Blackstone Group (NYSE: BX) is one of the savviest investors around. The private-equity giant has a knack for taking advantage of investment opportunities that turn out to deliver big returns. The company recently demonstrated its expertise by agreeing to sell the Cosmopolitan on the Las Vegas Strip in a deal valued at $5.65 billion. That's a huge return, considering that it paid $1.7 billion for the property and spent $500 million on upgrades.
The investment firm recently secured what could be its next high-upside opportunity by agreeing to acquire Condor Hospitality Trust's (NYSE: CDOR) entire hotel portfolio. Here's a closer look at this deal and why Blackstone is making another move in the hospitality sector.
Swooping in on a unique opportunity
Blackstone Real Estate Partners has agreed to acquire the entire hotel portfolio of hospitality REIT Condor Hospitality Trust for $305 million in cash. The REIT currently owns 15 hotels with 1,908 rooms in eight states. The portfolio features upper-midscale and upscale, premium-branded select-service, extended-stay, and limited-service hotels.
This deal marks the end for Condor Hospitality. It had hired advisors in June to market its hotel portfolio as the REIT explored its strategic alternatives. Like many hospitality companies, it struggled during the pandemic as government-mandated shutdowns and travel restrictions weighed on hotel stays.
Interestingly, Blackstone isn't buying Condor; it's only purchasing the hotel portfolio on a debt-free basis. As a result, the REIT plans to liquidate following the sale of its hotel portfolio, distributing any remaining proceeds after paying its outstanding liabilities to shareholders. The REIT had $211.5 million of liabilities against $275.7 million of assets at the end of the second quarter, suggesting investors will receive some cash following the liquidation.
Another bet on the hospitality sector's rebound
Blackstone is buying this hotel portfolio on a bet that the travel industry will continue recovering. It noted that these hotels are a good complement to its existing select-service hotels.
Blackstone has been buying up hotels around the world over the past year to support its recovery thesis. It partnered with Starwood Capital to acquire Extended Stay America and its paired-share REIT ESH Hospitality for $6 billion. It also bought the U.K.'s Bourne Leisure for $3.9 billion and agreed to buy an eight-hotel portfolio in Japan's top tourist destinations earlier this year. Finally, it made a $6.5 billion offer to acquire Australian casino giant Crown Resorts.
These deals show that Blackstone firmly believes that travel will recover as the pandemic subsides. It's taking advantage of the current turmoil and uncertainty to scoop up as many hospitality properties as it can to capture this upside opportunity.
Blackstone isn't the only company betting on the hospitality sector's rebound. According to JLL, there was $30 billion of investment or acquisition activity in the hotel industry in the first half of 2021. That's 66% above last year's first-half total and just 4% below the same period of 2019. Meanwhile, JLL believes that deal activity will accelerate in the second half of the year and early 2022 as confidence in the recovery increases.
Gearing up for the recovery
Blackstone fully believes that travel will rebound in the future. That's leading it to gobble up as many hotels and other hospitality properties as it can get its hands on. If global travel does recover, this move could pay off big time for Blackstone's investors.