Blackstone and Starwood Capital Group are planning to refinance a large portfolio of budget hotels through the commercial mortgage-backed securities (CMBS) market. Their joint venture, ESH Hospitality, is preparing a $1.94 billion CMBS offering backed by debt on 220 Extended Stay America hotels located in 33 states. This portfolio includes 24,560 rooms and represents a significant portion of the brand’s presence in the United States.
According to a KBRA loan analysis reported by Bisnow, JPMorgan Chase and Citi are expected to originate half of the debt, while Goldman Sachs, Wells Fargo, Bank of America, and an affiliate of Deutsche Bank will handle the remainder. The transaction is anticipated to close before the end of November.
The securitization has been underwritten at a 65.4 percent loan-to-value ratio with an 8.27 percent capitalization rate. The Class A bonds have received an AAA rating. The loan has a two-year interest-only term with three one-year extension options and is priced at approximately 250 basis points above the secured overnight financing rate, with an expected floor rate of zero percent.
To manage potential interest rate fluctuations, Blackstone and Starwood are required to secure an interest rate cap not exceeding seven percent.
The properties in this portfolio have an average age of 25 years and range from 68 to 161 rooms per hotel. About half of the total square footage is located in Florida, California, New Jersey, Maryland, and Massachusetts. Over the past year, occupancy averaged 77 percent with revenue per available room at $60.13. Performance has varied in recent years due to disruptions caused by the pandemic.
Blackstone and Starwood acquired Extended Stay America for roughly $6 billion in 2021 at $19.50 per share after previously investing in the company.
This refinancing effort occurs as luxury hotels report record-high room rates driven by strong demand for high-end leisure travel; however, extended stay, midscale, and economy segments have experienced slower recoveries as travelers remain cautious about spending.
“— Holden Walter-Warner”
