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Extended Stay Inc., Acquired for $8 billion in 2007, Was One of the Most
 Expensive Non-casino Hotel Acquisitions in History
By Michael L. Diamond, Asbury Park Press, N.J.McClatchy-Tribune Regional News

June16, 2009 ---Extended Stay Inc., the hotel chain owned by Lakewood-based The Lightstone Group, filed for bankruptcy protection Monday after it concluded it didn't have enough money to pay its lenders and stay afloat.

The filing could give breathing room both to The Lightstone Group and the company's owner, David Lichtenstein, who might have personally guaranteed many of the loans.

Extended Stay, based in Spartanburg, S.C., is the biggest owner of long-term hotels with 680 properties, including one in Middletown. It was bought by The Lightstone Group in 2007 for $8 billion -- $1 billion in cash and $7 billion in debt.

The company, however, has struggled during the recession. The company's revenue per available room for the first five months of the year was down 23.2 percent from the same time last year, bankruptcy documents said.

Extended Stay filed for Chapter 11 bankruptcy in U.S. Bankruptcy Court in New York. It reported $7.1 billion in assets and $7.6 billion in liabilities.

Chapter 11 means the company will continue to operate while it restructures. Extended Stay said its secured lenders have agreed to a plan to restructure its debt. And the company doesn't plan to close or sell any of its hotels, said Gary DeLapp, president and chief executive of HVM LLC, which manages Extended Stay.

Lichtenstein lives in New York, but he started his career in Lakewood, where he established the Lightstone Group's headquarters. When he announced a deal to buy Extended Stay from private-equity firm the Blackstone Group, he made a splash; it was one of the most expensive noncasino hotel acquisitions in history.

The company financed the deal with $4.1 billion in debt that was secured by the hotel properties and other real estate, and $3.3 billion in debt that was unsecured, according to a report by Fitch Ratings.

It planned to pay it off by attracting more customers to its concept. It rebranded its hotels, offered a fully equipped kitchen and laundry facilities and kept expenses lower than other hotels by eliminating room service and daily maid service, the filing said.

Analysts said the company has been hit hard by the economy. Occupancy rates for extended-stay hotels were 61.2 percent during the first four months of the year, down 10.2 percent from the same time last year, according to Smith Travel Research, a Hendersonville, Tenn.-based consulting company.

Adding to the problem: The extended-stay hotel industry has expanded recently, leaving the company with more competition. "The number of rooms that have been added has in many ways contributed to the (health of the) sector as a whole," said Jeff Higley, vice president for Smith Travel Research.

Lichtenstein didn't return an e-mail requesting comment. But the filing shows that he is bracing for legal fights, apparently over claims he made personal guarantees both to secured and unsecured lenders.

The filing asks the bankruptcy judge essentially to extend bankruptcy protection from Extended Stay to Lichtenstein himself, arguing he is vital to the company's restructuring and can't be distracted by personal litigation, said Donald Campbell, a bankruptcy attorney with Giordano, Halleran & Ciesla, a Middletown firm that isn't involved with the case.

Without that protection, the filing calls for Extended Stay to provide Lichtenstein up to $5 million to defend himself against litigation.

"It's not so much that (debtors) borrowed too much. It's that the market is correcting itself and the the valuation of assets is decreasing," Campbell said. "Banks loaned money based on overvaluation two years ago, and the market is correcting itself.

"If (lenders) try to force a liquidation, they're not going to be made whole," he said. "They're now adjusting their loans and hopefully trying to work with their borrowers."

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Copyright (c) 2009, Asbury Park Press, N.J.

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