Sternlicht’s Starwood Capital Acquiring 10.7% Stake in ESR From Co-Founders

Two co-founders of Hong Kong-listed ESR have agreed to sell an equity stake in the industrial giant to Barry Sternlicht’s Starwood Capital for an undisclosed price.

The stake held by Redwood Investment, an offshore vehicle controlled by co-CEO Stuart Gibson and non-executive director Charles de Portes, represents 10.657 percent of the total issued share capital of ESR, the company said Wednesday in a stock filing. ESR shares jumped 12.5 percent on news of the deal.

Redwood Investment’s shareholding corresponds to a market value of roughly HK$4 billion ($510 million) at current trading prices, with the deal following US-based Starwood’s investments in logistics strategies targeting the Australia market, where ESR is a leading player.

“I have known Barry for nearly 20 years and I look forward to partnering with Starwood Capital as an investor,” Gibson said. “We believe Starwood Capital’s support will allow ESR to continue to focus on delivering for our customers, shareholders and capital partners.”

Budding Partnership

The deal will see Starwood acquire Redwood Investment’s entire stake in ESR and arrange for the full repayment of outstanding sums under an existing margin loan facility of the Cayman-domiciled vehicle, according to the filing. In turn, Redwood Investment gains the right to receive certain interests in a Starwood-affiliated entity.

For Starwood, a Miami Beach firm best known for its hotel investments, the pending stake in ESR signals a strengthening of the companies’ relationship after having recently partnered in Australia, Sternlicht said without elaborating on that tie-up.

“ESR is the leading real estate platform in Asia Pacific with important market positions in logistics and data centres,” he said. “I have known Stuart for many years and have always been impressed by the business he, Charles and co-CEO Jeffrey Shen have built.”

A Starwood last-mile logistics fund acquired a warehouse near Sydney for A$70.6 million ($46 million) last November after the vehicle launched in September with a A$76 million seed portfolio. In 2021, Starwood teamed with Sydney-based Arrow Capital Partners to invest in a A$760 million portfolio of office and industrial assets held by local player Altis Property Partners.

Founded in 1991 by Sternlicht and future Greystar boss Robert Faith, Starwood has $115 billion in assets under management and invests in global real estate through a series of co-mingled opportunity funds and the non-listed Starwood REIT.

Directors to Stay On

Upon conclusion of the Starwood deal, Gibson will stay on as co-CEO and executive director and Portes will remain on the board as a non-executive director, ESR said Wednesday in a release.

ESR’s statements made no mention of whether Redwood Investment’s margin loan facility had been provided by Starwood or whether the offshore vehicle had borrowed against its equity in ESR. An ESR representative hadn’t replied to an emailed request for clarification at the time of publication.

With ESR scheduled to report its 2023 earnings results on Thursday, the proposed transaction would typically be subject to a mandatory black-out period in which the dealing of securities is barred.

In this case, the dealing of shares by Gibson and Portes during the black-out period is taking place under “exceptional circumstances” for directors under HKEX listing rules, ESR co-founder and co-CEO Shen said in the filing.

News of Starwood’s investment comes less than two weeks after ESR said it would sell its ARA Private Funds business to Sumitomo Mitsui Finance and Leasing at an enterprise value of $270 million.