Blackstone, Centerbridge and Paulson scoop Extended Stay

The Blackstone Group, Centerbridge Partners and Paulson and Co. have won the auction for bankrupt hotel chain Extended Stay with a $3.92 billion offer. The trio of investors beat rival Starwood Capital Group and TPG Capital.

The bid remains subject to approval by a bankruptcy court judge.

Blackstone, who teamed up with alternative investment firms Centerbridge and Paulson Co. in April, will invest in the deal through its $10.9 billion real estate fund, Blackstone Real Estate Partners VI, according to a statement from New York-based law firm Weil Gotshal & Manges, which advised Extended Stay and hosted the bankruptcy auction at its Manhattan offices yesterday.

Starwood and TPG had submitted the best offer for Extended Stay on 17 May, the last day of bidding before the auction this week. However, the two firms failed to beat a rival group led by Centerbridge late Thursday night. The bidding for Extended Stay has gone on for months, with Starwood the favourite to clinch Extended Stay going into the auction.

The deal marks a return to the Extended Stay portfolio for Blackstone, which it sold to private equity real estate firm The Lightstone Group for $8 billion in 2007. The 680-property hotel chain filed for bankruptcy in June 2009 with $7.1 billion in assets and $7.6 billion in debt.

Blackstone said in April it was primarily targeting over-leveraged, distressed situations, particularly debt-related deals, having invested $1.1 billion of equity in real estate deals in the first quarter of 2010 alone. Blackstone restructured one of its own real estate deals in April, reducing the Hilton hotel chain’s debt by $4 billion and pushing debt maturities by two years to the end of 2015.

The New York private equity real estate firm has also been linked with the recapitalisation plans for bankrupt retail REIT General Growth Properties, first siding with rival REIT Simon Property Group, and now possibly as an investor alongside Brookfield Asset Management.