Blackstone and Starwood’s $1.5 Billion Deal Throws Fuel on Extended Stay

When you hear the term “trophy asset” thrown around in most hotel real estate and investment circles, it usually conjures up images of something like the original Waldorf Astoria in Manhattan or the Raffles in Singapore.

But two of the biggest investor groups can’t turn away from the other end of the hotel spectrum — the very distant other end. 

Investment firm giants Blackstone and Starwood Capital are once again joining forces to take over a significant number of extended-stay hotels, budget-minded properties that appeal to a mix of road warrior travelers or people between permanent housing in need of a longer stay. 

The two firms plan to buy 111 WoodSpring Suites properties from Brookfield Asset Management for $1.5 billion, the Wall Street Journal first reported Friday. The deal comes less than a year after Blackstone and Starwood Capital teamed up to buy the Extended Stay America chain and its roughly 650 hotels for $6 billion.

This latest deal would not be for the Choice Hotels-owned WoodSpring Suites brand itself. It also isn’t for the brand’s entire real estate portfolio, a spokesperson on behalf of Choice Hotels told Skift.

But it does make the buyers a significant landlord for the company. There were nearly 300 hotels under the entire WoodSpring Suites portfolio, according to Choice’s most recent annual report to the U.S. Securities and Exchange Commission. 

Representatives with Blackstone and Starwood declined to comment.

Eyes on Extended-Stay Hotels: The renewed focus on extended-stay hotels is part of a broader interest from hotel investors that swelled during the pandemic. None of Extended Stay America’s hotels shut their doors, even temporarily like so many other properties, during even the worst months of the pandemic. 

But resilience extended beyond just the one brand. Starwood Property Trust, the real estate trust that Starwood Capital CEO Barry Sternlicht also oversees, reported its InTown Suites extended-stay brand had an 80 percent average occupancy rate during the first months of the pandemic.

“Twenty percent of our hotel exposure is in extended stay hotels, which have significantly outperformed other hotel segments and averaged over 80 percent occupancy during Covid,” Starwood Property Trust President Jeffrey DiModica said on an investor call in August of 2020.

Sonesta International Hotels Corp., which became one of the largest U.S. hotel companies last year following its RLH Corp. acquisition, had extended-stay brand overlap with its ES Suites brand and RLH’s GuestHouse, Americas Best Value Inn, and Knights Inn brands. But company leaders plan to hold onto each of these brands.

There is growing industry sentiment that extended-stay brands can appeal across a variety of price points and will continue to attract business travelers as well as people desiring more of a short-term residential use.

Companies like Hilton and Marriott recognize the reliable future of business travel has more to do with mom-and-pop enterprises that need their workers on the road — global health crisis or not — and don’t have the remote work luxury afforded workers of former revenue and occupancy drivers like consulting and financial firms. Extended Stay America even launched a higher-end brand post-acquisition last summer in pursuit of more business travelers.

“The [WoodSpring Suites portfolio acquisition] plays exactly into this narrative of white collar workers working from home and not having to go on the road if they don’t want to,” Jan Freitag, national director of lodging insights at CoStar, said. “But people work with their hands, installing things, building things — they are out there, and they’re normally frequenting these limited service-type properties where they don’t need a lot of meeting space.”

A Rising Phoenix in the Downtrodden U.S. Hotel Development Pipeline

The development pipeline for U.S. hotels is down from its all-time high seen in May of 2020 and even from a year ago, according to LodgingEconometrics. The total U.S. hotel construction pipeline ended 2021 at nearly 582,000 rooms underway across 4,814 properties — an 8 percent decline from the overall projects under construction at the end of 2020. It was a 10 percent drop from the prior year’s rooms count. 

But there is some good news in the dim report. 

The number of projects in the early planning stages of development was up 18% by projects and 11 percent by rooms from the end of 2020 — a signal construction financing is returning to the U.S. hotel sphere. 

Accor’s Bullish Year for North American Deals

Accor’s CEO and deputy CEO are quite frank when it comes to their presence in the U.S.: It could be a lot better and bigger if it weren’t for the cutthroat competition from brands like Marriott and Hilton. 

“The U.S. is overpopulated by competition, and this competition is, in fact, doing extremely well,” Jean-Jacques Morin, Accor’s deputy CEO, said in an interview with Skift last November.

This doesn’t mean Accor is ignoring North America, however. 

Last year was a record-breaking year for the Paris-based hotel company in North and Central America. The new deals include a mix of Accor brands as well as for its lifestyle brands that now exist under an Ennismore joint venture. 

Some of the upcoming hotels in the region include a string of Fairmont hotels — including one in Orlando opening in 2025, two Novotel projects in Mexico, additions to the MGallery Hotel Collection, and the ultra-luxury Sofitel Legend Casco Viejo in Panama as well as the Raffles Boston Back Bay Hotel & Residences, both of which are slated to open this year. 

The company’s Ennismore spin-off, of which Accor owns two-thirds alongside the namesake behind brands like The Hoxton, landed deals for several hotels going under the Morgans Original imprint, SLS brand, and the 21c Museum Hotels flag.