WORLD PROPERTY CHANNEL ®

(CHICAGO, IL) -- Extended Stay America, a 684-budget hotel chain with $4.9 billion in loans due in June, may consider filing for Chapter 11 protection under the U.S. Bankruptcy Code if it can't get extensions on the loans, according to its parent's annual financial report filed March 27 with the Securities and Exchange Commission.

BHAC Capital LLC is the Lichtenstein company  that owns Spartanburg, S.C.-based Extended Stay Inc. 

The BHAC report states that even if the loans are extended, the company can't afford the higher loan payments that would be required. Ernst & Young LLP, its auditor, raised doubts about BHAC's ability to continue as a "going concern."

New York real estate investor David Lichtenstein's holding company, Lightstone Group LLC, acquired Extended Stay America from New York-based Blackstone Group L.P. June 11, 2007 in a highly leveraged $8-billion deal.

Lichtenstein also controls Chicago-based Prime Group Realty Trust, which made a $120-million investment in the hotel deal that has already been written off, according to the report.

In addition to the stake from Chicago-based Prime, Lichtenstein financed the Extended Stay America  acquisition with $7.4 billion in debt.

Extended Stay America recorded a loss of nearly $1.4 billion in 2008, compared to a loss of about $210 million during the last six months of 2007.

The loans due in June were issued by Wachovia Corp., acquired last year by Wells Fargo & Co., and Bear Stearns Cos.,  also acquired last year by J. P. Morgan Chase & Co.

A key investor in the Extended Stay deal is Arbor Realty Trust, a Uniondale, N.Y.-based real estate investment trust. During the fourth quarter, Arbor wrote down its $115.2-million preferred-equity stake in the hotel deal to $29.8 million.

According to the BHAC annual report, Prime Group's stake in Extended Stay was financed with a $120-million non-recourse loan from Citigroup Inc. that limits the lender's ability to recover past-due amounts to the ownership interest in the hotel chain.

The loan is guaranteed by  Lichtenstein and Lightstone, who have made the interest payments and paid down the loan to $80 million, according to Prime's annual report.

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