Whetsell Forms CapStar Hotel Co.

Last month, MeriStar merged with Alcor, which is an affiliate of the New York City-based Blackstone Group. The value of the merger was approximately $2.6 billion.

CapStar Hotel also has agreed to form an investment partnership with an affiliate of Lehman Brothers Real Estate Partners II LP for acquisition purposes. The investment partnership initially will target acquisitions in major markets on the East and West Coasts, as well as in select cities in the Midwest.

"Our preferred hotel size will be 125 to 300 rooms with limited food and beverage operations and meeting facilities," Whetsell says. "We will focus on the premium, select-service brands from the top-tier franchise companies, such as Marriott, Hilton, Starwood, InterContinental and Hyatt."

Eventually, Capstar's portfolio is expected to comprise approximately 65% acquired hotels and 35% new development. "In the acquisition area, we will look for several types of properties," Whetsell says. "One type will be relatively new product, typically less than five years old and located in city center and major suburban locations. The second acquisition profile will be older hotels or non-hotel properties that can be completely retrofitted and repositioned essentially as a 'new hotel'."

The hotels acquired by CapStar will be operated by third-party management companies. "We will work closely with operating companies that own hotels or can bring us deals, as well as with the brokerage community," he adds.

Even though the acquisition market is very competitive, Whetsell says he thinks the industry is still in the early-to-middle stage of a growth cycle. "We see continued favorable supply/demand fundamentals and strong near-term RevPAR growth."