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Blackstone Group Inc. and Starwood Capital Group have agreed to acquire hotel owner and operator Extended Stay America Inc. for $6 billion, a bet that a rare bright spot for the lodging industry during Covid-19 can shine brighter as the U.S. emerges from the pandemic.
The companies said details of the deal, which real-estate executives say is the largest sale in the hotel sector during the Covid-19 period, will be released Monday.
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Extended Stay is a midprice hotel chain that focuses on lodging for guests interested in staying for weeks or longer, offering kitchen facilities and more space than a typical hotel room. During the pandemic, its rooms and suites attracted essential workers, healthcare professionals and others who needed to travel.
EXTENDED STAY AMERICA
That business helped Extended Stay achieve a 74% occupancy rate last year, Blackstone said. The average occupancy rate across all U.S. hotels was 44%, according to hotel data-tracking firm STR.
Now, as vaccinations roll out, hiring increases and more Americans think about traveling again, Blackstone and Starwood believe a different breed of customer will fill beds in Extended Stay’s properties with the economy bouncing back. This group includes construction workers, contractors and professionals such as lawyers and consultants.
“Corporate America is going to be a heavy investor in capital spending and this business is going to benefit from that,” said Tyler Henritze, Blackstone’s head of acquisitions for the Americas.
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The lodging sector has been one of the hardest hit during the pandemic, which caused most tourism, conventions, and business travel to dry up. U.S. hotel occupancy, which was close to 65% just before the pandemic cratered to 22% in mid-April, according to STR.
While analysts say the hotel industry overall won’t return to pre-pandemic revenue levels for another two to three years, the growing prospect of an economic recovery has some investors thinking now is a good time to buy hotels catering to business travelers or luxury guests.