What the Zell? Has the Commerical Property Market Hit Bottom?

Posted by: Charles DuBow on February 05

Starwood’s St. Regis hotel in NYC—prime real estate.

Is the end in sight for the current downturn in commerical property values? Chicago real estate billionaire Sam Zell may be thinking so. According to regulatory filings with the SEC on Monday, he has now amassed a 7.7% stake in Starwood Hotels & Resorts Worldwide Inc. (HOT) to become the company’s second-biggest shareholder. So unless Zell has developed a sudden passion for luxury travel, it is probable that his interest in the company is piqued by its substantial global real estate holdings.

Starwood shares gained $1.30, or 2.8%, to $47.49 in early trading. Its shares, which traded as high as $75.45 in early July, hit a 52-week a low of $37.07 on Jan 22.

As a story on Bloomberg this morning reports: “His emergence as a buyer may signal the commercial real estate market has bottomed, said James Corl, chief investment officer for real estate securities at Cohen & Steers Inc. ‘It’s a huge data point,’ New York-based Corl said in an interview. ‘Sam Zell as a seller started the REIT market decline last February and I think Sam Zell as a buyer probably marks the bottom in real estate stocks.’”

While many hospitality industry analysts are predicting a slow down for the sector due to economic concerns in the U.S., one of the hidden values of Starwood is its ownership of prime commercial property in some of the world's biggest cities. The company currently has a market cap of around $9.3 billion.

The big question of course is what will Zell do now that he has built up such a large position? (Barclays Global Investors is Starwood's largest shareholder.) It is unlikely that he will be content holding on to his new shares and wait for a rebound in the travel sector. The more likely prospect is that he will move to consolidate his holdings and launch a bid for the company itself with a goal of selling off the more valuable of its properties. And if he didn't think the commercial property market was near the bottom, it is unlikely an old pro like him would have bought at this time when he could have waited.

Starwood currently owns, operates and franchises more than 860 hotels in over 95 countries with about 232,000 rooms worldwide. Among the brands in the White Plains, N.Y.-based company's portfolio are St. Regis, Sheraton, Westin, the Luxury Collection, Le Meridien and W Hotels.