No Room At The Inn

Chalk up another major commercial real estate bankruptcy, this time it's hotel chain Extended Stay Hotels.

Extended Stay Hotels, saddled with a huge debt burden from its $8 billion top-of-the-market buyout, filed for Chapter 11 protection Monday, in one of the largest bankruptcy filings by a commercial real-estate company.

The filing, made in U.S. Bankruptcy Court for the Southern District of New York in Manhattan, came as a legal battle accelerated among the creditors who hold debt from the buyout by Lightstone Group LLC. Those lenders include Bank of America and its Merrill Lynch unit and Wells Fargo & Co.'s Wachovia. Since late last year, creditors have been negotiating with Lightstone over a possible restructuring of the debt.

U.S. taxpayers also have had an interest in the 680-property chain because another lender in the buyout was Bear Stearns Cos., whose stake was taken over by the Federal Reserve after Bear collapsed in March 2008. BlackRock Inc. has been representing the Fed in the restructuring talks, according to people with knowledge of the negotiations.

The voluntary bankruptcy petition came as a surprise because up until now, industry experts have said the way the loan is structured would have made a bankruptcy filing unlikely. For one thing, they have said, a filing would expose the other assets owned by Lightstone's owner, David Lichtenstein, to Extended Stay's creditors. Mr. Lichtenstein wasn't immediately available for comment.

In its court papers filed Monday, Extended Stay listed $7.1 billion in assets and $7.6 billion in debts at the end of last year. The company has about 10,000 employees.

There's one of these where I live near Cincy, just off I-71/75. It'll be interesting to see what happens to it, as there's at least two other extended stay hotel chains on the same exit.