Downtown Redevelopments

 

 

Starwood Urban Investments

re-thinking urban revitalization

by Keith Alan Deutsch    

 

As the president of Starwood Urban Investments, Robert S. Wennett is responsible for the new company’s ambitious national development plan to identify unrecognized value in urban retail and mixed-use real estate, to acquire and consolidate those properties within targeted neighborhoods and communities, and then transform these acquisitions into exciting urban retail destinations.  Even with $1 billion to get things rolling from parent company Starwood Capital Group L.L.C. of Greenwich, Connecticut, this is a challenging agenda.

 

“Our investment strategy at Starwood, like the entertainment retail development strategies E.S.P. usually covers, are affected by a change in lifestyle decisions in the population, in the retail market,” Wennett answered without hesitation.  “People have much less time than they used to have. People are more active and health conscious.  They want to do things, participate in sports and leisure activities, make active use of their limited time.  We believe that because of these shifts in lifestyle there is a new focus on urban environments.  Baby boomers are aging.  They’ve lived and shopped in the suburban sprawl and they’re tired of it.  They don’t want to stay in their homes.  They want to get out and on the streets and experience the energy and the excitement of the city where the great local restaurants are, where the interesting shops line the walk, and where the cultural infrastructure has always existed – theaters and museums and history and great local architecture. People want to be close to downtown where all these experiences are available and have always been available historically.”

 

Does that mean that Starwood Urban is looking for public money from municipalities trying to attract major downtown redevelopments?

 

“Not at all.  We are well-funded and can pick our investments in neighborhoods that already have a lifeline and energy in place and happening.  We don’t need outside money.  We are not finance-driven.  We don’t need to make up a theme, to invent a destination concept. We are not project-driven.  We are concerned about major investments in communities that already have a strong sense of place.  We’re not about building more white-elephant projects, artificial environments that we hope will attract visitors and tourists.  A lot of that is going on and it may have its place.  Time will tell.  We are not the kind of developer you usually cover in your magazine.  Developers like to go where the money is.  Developers like to spend money.  They like to admire and show off what they’ve created.  A lot of that is going on today.”

 

Is that kind of entertainment retail development bad?  “It is not bad,” Wennett answered. “The industry is changing.  The focus on new forms of entertainment is possible because of all the new technology.  It is all very high-tech. But it could be faddish.  It might wear out. Concept destinations can become fatigued.  There is sure to be some fallout in the near future.  Not every new development will turn out to be another Disney World.”

 

“We think we have a special vision with its own model for entertainment retail real estate investment that differs from many of the developers you have covered in E.S.P. Magazine.  We do not think of ourselves as developers and we do not create projects.  Our goal is to create an urban renaissance within an existing urban fabric of established communities and neighborhoods.”

 

Could you give us an example?  “In the Washington, D.C. area, where we are headquartered, we have made a substantial investment in the city’s future.  We didn’t wait for the municipality to call us in, to offer us public money.  We decided we could help affect the destiny of the city, of the neighborhoods we targeted.  So we moved on our vision.”

 

Does that mean Starwood is not interested in public/private money arrangements with municipalities?  “Not at all.  We are doing those co-operative municipal deals.  We are open to any and all forms of finance structuring.  But we don’t have to wait on financing because Starwood Capital, primarily through the Starwood Opportunity Fund V, gives us the ability to move on our independent initiative.”

 

But without municipal partnership, isn’t Starwood taking on a larger risk?  “Five of us are partners and we make all the major decisions together, based on our special talents and long experience in the business,” Wennett says.  He feels that he and his associates are up to the challenge.  He says that Starwood Urban’s strength already lies waiting in the downtowns of the great American cities.  “Think of the great urban neighborhoods of the 1920s.  Think of Chicago,  Harlem in its renaissance.  Look at New Orleans, today.  With all our new technology, “imagineering,” and social planning, you can’t create a New Orleans.  It has too much cultural, architectural, and ethnic history to imagine.  There are limits to what can be developed as themed entertainment and retail destinations.  Our projects speak for themselves.  Our vision is based on a number of premises: people want to come back to the great downtowns.  There are neighborhoods and communities that are in place in the great cities that have tremendous hidden wealth in history, architecture, culture, food and restaurants.  Local traditions and resources and character are already in the place, waiting to be renewed.  We believe we can see this silver under the tarnish and we are investing in the silver of these urban retail living environments.”

 

 

 

Does that mean Starwood has rejected themed entertainment projects?  “Cities are calling us.  A lot of  people are tired of theme restaurants.  They want great neighborhood restaurants.  There is nothing faddish about our strategy.  We don’t reject themed entertainment retail projects.  We just don’t embrace them.  That is not what Starwood Urban is about.”

 

How is Starwood handling its mix of retail tenants in the Washington area?  “We scouted existing neighborhoods and decided to concentrate on the Woodley Park commercial district, Dupont Circle and the upscale Chevy Chase/Friendship Heights shopping districts.  With a tenant mix that includes Tiffany’s, Brooks Brothers, and local retailers, the growth potential of these acquisitions gives Starwood the opportunity to energize an already prosperous area, if we use our creative leasing and management strategies.”

 

Does Starwood hire outside help on the retail leasing?  “We control all aspects of our investments.  Claude Chandonnet, Starwood Urban’s managing director of leasing and management and one of our partners, handles the retailing and tenant mix.”

 

Does that mean no outside agencies are used? “No.  We seek out local companies to help in each market (in which) we make an investment.  For example, in D.C., Madison Realty Group is working with Chandonnet.  In Norwalk, Connecticut, we have Nancy Saunders of Saunders Real Estate helping out with the shops, restaurants offices, and residential condominiums.”

 

Tell us more about this SoNo project.  “It is not a project.  It is a great neighborhood.  We acquired 95,293 sq.ft. spread through 31 commercial condominium units in 16 buildings and five entire buildings.  It is an exciting location.  Norwalk’s $30-million Maritime Aquarium is undergoing a $9-million expansion. In the early 1980s, the area was considered a slum.  Now our condominium buildings, built in the 19th century, are on the National Register of Historic Places and the whole enclave has become quite stylish.  Nearby, a new museum for children is under construction.  We are upgrading the buildings and seeking local, regional, and national tenants.”

 

Wennett says that SoNo is a perfect example of an investment in an urban real estate market that is gathering momentum, based on the resources within the community.  “SoNo is a good model for our strategy.  We bring a vision to our acquisition that is synergistic with  all the various uses and social energy in the community. Everybody wins. The neighborhood benefits.  Our investors benefit.”

 

The final topic of our discussion with Wennett was Starwood’s announcement of an innovative University Streets Program in which urban universities would be the anchors for revitalized downtowns.  The core idea is that universities already draw students, faculty and guests to urban destinations ­ so why not use them as the center for redevelopment? 

 

What generated the idea for the University Streets Program?  “We had no models for the concept.  It grew out of our thinking about our primary urban investment goals.  All those children of baby boomers are going to university areas.  Street life is important to the college and university experience.  How to harness all that implicit energy in the universities?  Colleges are in a very competitive business.  Equal to, or just following academic consideration, are the environs that give these institutions a competitive edge to attract students.  We seem to have struck a chord because we have gotten a lot of press about the program, and hundreds of universities have contacted us to participate.”

 

Is there anything special about a university community that makes investing in retail entertainment redevelopment attractive?  “Absolutely.  Think about it.  It is a captive, 24-hour consumer base.  The students look for the things to do and to eat at all hours.”

 

Starwood Capital owns or controls the largest chain of luxury hotels in the world.  Will Starwood Urban only be putting Starwood Capital’s hotels in these communities?  “No.  But you are right. We do anticipate refurbishing or building new hotels on campus as part of the University Streets strategy.”

 

Wennett declined to offer specific ideas on the scale of anticipated development of retail, housing, hotels, or parking.  But he did offer that Starwood is open to joint venture arrangements.  “We are looking for an eclectic mix of national, regional, and local tenants including retail stores, restaurants, and lodging.  We’ll consider partners on a site-by-site basis,” he told us.  He also added that in each university market Starwood would be seeking local leasing and management companies to work with it.

 

What about municipal or university partnerships?  “We are not requiring any outside financing, but we will certainly consider whatever arrangments offer the best opportunity for growth in the area.”

 

What about TIFs?  “We are not specifically looking for them, but if available, we will take advantage of them.”

 

How much original construction will be undertaken?  “In all of our projects we’re much more heavily weighted toward retrofitting existing buildings because they are what attracted us to the area in the first place.  But we do anticipate hotel construction, where needed.”

 

What is the lead time anticipated before actual investment begins in University Streets?   “We don’t anticipating making further announcements on the program for another 6 to 12 months.”

 

What will be the breakdown between money spent in the university program and money spent in other urban investments?  “At the beginning, we expect 25 percent of our focus to be on the University Streets program.”

 

So where is the other 75 percent of the capital going to be invested?  Isn’t there an awful lot of that billion-dollar seed money waiting to go?  “Yes.  Investors want to place capital. But we have to weigh the likelihood of success against the desire to place the money.  After we target a community, we have to find willing sellers.  There are considerations in play that are not identical to the average public/private arrangement where a municipality calls in a developer to partner a downtown redevelopment.”

 

How much money does Starwood want to invest at one time?  “There is no limit, but we have a $5-million minimum.  A lot of initial targets are in the $10- to $50-million range.  A downtown neighborhood that offers an investment of $100 million is the best for us.”

 

Can you reveal a time frame for using your $1-billion seed fund?  Where are you looking to invest?  “A time range would be speculative at this stage.  We are looking for unique neighborhoods with a strong sense of character.  We prefer buildings that have a rich historical resonance, like those we acquired in SoNo.  We are looking in Boston, Chicago, Miami, San Francisco, Seattle, New York, and LA – not downtown LA, but in the western suburbs.” 

 

Can the core value of Starwood Urban’s downtown revitalization strategy be summed up for our readers?  “Let me try.   We expect overall revenues and retail performance to increase dramatically as we help renew whatever neighborhood we enter.  That satisfies our investors and our business goals.  We expect the community we become part of to benefit by our participation not only because of the retailing and entertainment opportunities we help provide ­ any good development will do that.  But we expect our participation to revitalize the community with the spirit and energy of its past.  Starwood Urban picks communities and neighborhoods to develop, not projects.”

 

For information contact Robert Wennett, president, Starwood Urban Investments, 1320 19th Street, NW, Suite 800, Washington, DC 20036; 202-478-4610;

e-mail: rwennett@starwoodurban.com.