Can an equity company become an oligopoly?
Equity group the Blackstone Group just announced their acquisition of motel chain La Quinta for $2.3 billion. The chain, which is especially big in the Western US, has 600 hotels under the La Quinta, Baymont, and Woodfield names.
What is especially notable about this deal is how it extends the hotel empire of the Blackstone Group. Starting in 2001, the company has been snapping up prime properties, concentrating on luxury, resort, and extended stay chains and hotels.
Here are some of its purchases:
- the Wyndham Group of luxury hotels (32), plus Summerfield Suites ($1.44 billion). It has since sold some management rights to Cendant
- the Righa hotel, a luxury hotel in NYC ($183 million)
- Boca Resorts, luxury hotel chain in Florida ($1 billion)
- Prime Hospitality, owner of AmeriSuites, Wellesley Inns & Suites, Prime Hotels, a firm that owns and franchises over 250 hotels ($56 million)
- Extended Stay America, which owns and franchises 475 hotels in the US ($1.99 billion)
- The Savoy Group, a London super-luxury hotel chain with four of the most famous hotels in the world: the Savoy, the Claridge, the Berkeley, and the Connaught
- Homestead Village ($600 million)
- A dozen individual Hyatts, Mariotts and Westins from London to Maui
The group has since sold off AmeriSuites chain to Hyatt (143 hotels) for an undisclosed price
What are the long term goals? Most equity firms don't make such a long-term commitment, and the Blackstone Group is acting more like a player (like Starwood or Cendant) than a trader. But indeed, a Wall Street Journal article ("Private-Equity Firm Sees Room for Value in Hotels", August 17, 2005) quotes Blackstone managing director John Kukral as declining "to predict what Blackstone will do with its wealth of hotels, but said the company isn't a long-term holder of real estate."
My assumption is this. Hotel occupancies are way up, especially in large cities and for higher-priced accommodations. Actual room rates have skyrocketed over the past few years as anyone who has tried to get a New York or San Francisco hotel room can attest. Whatever Blackstone's original plans, their return on investment has been extraordinary. It is likely that when the hotel business shows early signs of a decline, they will spin off the group as an IPO or sell it off piecemeal. As the hotel business concentrates more and more, Blackstone's properties get ever more valuable. Right now they are a safer investment for the real estate arm than office buildings, shopping centers, or apartment buildings.
9:02:57 PM 
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