Starwood chief blasts political process

Hotel & Motel Management, March 1, 1999 by Jeff Higley

New York-The battle to change the tax structure of paired-share real-estate investment trusts did not cause the collapse of lodging industry stock prices. However, the changes never should have been added to the Internal Revenue Service Restructuring Bill, said Barry Sternlicht, chairman and c.e.o. of White Plains, N.Y.-based Starwood Hotels & Resorts Worldwide.

"Had we changed the company's name to Sheraton, where it was Sheraton against Hilton, I don't think anything would have happened in Washington," Sternlicht said. "But it was the fact that nobody had ever heard of Starwood, even though it was a $7 billion company before it touched ITT, and 35 years of Republican contributions by [Marriott International C.E.O.] Bill Marriott, and Washington does not play by the rules that you and I might know from the business world. It's favors, and political stuff, and people being married to other people's kids."

No chance

Sternlicht said paired-share REITs, and Starwood in particular, never got the chance to address their side of the issue like the opponents of the paired-share REIT structure were able to.

"The problem in Washington wasn't that we lost. The problem in Washington was that we never got a chance to tell our story," Sternlicht said. "It showed it was political because the Treasury Department said $100 million over five years was the revenue impact of letting paired-shares go on. I tried to say 'Let Marriott pair, let Hilton pair, we don't care. It's the right structure for the industry.' But nobody would listen, and nobody really cared. We were making progress, and so the bill was attached to the IRS Restructuring Bill, which no senator could in his right mind vote against.

"We were quashed politically," he said. "I was very disappointed in our political process. I could not believe that we could not get a hearing. I'm happy to lose. I just thought we should get a hearing to tell people what the truth is, and we never had a shot.

"The interesting thing is that it had nothing to do with the tax advantages," Sternlicht said. "Our win over Hilton [for ITT Corp.], if you will, was because our multiple was higher than theirs. It was more accretive. We didn't have to worry about depreciation because we were a REIT, we didn't have any gaming, our multiple was higher, and we won that deal."

The inability to convince politicians to see the paired-share REITs' side ultimately cost the government money, Sternlicht said.

"We couldn't rally senators around four companies. At the end of the day, in the collapse of the three largest paired-share REITs-Meditrust, ourselves and Patriot-the treasury lost billions of dollars in one year as opposed to the $100 million, or like a basis point of the federal budget deficit over five years, over the period of time," he said. "Our company alone, our market value dropped $6 billion, and capital gains dropped a billion or $2 billion. So query whether this was political or whether it was tax-revenue driven. It's a travesty, a total travesty."