Extended-stay segment stays the course for investors

Like the industry in which it operates, the extended-stay segment has proven itself a resilient model when weathering tough times. While hoteliers will attest nothing’s a sure bet, among hotel companies’ brands, extended-stay offerings have become a credible investment vehicle owners and developers historically have banked on to maintain performance levels.

Indeed, the segment’s achievements during the pandemic have served to solidify its reputation.

“One of the bright spots during 2020 was extended-stay hotel performance, as groups such as travel[ing] nurses, construction workers, consultants on assignment, etc., were still on the road throughout the pandemic,” said Amanda Hite, president and CEO of STR. “The short-term nature of business travel within these groups makes apartment rentals impractical; therefore, extended-stay hotels are the obvious choice for this consumer type.”

One hallmark of the segment that helps sustain it is its core guest base. “The traditional extended-stay customer has always been required to be ‘on-site,’ which makes it hard—even impossible—for those professionals to work from home … Many  industrial or technical jobs need to be in a specific location for a long period of time,” Hite said.

STR research of the segment’s key metrics could induce one to wonder: “Pandemic? What pandemic?” For example, occupancy in June 2022 stood at 81 percent compared to June 2019’s 81.9 percent. In terms of other metrics, such as average daily rate, revenue per available room and demand, 2022’s numbers are ahead of 2019’s—despite supply being 2 million rooms higher this year.

Hite indicated an economic slowdown could impact overall hotel demand, as well as demand specific to extended-stay, but that “the long-term nature of the business is a bit more resilient to macroeconomic fluctuations.”

Stamp of Approval

Living in a hotel goes way back, but Hite singled out the acceptance of the business model by larger brands and institutional investors as probably the most significant change in the segment. “All major C-corps now have one or multiple extended-stay brands to target the long-stay customer. As proven by previous take-private transactions, the returns for this accommodation type are going to continue to attract dedicated investment capital,” she said.

Cases in point: Blackstone Real Estate Partners and Starwood Capital Group’s $6 billion acquisition via managed funds of seminal segment brand Extended Stay America (plus its paired-share real estate investment trust ESH Hospitality) in June 2021 Then this year, the joint venture acquired 111 WoodSpring Suites properties for a reported $1.5 billion from Brookfield Asset Management (the extended-stay brand is franchised by Choice Hotels International). And 10 years ago, a Blackstone affiliate acquired Accor’s U.S. economy hotels division as part of a deal valued at $1.9 billion that included the Motel 6 and extended-stay Studio 6 chains.

Survive and Thrive

According to Mark Williams, managing director-franchise development for Extended Stay America, the company’s two extended-stay offerings across 650 hotels have decidedly passed the “survive-and-thrive” test over the past 30 months. “2022 has been a very good year for the segment as well as ESA. We rebounded in 2021 to 2019 occupancy numbers and exceeded our ADR, with 2022 looking even stronger,” he said.

ESA’s confidence in the segment led it last year to deploy a new brand, Extended Stay America Premier Suites, to reinforce its go-forward commitment, layering it over 13 new-build hotels with a new prototype.

“We presently have 27 open; 25 are company-owned,” Williams said. “We have another five under construction and 40 in the pipeline with our franchise partners.”

ESA also became Extended Stay America Suites. “We added the ‘Suites’ name to the balance of our existing portfolio to help differentiate and identify that ESA Suites is a hotel brand and Extended Stay America (ESA) is the company name,” Williams said.

Like ESA, G6 Hospitality last year expanded its Studio 6 brand, now further defined as Studio 6 Extended Stay and Studio 6 Suites, both of which make up more than half of the company’s pipeline, according to Chief Administrative Officer Mike McGeehan. He added owners and developers also “see a huge value in the dual-brand option of [pairing] Motel 6 and Studio 6.” 

Of its 1,402 franchised properties (as of July 27) there are more than 100 extended-stay hotels in key markets such as Atlanta, Dallas and Seattle, as well as in Canada. One such property is the 63-unit, new-build Studio 6 that opened in Katy, Texas, during the pandemic.

“Given Katy’s proximity to downtown Houston and … the city’s energy corridor … the market was a key entry point for the Studio 6 brand and allowed us to continue to meet demand for those visitors to the area, especially those seeking extended accommodations,” said Chief Development Officer Tina Burnett.

While the majority of Studio 6 pipeline projects will be conversions, Burnett said six will break ground this autumn despite a tightening lending environment for new construction.

As for the months ahead, Williams expects the segment “will continue to survive and thrive based on our history. The industry is very bullish toward the extended-stay segment.”