Lightstone Closes on $8B Acquisition of Extended Stay

June 12, 2007 By Gail Kalinoski, Contributing Editor

The Lightstone Group’s first foray into the hospitality sector is now official. The New York City-based company said today that one of its affiliates has closed on the $8 billion acquisition of Extended Stay Hotels from affiliates of the Blackstone Group.

In April, a company formed by Lightstone and Arbor Realty Trust Inc. agreed to buy the chain of 687 extended-stay properties and approximately 76,000 rooms located in the United States and Canada. The company currently operates under five brands: Extended Stay Deluxe, Extended Stay America, Homestead Studio Suites, StudioPlus and Crossland. As reported by CPN on April 18, Blackstone had paid $3 billion for the largest mid-priced chain of extended-stay hotels in 2004.

CPN reported June 7 that Arbor Realty was an equity investor in the deal. The REIT said last week it had limited its investment in the transaction to the preferred equity portion and to the portion of the assets owned through Extended Stay Hotels. A release today from Lightstone stated that affiliates of Blackstone have also agreed to be equity investors.

“The Extended Stay acquisition marks the entry by Lightstone into another sector, and we are excited about the opportunity to deliver value to our partners in this venture,” David Lichtenstein, Lightstone chairman & CEO, said in today’s release. “Jonathan Gray and Bill Stein of Blackstone were the consummate professionals and Blackstone’s continued investment in the Extended Stay substantiates the transaction value and signifies their confidence in our ability to execute our business strategies.”

Lichtenstein previously told CPN that acquiring the Extended Stay chain made sense for his company. Noting that Lightstone is a major owner of multi-family properties, he described the extended stay properties as a hybrid of apartments and hotels. Because most of the profits from Extended Stay’s hotels come from room rentals revenues, he said the business model is similar to apartments.

Lichtenstein was not available for comment today.

The Lightstone team was directed by Michael Schurer, CFO; Joshua Kornberg, director of acquisitions; and Joseph Teichman, general counsel.

Lead mortgage and mezzanine financing was provided by Rob Verrone and Peter Scola of Wachovia, N.A., and Randy Rieff of Bear, Stearns & Co. Tony Fineman of Wachovia was the deal manager. Merrill Lynch Mortgage Lending Inc. and Bank of America, N.A., also provided financing.

Citi, led by Paul Ingrassia, was Lightstone’s lead financial advisor. Herrick, Feinstein L.L.P., led by Sheldon Chanales, and Proskaur Rose L.L.P., led by Peter Fass, were legal advisors to Lightstone. Dechert L.L.P. was Arbor Realty’s legal advisor while Simpson Thacher & Bartlett L.L.P. provided legal services to Extended Stay Hotels and Blackstone. Bear, Stearns, Blackstone Corporate Advisory, Banc of America Securities and Merrill Lynch & Co. were financial advisors to Blackstone.

Lightstone, founded by Lichtenstein in 1988, is privately held. Through its operating entities--Prime Retail, Prime Group Realty Trust--Lightstone owns over 18,000 apartments and about 30 million square feet of office, industrial and retail properties in 27 states, the District of Columbia and Puerto Rico.

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