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Starwood Emerges as Likeliest Buyer of Century Plaza Hotel

October 14, 1998|MELINDA FULMER | TIMES STAFF WRITER

Even though the value of Starwood Hotels & Resorts stock has plunged dramatically during the last year, the real estate investment trust has emerged as the front-runner to buy Century Plaza Hotel & Tower. The landmark 1,046-room Century City property was quietly put on the market more than a month ago.

New York-based Starwood has bid close to $250 million for the luxury hotel, sources say, which would make it the largest such sale in Southern California this year. Starwood already owns Century Plaza's management company, Westin Hotels & Resorts.

Starwood Chairman Barry Sternlicht revealed at a national real estate conference last week that his company intends to purchase the hotel from Los Angeles-based CPH Properties Inc., an affiliate of Nippon Life Insurance Co. Although industry observers say Host Marriott Corp. may also be interested, they know of no other suitors who are bidding on the hotel, in part because of the shortage of investment capital.

"There will not be a lot of competition for this. Everyone with the exception of [Host] Marriott is pretty low on fuel right now," said Donald W. Wise, a hotel broker with CB Richard Ellis Real Estate Services.

The high price that insiders expect the property to command reflects the continued strength of the hotel market in Southern California, particularly in the luxury sector.

Through August of this year, average occupancy for Los Angeles hotels that charge more than $150 per night has held steady from the same period last year at 77%, and average room rates have surged about 10% to $232 from an average $211 for the first eight months of last year. Likewise, room rates in convention hotels of 600 or more rooms also have increased 10%, according to data from PKF Consulting. Rooms at the Century Plaza are at the high end, averaging $350 to $400 a night.

The property, which was built beginning in 1966, was a favorite of former President Ronald Reagan, so much so that it earned the nickname "the western White House." Reagan also was the first guest to stay in its second phase, the tower, completed in 1985. It remains one of the region's lodges of choice for visiting heads of state.

Brokers say it is one of the most coveted hotels in Southern California, despite its dated exterior, because of its prime location--between Santa Monica and Beverly Hills--as well as its sheer size.

It is one of only three hotels in Los Angeles that have more than 1,000 guest rooms and one of only a few Southern California hotels with 100,000 square feet of meeting space. In recent years, the hotel's owners also have spent $25 million to upgrade guest rooms, public spaces and the main entrance facing Avenue of the Stars.

Analysts and representatives of brokerage Eastdil Realty, which is selling the property, say the Century Plaza should command a premium price because it would be virtually impossible for a builder to duplicate in the current market. Land in the area is prohibitively expensive and zoning regulations have grown more strict.

"People who are buying today are looking for one-of-a-kind properties, and that really fits the mold," says analyst Bruce Baltin of PKF. Sternlicht mentioned his firm's attempt to buy the property to illustrate how undervalued he believes hotel REIT stocks are now. The Starwood chairman says his company is willing to pay 10 times earnings for Century Plaza (a conservative trading multiple, experts say), yet Starwood is trading closer to five times earnings.

The company's stock was down 196% to close at $19.94 on Tuesday from its 52-week high of $59.04 last October.) Analysts expect Sternlicht to tap one of his firm's investment banking partners for the cash to complete the deal.

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Rate Hike

The Century Plaza is among Los Angeles' elite hotels that have successfully raised rates over the last year. Average rates for rooms over $150 a night:

Jan.-Aug. 1997: $211.42

Jan.-Aug. 1998: $231.61

* Source: PKF Consulting

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