North America CMBS Issue: Blackstone and Starwood’s US$4.65bn securitisation

IFR Awards 2021
2 min read
Richard Leong

Towering finance

The US$4.65bn deal to fund Blackstone and Starwood’s US$6.2bn acquisition of the Extended Stay America apartment-hotel chain had few if any peers in the commercial mortgage-backed securities market in 2021.

The mega offer stood out in a record comeback year for private-label CMBS.

“Going into 2021, we knew lodging was going to be big. It was going to come back with vaccinations under way and cases coming down,” said Shaishav Agarwal, head of capital markets for commercial real estate at Deutsche Bank.

The two investment firms pulled off Extended Stay Trust 2021-ESH in June for the second-biggest single-asset, single-borrower CMBS ever.

Blackstone and Starwood’s US$1.64bn equity stake in the acquisition and Extended Stay’s limited hotel business appealed even to investors who had been reluctant to own debt secured by hotels. The lodging industry’s revenues plunged at the initial stage of the coronavirus pandemic and have struggled to recover.

“It’s rare we see multi-billion dollar deals in the SASB space, even rarer to see one in the hotel space, and rarer still to see one in the limited service hotel space which has performed much better than other hotel sectors coming out of Covid. This fact brought in a ton of investor interest,” said John Kerschner, head of US securitised products at Janus Henderson.

The jumbo US$1.758bn Triple A rated Class A note with an initial weighted-average life of 2.02 years fetched a spread of 108bp over one-month Libor.

JP Morgan, Citigroup and Deutsche Bank were the joint leads for the multi-part, floating-rate SASB deal.

An attractive feature for investors was that demand for Extended Stay’s longer-term accommodation has remained stable during the pandemic.

Revenue per available room on Extended Stay's 560 hotels in 40 US states was down 6.4% in the first quarter of 2021 from the final quarter of 2019 before the Covid-19 virus spread across the globe. This was much less severe than the 41.9% drop for the industry as a whole, Fitch said in a presale report.

Cashflows were also steadier because of the longer average stay of 30 nights versus the industry's average of only two nights, Moody's said.

The Extended Stay deal was followed by a handful of SASB backed by luxury hotels in the latter half of 2021 in step with a recovery in holiday travel and domestic flights.

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