Deutsche Bank-led group launches $1.2bn extended stay CMBS

The lender group originated the loan on behalf a partnership between Blackstone and Starwood Capital.

Deutsche Bank, Barclays, Morgan Stanley and Wells Fargo have launched a $1.2 billion commercial mortgage-backed securities single-borrower deal backed by InTown Suites, an extended stay hotel brand owned by Starwood Capital and The Blackstone Group. 

InTown Stay 2022-A will finance the acquisition of 188 In Town Suites and eight Uptown Suites hotels by affiliates of Starwood Capital Group, the original owner of the properties, and Blackstone Real Estate Income Trust. The two will then operate the properties in a joint venture. 

The deal further cements extended stay properties as a hospitality stand out of the post-pandemic era. The extended stay sub-sector’s relative strength is a key reason why Fitch Ratings has a positive outlook on the issuance, according to Adam Ott, Senior Director at Fitch. About 40 percent of the deal garnered a AAA rating, according to a Fitch pre-sale. 

“I think the extended stay sector is obviously the high-performing segment of hospitality during the last couple of years,” said Ott. 

Extended stay has had numerous advantages over its more typical, short-term counterparts. 

“With the long average length of stay, InTown Suites is able to adopt an operating model that drives higher operating margins,” the pre-sale report stated. This includes reduced front desk operating hours, lower frequency of services, less reliance on third-party booking agencies and fewer room turnovers compared to traditional hotels. 

As housing gets harder to come by in the US, more individuals are looking to-long term, low-maintenance hotel stays as an alternative to finding a more permanent place to live. 

“[This] can be temporary housing between moves or a cheaper alternative to signing a 12-month lease in which there needs to be a security deposit and down payments,” said Eric Rothfeld, managing director at Fitch. 

The growing appeal of living in these hotels has pushed up the average number of stays. For this portfolio, the average stay is nearly four months. 

“We’ve seen the average length of stay increase since the height of the pandemic. In some cases [extended stay] has served as an alternative for traditional housing for families that were priced out of the traditional multifamily rental market,” Rothfeld said. 

InTown Suites’ resiliency bodes well for Series 2022-A, according to the Fitch report. 

“Although the covid-19 pandemic adversely affected the subject portfolio’s performance in 2020 as the entire lodging industry suffered, the portfolio significantly outperformed the overall hotel sector,” the report also stated.