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Extended Stay Hotels Files for Bankruptcy Amid Recession

Locations in this article:  Las Vegas, NV New York City, NY

Extended Stay Hotel AmericaExtended Stay Hotels LLC filed for Chapter 11 bankruptcy protection today, surprising many industry experts and complicating the pending legal battle over its debt restructuring.

The 680-property chain is one of the largest commercial real estate companies ever to file for bankruptcy.

Its U.S. and Canadian holdings include brands such as Extended Stay Deluxe, Extended Stay America Efficiency Studios, Homestead Studio Suites, StudioPLUS Deluxe Studios, and Crossland Economy Studios, which mainly cater to business travelers and families who are relocating.

The bankruptcy filing, which was made in U.S. Bankruptcy Court for the Southern District of New York in Manhattan, listed $7.6 billion in debt for the company, and $7.1 billion in assets. Approximately 10,000 people work in the properties, which are scattered around 44 U.S. states and two Canadian provinces.

In April 2007, at the top of the market, The Lightstone Group borrowed $7.4 billion to buy the company from private equity firm The Blackstone Group. However, the company has had trouble repaying the debt since last summer’s market downturn, which decreased incoming revenue.

Hotel signThe over-leveraged company began negotiations to restructure $3.3 billion of its debt late last year, but negotiations broke down. Then in the last two weeks several of the company’s investors sued banks which provided the financing, accusing them of conspiring to take over the properties and “wipe them out.”

Today’s bankruptcy filing was reportedly unexpected because of the way the loan was structured. Analysts say it will possibly expose the other assets owned by Lightstone’s owner, David Lichtenstein, to creditors.

Despite the bankruptcy filing and legal turmoil, the company plans to continue to operate as normal. Operations will be funded from day-to-day cash flow rather than investor financing, Extended Stay’s management company said.

The chain has a different business model from traditional hotels, which typically rent rooms for two or three days at a time and offer an array of amenities and services. Guests in extended-stay hotels normally stay for an average of 18 to 20 days, and generally do not have room service or daily maid service.

The bankruptcy filing is another sign of the difficult economic environment facing the hotel and hospitality industries, which have seen record-low occupancy rates and record-high debt loads over the last year or so. Both leisure and business travelers are traveling less, and demanding lower room rates.

Two of the biggest hotel and lodging companies in the country, Marriott International and Host Hotels and Resorts, reported first quarter losses in the first quarter of 2009. The Fontainebleau Las Vegas filed for bankruptcy last week, shuttering a multi-billion-dollar project. Many others have recently filed for bankruptcy or have closed entirely.

By Karen Elowitt for PeterGreenberg.com.

Related links: Reuters, Wall Street Journal, Associated Press, Bloomberg

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