Blackstone, Starwood Capital, join the purchase of $ 6 billion for extended stay of the hotel operator

Extended Stay is a mid-priced hotel chain that focuses on accommodation for guests interested in staying for weeks or more, offering kitchen facilities and more space than a typical hotel room. During the pandemic, its rooms and suites attracted essential workers, health professionals, and other people who needed to travel.

That business helped Extended Stay reach 74 percent employment last year, Blackstone said. The average occupancy rate of all U.S. hotels was 44 percent, according to hotel data tracking firm STR.

Now, as vaccinations develop, recruitment increases and more and more Americans are thinking of traveling again, Blackstone and Starwood believe another class of customers will fill the beds on the Extended Stay properties with the ‘economy that will recover. This group includes construction workers, contractors and professionals such as lawyers and consultants.

“Corporate America will be a major investor in capital expenditures and this business will benefit,” said Tyler Henritze, Blackstone’s head of acquisitions for the Americas.

The accommodation sector has been one of the hardest hit during the pandemic, which caused most tourism, conventions and business travel to dry up. Hotel occupancy in the United States, which was close to 65%, just before the pandemic reached 22% in mid-April, according to STR.

Although analysts say the hotel industry as a whole will not return to pre-pandemic revenue levels for another two to three years, the growing prospect of an economic recovery makes some investors think now is a good time to buy hotels for business travelers or luxury guests. .

“Resorts are back and a large portfolio of resorts would be of interest to us,” said Barry Sternlicht, CEO of Starwood Capital. He calls Extended Stay an “investment to make bread, that’s not glamorous.”

He said it is a segment of accommodation that can attract guests from different economic cycles, because there are always people who need an affordable place for an extended period without the commitment of a lease. He cited as examples of training program participants, people who are divorcing, and people who are moving, but their new homes are unprepared.

The agreement for extended stay, which will be owned by both companies alike, marks a truce after a period last year of protecting the company’s stakes. Starwood owns nearly 10% of the company’s shares, Sternlicht said, while Blackstone acquired a 4.9% stake before collecting in June.

Starwood also finished second when Blackstone led a group that bought the chain from a bankruptcy proceeding in 2010.

This time the two occasional rivals determined that it made more sense to form a team. “It simply came to our notice then [cash] to continue looking at other hospitality opportunities that could present themselves coming out of Covid, ”said Henritze, Mr. Blackstone.

The price of Extended Stay shares has more than doubled over the past year. Blackstone and Starwood’s bid represents a 23% premium over the weighted average of what Extended Stay shares were trading during the 30 days prior to the deal reached over the weekend. An agreement for extended stays, which is expected to close later this year, still requires shareholder approval.

With this purchase, the two companies would acquire the 567 properties owned by Extended Stay. The franchise company 82 more. About two-thirds of its hotels are in the top 25 subway areas in the United States, Blackstone said.

When the deal closes, it will mark the third time Blackstone has Extended Stay. He first bought the chain in 2004 and combined it with other hosting portfolios he had been buying.

Both companies have extensive experience in the hospitality industry. Sternlicht created the hotel operator Starwood Hotels & Resorts Worldwide Inc., which is now part of Marriott International. Inc.,

and other hotel brands. Blackstone’s largest real estate profit came from its 2007 acquisition of Hilton Worldwide Holdings Inc.,

which earned the company more than $ 14 billion in profits after making it public and charging its final stakes in 2018.

Blackstone reduced its hotel portfolio during the years leading up to the pandemic. Accommodation accounted for less than 10% of its portfolio at the beginning of last year, below 50% in 2010.

Henritze suggested that the new acquisition of Estada Estesa was just the beginning of his renewed interest in the accommodation industry. “There is a high degree of overall interest in investing in a broad travel and leisure recovery, which would include all hospitality segments,” he said.

Write to Peter Grant at [email protected] and Craig Karmin at [email protected]