Two large hotel portfolio purchases totaling $3 billion wrapped up in the past week, both involving affiliates of private equity giant Blackstone Group — one as a seller, the other as a buyer. And while both deals closed out agreements reached in 2021, the market climate that helped generate the transactions is still in place and could spawn similar deals if macroeconomic factors of inflation and Russia’s invasion of Ukraine don’t diminish investor confidence, real estate executives told CoStar News.

Affiliates of Highgate Hotels and Cerberus Capital Management completed their $1.5 billion acquisition of CorePoint Lodging, of which Blackstone affiliates held about a third of outstanding stock and approved of the deal.

Separately, Brookfield Property Partners reported closing the sale of its investment in an extended-stay hospitality portfolio for $1.5 billion. A joint venture of Blackstone and Starwood Capital is the buyer.

While U.S. hotel industry performance has been slowly but steadily recovering from the COVID-19 pandemic, the deals show the recovery of the hotel sector is on a much faster track.

“I think when you look at the volume of transactions, last year was obviously strong. It was up almost 400% over 2020, but up over a low number,” Kevin Davis, Americas CEO at JLL Hotels & Hospitality Group, told CoStar News in an interview.

What is more impressive, Davis added, is the number of deals that were flying around and are still being worked or considered. Driving the behind-the-scenes interest is the amount of capital available to invest.

There was a substantial amount of dry powder going into the COVID-19 pandemic and substantial amounts more raised in the early months as investors teed up for potential distressed buying opportunities, he said.

“So, the net is that you have a tremendous amount of capital ready to be deployed in the hospitality space,” Davis said. “You couple that with the specter of inflation, now at a 40-year high, which coupled with the fact that hotels can reset rates every night, that serves as a tremendous inflation hedge. I think that makes the sector much more attractive relative to some of the other commercial real estate asset classes.”

However, Davis said, investors are on high alert for potential macro issues surrounding the Federal Reserve’s response to rising inflation and whether the war in Ukraine escalates.

“The markets should hold up, as long as we don’t have exogenous events like a full-scale war to undermine market confidence, and as long as the Fed is deliberate and responsible in terms of raising rates,” Davis said.

The completion of the CorePoint deal is a continuation of record mergers and acquisitions activity among real estate investment trusts last year, according to Calvin Schnure, senior vice president of research and economic analysis at the REIT industry trade group Nareit.

“There has been a flurry of mergers, including deals going private, and I expect these may continue,” Schnure told CoStar News in an email. “There is a lot of money in the space these days. In terms of acquisitions (property-level purchases), 2021 acquisitions of $67.8 billion was the highest on record. With rising share prices giving REITs an attractive cost of capital, many are expanding their footprint. That appears likely to continue this year.”

CorePoint holdings consist mainly of midscale and upper-midscale select-service hotels consisting primarily of La Quinta-branded properties. As of Sept. 30, the REIT owned interests in about 160 hotels with roughly 22,000 rooms. The hotels are located primarily in or near employment centers, airports and major travel thoroughfares.

As of the end of September, the properties had not fully recovered from the effects of efforts to shut down the spread of COVID-19, according to recent loan surveillance by Kroll Bond Rating Agency.

The CorePoint properties were subject to a commercial mortgage-backed securities loan with an outstanding balance of about $295 million in January, according to CoStar data. KBRA said the principal balance was paid off that month.

KBRA estimated that the portfolio’s net cash flow through September was about 36% lower than when the loan was issued in 2018. In addition, the properties were operating at occupancies that were below historical performance.

CorePoint had been pursuing strategic alternatives, including a potential sale of the company, since at least July, and the REIT had been strategically selling off noncore assets since March 2019.

Affiliates of Blackstone own about 30% of CorePoint’s total outstanding shares and voted in favor of the sale. As it benefits from the sale of CorePoint, Blackstone also has beefed up its ownership of hotels.

Blackstone and Starwood Capital teamed up to buy 111 WoodSpring Suites hotels for $1.5 billion from Brookfield Property Partners. That purchase followed the joint venture partners’ acquisition of the Extended Stay America chain for $6 billion last summer.

With their pragmatic, no-frills rooms attracting travelers from across the spectrum, extended-stay hotels have enjoyed an advantage over other hospitality types in the recovery from the pandemic, according to CoStar analysis.

Last year, extended-stay chains ran at an average occupancy of 73%, as other business-oriented hotels rebounded much slower. Given reaccelerating business demand and strong leisure travel, expectations are that extended-stay hotels will outperform with further occupancy and rate acceleration and strong investor demand.

Blackstone and Starwood Capital lined up $1.2 billion of floating-rate debt from JPMorgan Chase and Citigroup to finance its WoodSpring Suites’ purchase, according to Commercial Mortgage Alert. That loan is expected to be rolled into a new CMBS issuance in the near term.