They want a hotel. Or do they?

The pandemic is nothing new and fancy and we mustn’t think of it that way. That’s the message of the past year. It’s merely accelerating trends. After all, sooner or later you’d be wearing a mask all the time – they’re very warming in winter after all.

This week’s acquisition of Extended Stay America by Blackstone Group and Starwood Capital certainly falls into that category. The pair had, at the beginning of the pandemic, picked up stakes in the group, with Starwood Capital paid $136.8m for an 8.5% stake, with Blackstone acquiring 4.9%. 

For Blackstone it was even more of an acceleration, all the way around the track and back again, with the investor having bought Extended Stay America in 2004 for $2bn, before selling it in 2007 for $8bn. It then took the company out of bankruptcy in 2010 – with competition from Starwood Capital – paying $3.9bn. The group was floated in 2013.

Extended Stay America did not close any properties during the coronavirus outbreak, instead providing housing for groups including care and construction workers, so the appeal is not too hard to see. Brokers in both Europe and the US have reported clients calling them to ask if they can find them an asset which isn’t closed at the command of government and extended stay has fitted right into that slot.

But this deal was also an acceleration of investment into real estate which is sort of a bit like hotels but not really, which, for the purposes of chucking yet another term into the sector, we’ll be calling service-based real estate.

Driving the enthusiasm for service-based real estate was something prevalent before the pandemic: not enough yield to go around. Investors were deterred from markets such as Germany, where the pickings had been picked, and were looking at markets such as eastern Europe and sectors which may well have beds, but possibly stacked on top of each other or possibly didn’t involve a daily cleaning regime. 

The wall of money took a look at products on the periphery and liked what it saw. Indeed, as Hilltop’s Tom Oakden pointed out on a webinar only this week, the previous three-largest deals in the sector to Extended Stay America were all for outdoor-leisure-based products: Center Parcs, Roompot and, earlier this month, Sandaya. 

These products are increasingly impervious to seasonality, as Beach Retreat’s Ben Harper told the same event. After all, you can just as easily stick a CEO on a paddle board at a company retreat as you can a Millennial. And who’s to say they’re not one and the same. 

As we have seen with the 50+ bidders for the JJW portfolio, investors want hotels. They need hotels. They must have hotels. But they must also deploy the cash they have burning holes in their pockets before it falls out and rolls away. As we saw with the Generator refinancing, there is still an appetite for service-based real estate, even when it’s pile ‘em high, sell ‘em cheap.

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