Yesterday’s bankruptcy filing by Extended Stay Hotels came as no surprise to me and probably to a lot of other people in the industry. The company, which owns and operates nearly 700 extended-stay properties under several brand names, is leveraged to the hilt and, like many other hotel chains, has seen business slide so far that cash flow wasn’t able to cover debt payments.
The Lightstone Group, a company with zero experience in the hotel business, bought the company in early 2007 for $8 billion from Blackstone Group. According to the bankruptcy filing, the company has assets of $7.1 billion and $7.6 billion in debts. The company says it has no immediate plans to close any properties.
Two years ago, a few days after the sale I had a phone interview with Lightstone founder David Lichtenstein. We chatted as he was cruising down the New Jersey Turnpike, and one of the first things he said to me was, “Do you think it was a good idea for me to buy this company?” I nearly dropped the phone as I tried to figure out whether or not he was joking. (I don’t think he was, which is very scary.)
While a lot of industry analysts, me included, believe we’ll soon see a wave of bankruptcies, forced sales and takeovers, I think Extended Stay is something of an anomaly: a buyer who had no business in the hotel real estate industry, who paid too much, who relied too much on debt and who bought at the top of the market. Any other chain bankruptcies that may follow Extended Stay this year or next will probably be the result of market forces and ill timing, not the stupidity we saw in this example.
Extended Stay Bankruptcy: An Exercise In Stupidity
2 Responses to “Extended Stay Bankruptcy: An Exercise In Stupidity”
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Matt Bailey, managing director of the Grand Wailea Resort in Maui, comments:
During my tenure as COO of Fandango Resorts, I can’t tell you how many times I sat with prospective clients, often people of significant accomplishments and net worth, who were upside down in some hospitality project in which they had invested. Invariably the comment would come – “I figured ‘how hard could it be to run a hotel?’” One very nice gentleman who had been at the Executive Committee level at a Big Three automaker had resorted to folding towels and driving the shuttle van for his small hotel as those were the only things he was confident in doing. Despite turning the hotel around in eighteen months, he eventually lost the property to overwhelming debt levels.
While many of the tasks our teams perform on a daily basis are not complex, to orchestrate them into a flawless guest experience is complicated. Ours is a business where the laser focus should be on people and experiences, not on real estate values; the sooner the world realizes this again, the healthier our business will become.
Richard Millard, chairman and CEO of Tecton Hospitality, comments:
I just read your comments on the ESA bankruptcy, you are so right. I had the same conversation with the CEO of Lightstone, and I too couldn’t believe that he asked me. Very scary. The lesson to be learned is that the financial folks seem to denigrate those of us who have spent our entire lives, learning this business. Someone needs to understand that hotel “operators” are not dumb amateurs, but professionals who deserve respect and need to be heard. Thanks as always for your support and contributions to our industry.