funds closed at the end of 2005 but are already almost 40% invested. The Mammoth deal was one that was purchased out of Fund VII.

The Opportunity Fund will invest in undervalued real estate and real estate-related assets, such as senior housing, residential, retail, office, land and development. The Hospitality Fund will invest in and develop resort, hotel and related leisure activities and properties and will participate in all levels of the capital structure.

Starwood’s previous fund, vintage 2002, raised $567 million, while its largest fund until now, 1997’s Fund IV, was steward to $830