Blackstone’s latest hotel booking could work well with an early checkout. The buyout shop is paying $6 billion including debt for Strategic Hotels & Resorts, the owner of Four Seasons and Ritz-Carlton properties as well San Diego’s famed Hotel Del Coronado and San Francisco’s Westin St. Francis. The premium seems measly, however, given the voracious appetite among overseas buyers for luxury lodging. Maybe Blackstone’s 2007 commercial real estate carve-up would succeed again.
Strategic Hotels has agreed to go private at $14.25 a share, a mere 13 percent higher than where its stock was trading before news broke in July that the company might be seeking a buyer. The summer market meltdown took a bigger toll on rival innkeepers and Strategic Hotels already carries a lot of debt, but given the prices being paid amid a long stretch of merger mania, Blackstone seems to have struck a good deal for itself.
It could possibly open the door to a counterbid, although JPMorgan presumably already has helped the company consider a variety of options. Bill Gates’ investment firm increased its stake in Strategic Hotels to almost 10 percent last month and said it was interested in a possible takeover. If no rival buyer emerges for the whole company, however, Blackstone could try a little wheeling and dealing of its own.
Jonathan Gray, who runs the firm’s global real estate operations and led Blackstone’s once-worrisome $26 billion investment in Hilton Worldwide, undoubtedly has a long list of contacts in China, the Middle East and beyond who might be interested in individual properties. For example, New York’s Waldorf Astoria, a flagship Hilton location, was sold last year to Beijing-based insurer Anbang for $2 billion. Brand names in the Strategic Hotels portfolio like Four Seasons, Ritz-Carlton and Intercontinental could hold great international appeal.
It’s a strategy Blackstone has enlisted before. In 2006, the firm won a bidding war for Sam Zell’s Equity Office Properties for $39 billion. Only a few months after closing the deal, it flipped about half the buildings, some at record sums, and recouped nearly three-quarters of the original price tag ahead of the credit crisis. If Strategic Hotels can’t find a better deal for its collection of 18 posh hotels, there’s a chance Blackstone will.