HM on Location: Choice focuses on extended-stay for growth

LAS VEGAS — As the second day of Choice Hotels International’s 67th annual convention got underway here at Mandalay Bay, several of the company's senior leaders gathered to discuss the company’s growth trajectory. 

President and CEO Patrick Pacious said Choice’s C-suite had “effectively” repositioned the company further up the chain scale and put it in a stronger competitive position. “We have a very selective and distinct growth strategy, which is to bring in hotels that are going to elevate the entire system,” he said, pointing out that over the past two years, the hotels Choice has opened are performing at twice the revenue on average than the hotels that are exiting from the system. 

This, in turn, has pushed Choice’s hotels into markets that frequently achieve higher revenue per available room. “And if you look at our growth—particularly midscale, upper-midscale, upscale and extended-stay—all of those are providing a higher RevPAR than the hotels that are exiting,” Pacious said, noting that even the new hotels in the Econo Lodge and Rodeway brands are performing at 25 percent better than the brand average. 

This is where Radisson comes in: “It was a series of brands that actually had higher RevPAR than the entire Choice system,” Pacious said. In 2019, RevPAR for Radisson’s brands was, on average, 38 percent higher than the systemwide Choice RevPAR. 

To determine where a Choice-branded hotel should go, Chief Development Officer David Pepper will put “boots on the ground” and talk with franchisees. But before Pepper takes those meetings, the development team uses data and technology to calculate how well one of their brands might perform compared to a property that may already be on the site or nearby. Pepper’s team then considers guest reviews and scores and uses geospatial software to calculate how the asset might perform better on one street corner or one highway exit compared to the next one over. “There's so much more data on demand drivers that allows us—even before we make a sale—to do that,” Pacious said. Pepper agreed: “We know what kind of product we're going to get before we bring it into the system.”  

Financing for new developments is definitely tougher these days, Pepper acknowledged, with higher interest rates making would-be underwriters hesitant. “You've got to be smarter,” he said. “You've got to go back and do the research. You've got to do your underwriting. And so that's what's different: It's not easy money. Right now, it is a little more expensive.”

This wariness is driving developer interest in extended stay, Pepper added: “It's got that proven [return on investment] and the lenders really like the segment right now.”

Extending Extended-Stay

During the extended-stay brands session, Anna Scozzafava, Choice’s VP and general manager of extended-stay brands, said the company is on track to open its 700th extended-stay hotel within the next five years. “Last year, one third of all openings in economy in economy and midscale extended-stay were Choice projects,” she said. “One in four groundbreaks in those same segments [are] also our projects.” The company sees so much potential in its Woodspring Suites brand that its board of directors authorized $250 million to accelerate its growth through both self development and joint venture partnerships. 

During a panel, Benjamin Brunt, Noble Investment Group chief investment officer, noted that only 8 percent of lodging is true extended-stay. “However, demand suggests that … 40 percent of demand [is] for extended-stay products, suggesting a meaningful opportunity to grow extended-stay product,” he said. Mark DeRose, CEO at ServiceStar Capital Management, agreed, calling the imbalance between supply and demand “pretty persuasive.” Choice’s Everhome Suites and WoodSpring Suites fill that gap, he added.