The Housing Chronicles Blog: Economic downturn now hitting hotel properties

Monday, December 8, 2008

Economic downturn now hitting hotel properties

With 363 locations, you've probably seen the signs for "Extended Stay" hotels along various freeways. But with the chain highly leveraged (no surprise there) and the economic downturn impacting hotel properties (especially over the last two months), management is now talking about simply handing the keys back to the lenders. "Hotel jingle mail," anyone? From a Wall Street Journal story:

Extended Stay Hotels Inc. is in early talks that could result in turning the hotel chain over to its lenders, a sign of the deep trouble awaiting the commercial real-estate business.

Extended Stay's difficulties signal a new phase of distress in commercial real estate, because they arise directly from the weakening economy. Until now, problems have mostly involved developers unable to obtain refinancing for otherwise healthy operations...

As conditions deteriorate, Extended Stay has been forced into discussions with its lenders, and people involved in the talks say a transfer of ownership could come within a month or two. Extended Stay has recently hired Lazard Ltd. as financial adviser and New York law firm Weil Gotshal & Manges as bankruptcy counsel.

One wrinkle in negotiations is that Extended Stay isn't likely to file for bankruptcy protection, because of provisions common in commercial mortgage-backed securities deals that would expose more properties of its founder, David Lichtenstein. A more likely path is for Mr. Lichtenstein to turn Extended Stay directly over to lenders or to swap enough equity for debt to give bondholders control of the company.

Click here for full story.

1 comment:

Anonymous said...

The hotel sector, office sector and multifamily segment have also been hit hard. Retail and hotel properties are most susceptible to the economic downturn.