Starwood Seems Stuck in Adolescence

If it can't keep its president, how's it going to grow up?
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The market might not make much of



announcement Wednesday night that its president is resigning. But as one who's followed real estate for some time, it's a sign to me that many real estate companies are just not ready to grow up.

In infancy, these companies are often the craft of one person -- an entrepreneurial workaholic, risk-taker and opportunity spotter. The kind you read about in



But when these fellows do what they do well, their expanding empires require some real professional management. If you can't integrate the pros, you've got a problem.

Which is exactly what's happened, in my view, in Starwood's case.

Last night, Chairman

Barry Sternlicht

delivered the message: There will be only one star at Starwood. The lodging company's president,

Richard Nanula

, a longtime Sternlicht friend and former


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senior exec, is resigning. The move has investors asking: Can Sternlicht let anyone else run


real estate company?

"Obviously, we're not happy about it," says one large Starwood shareholder. "It suggests a return to the looser days," he says, referring to the rapid acquisition spree of 1996-97.

While Sternlicht has a knack for the art of the deal, running day-to-day operations and mustering the cost savings and synergies of integrating

ITT Sheraton



and other luxury properties are not his strong suits.

"Barry needs less to do, not more," says


John Rohs. "It is hard to imagine how he will be able to focus as intensely as he has to in order to complete the integration of -- and achieve the ultimate potential of -- Starwood."

Brad Cohen of

Sands Brothers

echoes the sentiment: "I'm not surprised at all. This has been Barry's company all along and it's proven hard for him to give up any control. Nanula's biggest challenge was to bring professionalism to a real estate company. Real estate companies don't spend a lot of money on professionalism."

Schroder and

Goldman Sachs

downgraded the stock today, but Starwood shares added 1 1/4, or 4%, to close at 33 1/4.

One analyst more upbeat on the news,


Jonathan Litt, focused on how Nanula's departure signals Starwood's plans to quickly sell its gaming properties, which Nanula oversaw. "We believe the sale of Starwood's gaming business is growing increasingly likely," wrote Litt in a research note this morning. (Neither Schroder nor Sands nor PaineWebber has done recent underwriting for Starwood.)

Sources -- one on the buy side and one on the sell side -- say the sale of the gaming properties, including


, will likely be at the high end of the projected range, close to or just over $3 billion. Interested buyers include

Park Place



Mirage Resorts



Sun International Hotels


, and

MGM Grand



"There was an initial deal to sell directly to Park Place," says one buy-side analyst, referring to the now-independent gaming operator that was once part of


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. "They are still a likely buyer, but MGM or Mirage may surprise folks with their level of interest."

"They are eager to get this deal done," says the buy-side analyst. "It won't drag on beyond the first part of May."

If the gaming assets are sold, Litt believes that Sternlicht would remain in the role of chairman and turn the role of day-to-day operations over to Juergen Bartels, currently head of the Starwood's lodging division. Bartels, who came to Starwood in the Westin merger, is highly regarded as a hotel operator.

"Bartels is one of the industry's best operators and he can greatly improve the internal growth of Starwood's portfolio," wrote Litt.

However, others are skeptical that Sternlicht can ever give up his tight reign on Starwood. "If he can't let his best friend do it, he's never going to give it up," speculated Cohen.

Some investors may not be willing hang around long enough to find out.

What do you think the Nanula resignation news signals about the future of real estate companies?

Good sign

Bad sign


Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, neither Edmonds nor his firm held any position in the stocks mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he welcomes your feedback at