Blackstone’s Homestead Village Purchase Proves Big Deals Can Still Get Done

CHICAGO— Blackstone Real Estate Advisors has shelled out some $740 million in cash and other considerations to purchase the 111-property Homestead Village portfolio from Security Capital Group here. In addition to the sheer size of the transaction, a number of industry observers seem to be impressed with the timing of the deal as well, noting that the Blackstone purchase demonstrates that— even in today’s economically trying times— it’s still possible to pull together a major transaction involving a large equity player putting up a significant sum of money (while similarly bringing third-party financing into play). As orchestrated, the deal has Security Capital reaping a host of considerations… not the least of which being $480 million in cash. Additionally, Blackstone assumes $145 million in Homestead Village liabilities, and also issues to Security Capital a five-year, $115-million note carrying an initial coupon of 12% that is slated to increase by 100 basis points annually. Net cash proceeds from the transaction— excluding the five-year note and after factoring in transaction costs— are expected to result in a gain to Security Capital of approximately $462 million. In terms of appreciating the overall sense and scope of the transaction, industry observers such as Jones Lang LaSalle Hotels’ Managing Director/CEO Arthur Adler maintain it’s logical that Blackstone— widely recognized as a particularly opportunistic cross-segment (as well as cross-border) buyer— would be interested in the chance to pick up this group of (primarily) roadside, extended-stay hotels and their collectively strong operating margin… especially at a time when it could reasonably expect to pay what would essentially be a rock-bottom price. On the other hand, it would seem one shouldn’t be quick to shed too many tears for Security Capital and the possibility the company didn’t recoup top dollar for its holding. According to a spokesman for the Chicago-based, multi-location investment entity, the company “essentially broke even” on the deal.