Blackstone, Starwood Bet On The Long-Term Stay Segment's Resilience

Investment giants Blackstone Group and Starwood Capital have each acquired equity stakes in Extended Stay America, which operates 632 long-term hospitality properties.

The deals come at a time when the U.S. hospitality industry as a whole has cratered, with occupancies at historic lows and many properties permanently closed.

For the week ending April 11, U.S. hotel occupancy was down nearly 70 percentage points from the same week in 2019, to 21%, and revenue per available room, or RevPAR, was down 83.6% to $15.61, according to STR data. As of April 16, about 848,000 hotel rooms were closed, or about 16% of the entire U.S. total of 5.4 million rooms. 

Yet less expensive hotels, which often include properties in the extended-stay segment, are doing somewhat better than the rest of the industry, the Wall Street Journal reports, noting that Extended Stay America has thus far closed none of its properties.

For the week ending April 11, economy hospitality properties experienced 33.6% occupancy, STR reported, with more expensive rooms in far less demand. Luxury and upscale hotels were less than 9% occupied as of April 11.

"For economy-type properties, there is this a strong base of demand that we continue to see, no matter what the economic conditions may be," STR Senior Vice President Jan Freitag said in a company webinar last week.

“As some Americans lose their homes because they can’t make mortgage payments, you may see the occupancy in the economy and extended-stay properties actually increase as people move into temporary shelter for awhile,” Freitag said.

“There is a significant residential guest component in economy extended stay hotels,” Mark Skinner, a partner at hotel consultancy Highland Group, told Skift. “The second reason is that the construction industry is a very large demand generator for those hotels.”

Extended-stay rooms are 39% occupied, STR reports, as healthcare workers, construction workers, airline crews and others take up the slack from a vastly reduced number of business travelers.

Even in the extended-stay segment, less expensive properties are doing better, STR reports. The lower-priced extended-stay rooms are 51.5% occupied, while upper-priced rooms are 26.5% occupied.

Both investors acquired their piece of Extended Stay at a discount to recent share values.

Blackstone acquired a 4.9% stake in Charlotte, North Carolina-based Extended Stay at about $6.50/share in mid-March, the WSJ reports. Starwood acquired 8.5% of Extended Stay for about $9/share. At the beginning of 2020, the company traded just shy of $20/share.