Paulson Stays in Blackstone Hotel

Chidem Kurdas

After an initial public offering pop, hotel operator Extended Stay America settled down somewhat. But shares remain around 5.5% higher than at the November 13th IPO.

The two big owners, Stephen Schwarzman’s Blackstone Group and John Paulson’s various funds, have a tidy gain but they have not cashed out. They appear to be staying for a while.

Blackstone and Paulson were part of a group that bought Extended Stay out of bankruptcy in 2010 and put in real money to spiff up the hotels.

This is a private equity investment, very much the kind of thing Blackstone has been doing for decades. The intriguing aspect of the story is the role of Paulson—-the nimble trader who made a fortune by betting against subprime mortgages. He is not a private equity manager yet acted like one with Extended Stay America, which is one of his largest investments.

True, it is not quite as large as his now notorious position in the SPDR Gold Trust, but it is close. And as long as gold continues downward, Extended Stay is looming larger in the Paulson funds’ portfolio.

This venture harkens back to Paulson & Co.’s pre-crisis days when the firm was known for investing in distressed or bankrupt companies as part of its event-driven strategy. That was before the subprime fame and subsequent huge bet on gold. It could be seen as Paulson going back to his roots.

But Blackstone may be a factor in Paulson’s commitment to Extended Stay. Blackstone had a rocky but ultimately successful experience with Hilton hotels, an investment that looked bad during the crisis but has done well recently and filed for an IPO.

On the basis of that history, Blackstone knows what it is doing with hospitality businesses.

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