What does the Purchase of Extended Stay Say About State of CRE Markets?

June 1, 2010

By Malay Bansal

What seems like the final chapter on Extended Stay for now is interesting to analyze. On Thursday, Centerbridge led consortium that includes Paulson & co and Blackstone Group won the auction for Extended Stay after 11 rounds of successively higher bids and a marathon bidding session lasting 19 hours, when the rival group including Starwood Capital and TPG decided against another higher bid. The final purchase price was $3.925 billion, which is good for holders of $4.1 billion CMBS bonds, who were looking at a much higher loss last year when Extended Stay’s advisors had pegged the value at somewhere between $2.8 to $3.6 billion. But, does the intensity of bidding indicate that market is reaching somewhat frothy levels? Probably not, especially if Blackstone is making a meaningful investment, as they know the assets and the company well, having owned it previously. They sold it at $8 billion to the Lightstone group in 2007, and are buying back in at $3.9 billion.

Also, since Extended Stay owns budget hotels and not trophy properties, the heavy bidding challenges the convenient notion of bifurcated markets with lot of demand for trophy type properties and lack of demand for others.

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