Starwood Hotels

Starwood Hotels has been offered the opportunity by the US government to invest in building a 500-room hotel on an Army base. The candidate must assess whether this investment is financially and strategically attractive. This is an investment feasibility case that tests structured financial reasoning, market assessment, and the ability to evaluate an unusual opportunity against a client's core business model. The unconventional context (government-sponsored, on-base location) requires the candidate to identify both unique risks and unique advantages.

Starwood Hotels is one of the world's largest hotel companies, owning and operating hotels, resorts, spas, and residences across 11 brands. The US government has offered Starwood the exclusive right to invest in and operate a 500-room hotel on an Army base. Key characteristics of the opportunity: - Location: on-base, meaning access is restricted to military personnel, their families, defence contractors, and government employees. - Scale: 500 rooms is a significant asset requiring meaningful capex. - Sponsorship: the US government is facilitating the opportunity, potentially offering certain protections or guarantees. - The client must determine: is this a good investment, and if so, under what conditions?

Your client is Starwood Hotels. They have the opportunity to invest in building a 500-room hotel on an Army base, given to them by the US government. You have been hired to help them determine whether or not they should build the new hotel. What would you recommend?

Step 1 — Assess Financial Viability Estimate demand: base population × estimated % needing hotel accommodation × average nights = annual room-nights. Apply occupancy assumption and ADR to project revenue. Deduct operating costs to get EBITDA. Calculate IRR vs. total capex. Compare to Starwood's hurdle rate. Step 2 — Evaluate Risk Profile Key risk: contract security and what happens at renewal. Is there an exclusivity clause? Key mitigant: government-backed demand is more stable than commercial hotel demand. Ask whether the government provides any financial guarantee or co-investment. Step 3 — Strategic Assessment Is this a one-off or a platform? If there are 100+ US military bases, this could be a scalable new segment. Does this crowd out more attractive commercial investments given Starwood's capital constraints? Step 4 — Recommend Conditional yes, if: IRR exceeds hurdle rate, government provides minimum occupancy or revenue guarantee, and contract duration is sufficiently long (10+ years) to justify capex. Structure recommendation as: invest if conditions X, Y, Z are met; pass if they are not.