In 2009, when Blackstone relocated Hilton Worldwide’s headquarters from Beverly Hills to McLean, Virginia, on the outskirts of Washington, D.C., it was much more than a change of scenery and address.

Acquired by Blackstone for nearly $27 billion a couple of years earlier, Hilton had been languishing, falling behind better-positioned chains such as Marriott and InterContinental, and was in dire need of a dramatic change in management culture from a laid-back California style to a more professional and analytic approach.

The move was a cultural cold splash of water in the face.

By all accounts, Blackstone, the self-proclaimed world’s largest hotel operator, succeeded in restoring some luster to Hilton Worldwide, which owns 10 brands, including Hilton Hotels, Waldorf Astoria, Doubletree and Embassy Suites. Since 2007, when Blackstone bought Hilton and took the public company private, Blackstone has reduced Hilton’s debt, and added nearly 150,000 rooms and close to 1,000 properties to Hilton Worldwide’s global expanse.

$60 billion in real estate

Blackstone, a private equity firm that became a public company in 2007, currently has $60 billion in real estate assets under management, overwhelmingly in office buildings, hotels and shopping centers.

But, as its track record overseeing Hilton shows, Blackstone is not a passive investor at all when it comes to its lodging empire.

At Hilton, Blackstone went in and worked closely with hoteliers, getting the most out of their properties’ design elements and space utilization, revamping distribution channels, and helping to “recalibrate” Hilton HHonors, the chain’s loyalty program, says Steven Carvell, associate dean for academic affairs and a finance professor at Cornell University’s School of Hotel Administration.

“They are very detail-oriented, very data-oriented, focusing on performance metrics,” Carvell says of Blackstone.

Blackstone outlines its modus operandi for hotels and other real estate holdings as buying them (usually a distressed or debt-ridden company), fixing them, and then selling them. (About selling Hilton, more on that further below).

Loving economy hotels

Blackstone, which has about $10 billion available to invest in real estate (including hotels) says it generally produces returns of 2.1 times investors’ initial investments in real estate. From 2005 to 2007, Blackstone states, it sold companies it had acquired “slightly more than three years” later.

Despite its investments in mid-tier to luxury hotels such as Hilton Worldwide ($26.9 billion in 2007), Mint ($1.1 billion in 2011), The London NYC ($307 million in January 2005), and Boca Resorts ($1.4 billion in 2004), Blackstone’s lodging investments were built on acquisitions in the economy sector, and it’s still a focus.

In 1990, Blackstone and real estate division head Henry Silverman, acquired a majority stake in in Ramada and Howard Johnson hotels for $140 million. They picked up Days Inns of America in 1991 for $250 million, as well, after creating Hospitality Franchise Systems as a holding company for the brands.

In keeping with its preference for mid- to lower-tier brands, HFS picked up Super 8 Motels for $125 million in 1993.

HFS would later become the now-defunct Cendant Corp., with Silverman as its CEO as he became a poster-child for excessive CEO pay ($140 million in 2005) when measured against the company’s substandard performance in hotels and car rentals, travel technology, and real estate.

Blackstone sans Silverman has continued to feast on budget hotels, absorbing La Quinta ($3.9 billion in 2006) and Motel 6 and Studio 6 ($1.9 billion in 2012).

Investing where it finds the best margins

Despite the acquisition of Hilton and even more upscale brands, Blackstone has learned that it is difficult to make money with full-service hotels, and “maybe it’s better to move down the chain to pick up properties with better margins,” says Jack Corgel, a real estate professor at Cornell University’s School of Hotel Administration and a senior advisor at PKF Consulting.

In contrast to Blackstone’s mantra that it sells real estate holdings after a little more than three years on average, Corgell points out that Blackstone is known as an “asset accumulator” in hotels.

For example, Blackstone still owns La Quinta, acquired in 2006, although Blackstone sold La Quinta’s Baymont Inns & Suites brand to Cendant, part of which became Wyndham Worldwide, soon thereafter.

La Quinta currently counts 816 properties and 83,000 rooms in its portfolio, a giant leap from the 433 hotels and 49,000 rooms when Blackstone acquired it seven years ago.

And, of course, with the 2007 economic collapse intervening, Blackstone still holds title to Hilton Worldwide and its 10 brands.

An extended attachment to Extended Stay

Blackstone, of course, does sell off some of its investments, and it is opportunistic about it, with the Extended Stay saga being a case in point.

The private equity firm acquired Extended Stay for $2 billion in cash in 2004, and sold it to the Lightstone Group for $8 billion three years later just before the market collapsed, and after adding 255 properties to the Extended Stay portfolio along the way.

Not a bad return for Blackstone’s investors.

But then came the 2007 recession, which took down the hotel industry.

“Blackstone and two other institutional funds ended up controlling the portfolio again, buying it [Extended Stay] out of bankruptcy for $3.9 billion, less than half the former sales price,” according to a Costar Group article.

So Blackstone acquired Extended Stay in 2004, improved it, sold it at a big profit in 2007, and then helped reacquire with others in 2009 at a steep discount.

The Hilton watch

Hilton Worldwide is clearly Blackstone’s largest lodging investment and its crown jewel.  Analysts have been reading the tea leaves, searching for any indication that Blackstone might be ready to implement an exit strategy in 2013.

Then again, the Hilton watch has been on for a couple of years.

But, in 2013 the time seems ripe: The business travel market is recovering, hotel rates are climbing, and the climate for IPOs is getting, well, more hospitable.

Steve Carvell, the Cornell School of Hotel Administration associate dean, says Blackstone has a lot of options with Hilton, including entertaining a private offer, selling it in pieces, or conducting an IPO.

The Waldorf Astoria in Manhattan and the New York Hilton, which this week was rebranded as the New York Hilton Midtown, are worth a few billion dollars on their own, and can be sold piecemeal if Blackstone decides to go that route.

How a Hilton Worldwide transaction might unfold, and when, is up to Blackstone’s strategists and numbers-crunchers, of course. They may have a plan, but Blackstone is not tipping its hand.

Says Carvell: “They are waiting for the time that is right for them.”

Photo Credit: Waldorf Astoria in New York, one of the prime properties owned by Blackstone Group. Chris Breeze / Flickr