Blackstone and Starwood Capital Group are seeking to refinance a significant portfolio of budget hotels through a nearly $2 billion commercial mortgage-backed securities (CMBS) transaction. The joint venture, ESH Hospitality, is preparing a $1.94 billion CMBS offering that will be backed by debt on 220 Extended Stay America hotels located across 33 states, according to a loan analysis by KBRA.
The hotel portfolio includes 24,560 rooms and makes up a substantial part of Extended Stay America’s presence in the United States. JPMorgan Chase and Citi are set 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 notes are expected to close before the end of November.
The CMBS deal is underwritten at a loan-to-value ratio of 65.4 percent and an 8.27 percent capitalization rate. The Class A bonds carry a AAA rating. The two-year interest-only loan features three one-year extension options and is priced at about 250 basis points above the secured overnight financing rate with an anticipated floor of zero percent.
To manage potential interest rate fluctuations, Blackstone and Starwood are required to secure an interest rate cap that does not exceed seven percent.
About half of the total square footage in the hotel portfolio is concentrated in Florida, California, New Jersey, Maryland, and Massachusetts. The properties have an average age of 25 years with room counts ranging from 68 to 161 per location. Over the past year, occupancy rates averaged 77 percent with revenue per available room reported at $60.13—a performance figure affected by ongoing recovery from pandemic-related disruptions.
In 2021, Blackstone and Starwood acquired Extended Stay America for roughly $6 billion at $19.50 per share after previous investments in the brand by both firms.
The refinancing effort occurs amid ongoing uneven recovery within the hospitality sector; luxury hotels have seen strong demand driving record room rates while extended stay and budget operators have experienced slower rebounds as travelers remain cautious about spending.
“— Holden Walter-Warner”
