Lightstone learns from Extended Stay debacle, back to hotel investing

NEW YORK CITY Its 2007 deal for Extended Stay Hotels proved to be perhaps the lodging industry’s worst investment of the past cycle, but The Lightstone Group is not giving up on hotel investing.

Lightstone bought the 680-property Extended Stay portfolio for US$8 billion at the peak of the market in 2007, but last later, burdened by about US$4.1 billion in existing mortgage debt, Extended Stay went into bankruptcy. A group of investors led by Centerbridge Partners LP, Paulson & Co. and The Blackstone Group is acquiring Extended Stay for US$3.9 billion.

Despite being badly stung by the Extended Stay investment, Lightstone CEO David Lichtenstein says the experience was an educational one. “One of the lessons learned is the hotel business is by far the most volatile of any sector in real estate,” he tells Reuters. “You have to underwrite them with a margin of error that far exceeds any other asset class.”

Lightstone is getting back into the hotel investment game, albeit on a much smaller scale. Lightstone recently purchased a US$7.8 million note on a US$23 million loan on Fairfield Inn East Rutherford/Meadowlands, New Jersey; Lichtenstein expects to acquire the property through default.