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Blackstone and Starwood Capital keep returning to Extended Stay America, but their partnership acquisition here shows the two firms see many more deals ahead as reason to keep capital on hand.

Investment firms Blackstone Group and Starwood Capital announced Monday details of a joint, all-cash $6 billion takeover of Extended Stay America and its lodging trust subsidiary, ESH Hospitality.

The extended-stay hotel brand is one each of the companies invested in earlier in the pandemic and that Blackstone previously owned. The deal, expected to close in the second quarter, is easily the largest hotel acquisition to come from the pandemic so far.

“Travel and leisure is one of Blackstone’s highest conviction investment themes, and we have confidence in the extended stay model,” Tyler Henritze, Blackstone’s head of U.S. acquisitions, said in a statement. “We helped create this company nearly twenty years ago, and believe our expertise puts us in a unique position to add long-term value.”

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Extended Stay America, through its lodging trust, owns 564 hotels and franchises out an additional 86 properties.

Starwood already has a nearly 10 percent stake in Extended Stay America, which it acquired in March, while Blackstone took a nearly 5 percent share around the same time before selling its stake in June. Both companies liked the relative strong performance of the extended-stay hotel sector during the early days of the pandemic when many hotel operators suspended operations.

“Extended Stay has demonstrated resilience over the past year despite persistent challenges due to government lockdowns and travel restrictions,” Starwood Capital CEO Barry Sternlicht said in a statement.

The two investors previously made rival bids for Extended Stay America, then known as Extended Stay Inc., in 2010. Blackstone won that bidding war and exited the company in 2013 after taking Extended Stay America public.

Including a 2004 acquisition, the Starwood partnership will be the third time Blackstone has had some level of ownership of Extended Stay America.

The current joint acquisition strategy is about preserving capital for further hotel deals, Henritze told the Wall Street Journal.

Despite coronavirus upending the travel industry, the travel and leisure sectors remain one of Blackstone’s “highest conviction investment themes overall,” a company spokesperson later told Skift. The investment firm expects the extended-stay hotel sector to rebound quickly but is still looking at additional segments of the market.

“As an investor, I’m really kind of tickled to death … There’s going to be so much distress,” Sternlicht said last fall at the Saudi Arabian Ministry of Tourism’s Future Hospitality Summit of potential investment opportunities during the pandemic.

He indicated to the Journal Monday interest in large resort portfolios, but it should be noted Extended Stay America is not an example of a distressed company.

Extended Stay America did not close any of its hotels due to the pandemic downturn in operations. The overall economy extended-stay sector was the best-performing in the first month of the pandemic. This is largely because hotels in this space are typically used by essential workers as well as those making longer-term residential uses from rooms.

The company ended 2020 with a 74 percent average occupancy, well above the 44 percent U.S. national average.

[UPDATE]: This story has been updated since publication to reflect additional comments from Blackstone and Starwood Capital on the pending deal.

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Tags: Blackstone Group, extended stay, starwood capital

Photo credit: Blackstone and Starwood Capital are once again making a play for Extended Stay America — this time as partners. Mike Mozart / Flickr

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