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From Starwood Founder To Starwood Rival

Prepare for another ultra-luxury hotel chain. Eight months after leaving the company he founded — Starwood Hotels & Resorts —Barry Sternlicht is launching a rival venture that will compete against several luxury chains that he helped build.

The new hotel empire will model itself after Paris’ high-end Crillon Hotel, whose parent company, Societe du Louvre, Starwood Capital acquired earlier this month for $3.2 billion. He plans to launch Crillon-modeled hotels in London, Rome, New York and Barcelona, among other world cities.

Provided that operating fundamentals stay strong and new supply remains checked, the timing of this debut could be opportune. The boom appears to have room to grow: the number of new hotel rooms in the U.S. luxury segment increased by just 654, which amounted to roughly 0.8% of the 76,730 inventory, reports Portsmouth, N.H.-based Lodging Econometrics. Room growth registered slightly higher at 1% in 2004.

Sternlicht’s private real estate firm, Starwood Capital, operates independently of White Plains, N.Y.-based Starwood Hotels & Resorts (NYSE: HOT). Sternlicht founded Starwood Hotels 10 years ago, growing its market cap from $30 million to $13.74 billion over the ensuing decade.

Based on early descriptions of the Crillon chain, each property will target wealthy clientele in key world cities. Resort destinations in the Caribbean, Far East and Rocky Mountains are also being considered. Late last year, Starwood Capital bought the Mammoth Mountain ski resort in California and the firm says that it is already talking to several local partners in foreign cities about other projects.

Hotel analyst Will Marks of San Francsico, Calif.-based JMP Securities doesn’t see Sternlicht’s venture as posing a major threat to Starwood Hotels’ high-end business at St. Regis and the Luxury Collection. He does see global demand to launch new luxury hotels heating up as occupancy gains keep vacancy down and room rates up.

“It’s always very competitive in the hotel business,” says Marks. “And you also have so many brands looking to expand at once in this market.”

Still, the Crillon announcement could put Starwood Hotels on defensive mode for another reason: Sternlicht does not have a non-compete agreement with Starwood Hotels. Plus, he can begin poaching Starwood Hotel executives in May after the one-year anniversary of his departure has passed.

Sternlicht also has a proven track record. He is credited with growing the luxury St. Regis brand after Starwood Hotels bought one of the properties in 1998. He then grew that brand into a dozen different hotels over the next seven years, including the recently completed St. Regis San Francisco.

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