Yotel Is Getting $250 Million From Starwood Capital to Fuel Expansion

Yotel, the hotel company known for its small rooms and high-tech guest experience, is getting a boost from Barry Sternlicht’s Starwood Capital Group to the tune of $250 million.

Starwood Capital, the private investment firm, is investing $250 million in Yotel and acquiring a 30 percent stake in the company in the process to help Yotel grow and expand internationally.

Currently, Yotel operates four airport hotels under its YotelAir brand in Europe, and two city hotels in New York and Boston. It has several hotels under development in Asia, Europe, the Middle East, and the U.S., and Starwood is assisting Yotel in opening hotels in Edinburgh, Glasgow, and Amsterdam.

“This strategic partnership and investment highlights Starwood’s longstanding passion and commitment to invest in innovative hospitality platforms,” Starwood Capital Group CEO and chairman Barry Sternlicht said in a statement. “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. Yotel has global appeal and can be easily scaled up with key strategic acquisitions and developments in desired city center and airport locations.”

Hubert Viriot, Yotel CEO told Skift: “What attracted Starwood Capital to our business is our concept and our proposed strategy to execute it. You’re not going to see any changes or major changes in leadership or the team. What you’ll see, on the other hand, is our company, if it is not [already] growing fast enough, will be growing even further. Hopefully we’ll be able to expand our portfolio even more rapidly than we had anticipated. We also get access to people and their expertise in growing a hotel management company.”

As part of the strategic partnership, Starwood Capital managing director and head of European hotels Cody Bradshaw and senior vice president Sarah Broughton will join Yotel’s board of directors.

“We are delighted to announce a new institutional investor into Yotel alongside our existing shareholders,” said Talal Al Bahar, Yotel chairman and lead investor. “Starwood Capital Group’s investment validates the company’s strategy, provides strength and stability at a critical expansion stage and opens up new horizons for Yotel to become the leading affordable luxury hotel brand.”

Why Starwood Is Interested in Yotel

Starwood Capital Group, which has raised more than $42 billion of equity capital since it was established in 1991 and currently manages $54 billion in assets, is on a mission to diversify its portfolio of hospitality brands — and investing in Yotel is a good fit.

In July 2016, prior to Starwood’s investment in Yotel, CEO Viriot told Skift that the reason behind the sudden expansion of the Yotel brand is the extended rise of Airbnb and more favorable market conditions over the last few years.

Yotel, which turns 10 this year, is among a group of hotel brands capitalizing on the pod-like hotel trend, too, which is increasingly becoming popular in urban destinations because of space and real estate constraints, as well as consumer demand for more affordable room rates. Brands currently operating in this space include Pod Hotels, Marriott’s Moxy Hotels, and Ian Schrager’s Public Hotels.

Starwood’s primary hotel brands include the eco-luxury brand 1 Hotels as well as luxury Baccarat Hotels & Resorts, and the company has been on an investment spree as of late.

While both brands are known for luxury guest experiences, it’s clear that Starwood doesn’t want to limit itself to luxury alone. Earlier this year, Starwood Capital Group debuted Uptown Suites, an economy-priced extended stay hotel brand.

Viriot said that while Yotel is not in the luxury segment, there are some similarities between the Yotel brand and the brands Sternlicht and Starwood have developed over the years. Sternlicht founded Starwood Hotels & Resorts and was its CEO from 1995 until 2005.

“If you look at their current key brands and the key brands created under Barry’s leadership at Starwood, they were disruptive and innovative brands like W and the 1 Hotels,” Viriot said. “They were developed to fill a niche in a segment and look at things differently with an innovative angle, to set the trend rather than follow it.”

He continued: “In our own way, we are disruptive as well, and innovative, which is something very attractive to Starwood Capital. Another thing they appreciated with our recent successes in growing the brand in various parts of the world is that it can be grown and expanded rapidly and globally, which not many brands can claim.”

Earlier this month, Starwood helped launch De Vere, a collection of country estate hotels and modern event spaces as part of Starwood’s Principal Hotel Company, following an investment of more than £100 million, or approximately $135 million.

Starwood isn’t alone in its pursuit of adding more value-driven and upscale or midscale brands to its hotel portfolio. This year has seen a surge of interest in midscale brands from major hotel companies including InterContinental Hotels Group’s new Avid Hotels brand, Wyndham’s acquisition of the AmericInn brand, and even Trump Hotels’ new American Idea brand.

As for the increased competition of other brands entering the space occupied by Yotel, Viriot welcomed their entry. “It’s good news for us. Clearly, and firstly, taking a step backward— there’s a market now,” he said. “When Yotel was founded there wasn’t, and now it’s easier for us to grow in the market. There are competitors out there and there will be more and more out there over the next few years. To compete globally with this ever-growing number of brands coming up is why having a large partner like Starwood Capital is so important for us. Size will matter as the segment matures.”