A $250-million capital injection and 30% ownership stake from Starwood Capital Group is expected to help London-based Yotel seek aggressive global portfolio growth, with plans to reach 50 to 60 hotels over the next five years.
LONDON—For the second time in less than two weeks, private equity firm Starwood Capital Group has splashed out significant cash, this time with a $250-million investment in London-based Yotel.
On 14 September, the company relaunched the 22-property De Vere brand with a £100-million ($134.2-million) investment.
Now SCG is in Yotel’s corner, where it also took a 30% ownership stake. Yotel has two city hotels and four airport hotels open at press time, with ambitious growth plans for up to 60 assets within five years, including a 610-room hotel in Singapore set to open on 1 October which will be the brand’s debut in Asia. A San Francisco property is scheduled to open next February. The company celebrated its 10th anniversary this year.
Yotel’s majority (65%) shareholder is the Kuwaiti Al Bahar family, whose businesses include IFA Hotels & Resorts. Its CEO Talal Jassim Al-Bahar is chairman of Yotel.
Hubert Viriot, Yotel
Yotel executives see SCG’s involvement as the next logical step for the firm, whose hotels meld “essential elements of luxury hotels into smaller, smart spaces and deliver a sense of community,” they said.
“It is one more step in long-term business plan we have embarked into,” said Yotel CEO Hubert Viriot. “We were a very small startup, which then attracted larger investors, and the next step was institutional capital partners such as (SCG).”
“The deal will help us in our global growth,” he said. “Solid partners who will strengthen our balance sheet. We saw the opportunity to learn from the guys who have done it all, but we will continue to grow. There will be other steps. Everyone realizes this is a not a six-month plan but a much longer one.”
Viriot said that Yotel remains “an independent hotel management company, never reliant on one stakeholder,” and that it’s investigating a number of opportunities with Starwood, though “there is no exclusivity agreement.”
SCG, Viriot said, will focus its partnership on growing the brand’s city assets via its experience and capital strength.
Cody Bradshaw, SCG’s managing director and head of European hotels, told Hotel News Now that “this strategic investment in Yotel is consistent with one of our primary investment strategies, which is to identify platforms with significant upside potential where we believe we can add value by leveraging our in-house hotel expertise and providing access to growth capital.”
In the news release announcing the investment, SCG Chairman and CEO Barry Sternlicht highlighted Yotel’s role as an innovator.
“Yotel is an exciting brand focused on technology, smart design and a distinct guest experience at an affordable price, which is the right strategy amid the current wave of digital disruption,” he said.
Viriot said Yotel’s new investor makeup is “very straightforward; the lines have been well-defined.”
“We have one large majority shareholder, split into several companies. Essentially, it is a partnership between a historic sponsor, supporting us for the past many years, and new institutional capital,” he said.
“Both (Al Bahar and SCG) have significant experience in hospitality. They speak the same language, despite different capital structures,” Viriot added.
The news release also mentioned SCG’s desire to “(invest) in real estate acquisitions for new-build, hotel-conversion and adaptive-reuse properties as Yotel expands its international scale.”
Viriot said Yotel’s growth, regardless of SCG’s new capital involvement, always was unlikely to be a 50-50 scenario between its city hotels and Yotelair airport assets.
Viriot explained that city hotels are far larger—on average 300 keys as opposed to on average 50 in airport locations—and not tied to airport terminals that are nearly always kept under government control.
Viriot said the business model in nearly all cases for Yotel will be management contracts, which makes access to certain markets such as Germany all the more difficult.
“I think the bulk of (SCG)-partnered assets would be city center. … The beauty there is they are a global investment firm, and the key markets they are interested in are the same as for us: North America, Europe and Asia. That was one of the reasons they were attracted to us,” Viriot said.
According to Viriot, Yotel has 15 assets opened or in the construction pipeline, including a property in the Clerkenwell district of London.
Other urban locations on its radar include Amsterdam, Dubai, Edinburgh and Miami.
“City hotels will see faster growth, because fundamentally there are more opportunities, more sites than airports,” Viriot said.
The partnership will target all European capitals, with Viriot mentioning particular markets such as Barcelona, Dublin, Geneva and Glasgow, and countries including Italy, France and Spain. An approximately 280-room site has been secured in Edinburgh.
“Outside of Europe, we will push growth in Asia. The Singapore hotel will act as an Asian flagship. Australia, Japan and Hong Kong are targets, as are the bigger markets of India and China, but you have enter those differently,” Viriot said.
He added the firm has installed Nikhil Manchharam as managing director in Asia, to spearhead development in the region.
“We also have a competitive advantage in the Middle East due to our investor base, and we will certainly grow there, but it is a smaller region, and we will not achieve the same scale,” he added.
Viriot said SCG’s experience was equally important as its capital.
“It is not just the money. We have access to a team of professionals to help us develop and expand and grow in new areas of distribution,” he said. “As important as the capital is the expertise, to help us build a better platform. This is important to owners, too, to see that we are more sophisticated.”
“As a management company, we wish to remain asset-light. All owners are on a separate balance sheet, and we seek long-term management agreements, with the same approach across the world, which is a challenge,” Viriot said.
Viriot added he hopes the firm can “crack Germany with (hotel management agreements) and SCG, but it will take longer.”
He is confident. “It’s been an excessively interesting three years. We’ve brought in new talent and grown the company significantly, getting it ready for institutional capital. Now it is about expansion. I see 50 or 60 hotels within five years,” he said.