National Report – Extended-stay hotel brand Value Place is extending its reach via a multi-unit agreement with West77 Partners to develop 25 hotels in Washington.
The deal, as Bruce Haase, CEO of Value Place, told Hotel Management, is a turning point of sorts for the brand, whose current footprint is primarily through the South and Southeast. “We are starting to enter key markets that are not traditional Value Place markets,” he said. “We are on the move to being a nationally distributed brand.”
(Last November, Value Place signed a long-term development agreement with Holladay Properties to build up to 15 hotels in the Chicago area. It followed it up with a deal for three hotels in the Minneapolis area.)
The deal with Bellevue, Wash.-based West77 Partners, which is an affiliate of Utah-based Wasatch Group, one of the nation’s largest apartment builders, calls for the construction of the hotels in Washington over the next four years. The first three hotels are expected to break ground in the spring of 2015 in suburban Seattle.
West77 is already active building hotels in Washington. It’s currently developing a Hilton Garden Inn in Bellevue.
According to Haase, West77 has been looking for alternatives to the apartment business, and “they don’t do anything small. They are looking to do something on scale and looking for markets they are familiar with. They also believe extended stay is underserved.”
Here’s how Mike Nielson, managing principal and CEO of West77 Partners, explained it. “We feel the extended-stay market is underserved in most communities, especially when you factor in affordable extended stay,” he said. “In short, there is lack of competition for what we see as a growing need. True extended stay lands squarely in the middle, between nightly hotels and apartments. We see a growing trend of people, young and old, looking for accommodation options that are less expensive than a nightly hotel, while giving them flexibility of shorter-term stays than a lease at an apartment complex. With extended-stay demand drivers in the Northwest, like aerospace, technology, construction, shipping/manufacturing, etc., affordable extended stay is a must for many of these contract-based workers.”
While the first three hotels will be in suburban Seattle, the primary focus for the 22 other hotels will be along the I-5 Corridor, from Bellingham, Wash., in the north, all the way down to the border of Oregon. “Five miles on either side of I-5 is the market,” Haase said.
VALUE PLACE/WEST77 DEAL
One of the reasons West77 Partners gave as a reason to join Value Place was based off the extended-stay brand’s operating model.
“Due to the extended-stay model, occupancies at Value Place are above average when compared to typical hotels,” Nielson said. “This provides a much more efficient operating model than a nightly stay hotel and creates greater constancy in your occupancy load.”
“Our operating margins are in the mid-40s,” Haase said. “West77 was attracted by that, and the efficiencies of our buildings, including our operating and labor model.”
The midscale to economy extended-stay model, both Haase and Nielson agreed, is a model that performs well, even through recessions. Unlike higher-end hotels, which have trouble staying full during down times, Value Place hotels, and others in its segment, consistently have high occupancies, not only due to price, but due to circumstances such as families and workers in transition and in need of temporary lodging.
Number of Value Place hotels in operation.
Around 85 are owned by Value Place.
Source: Value Place
“During the recession, we lost 10 percent of RevPAR, while other segments were higher,” Haase said. “We fill up our hotels—a buffer to downturns.”
Nielson is equally bullish on the segment. “We like the recession resilience demonstrated by Value Place,” he said, adding that he has data to back it up. “We did extensive research using over 80 Value Place hotels, charting how they performed during the past recession, and we found much less volatility in Value Place’s operational numbers when compared to the hotel industry in general and the extended-stay market specifically. We believe this forecastable RevPAR will translate into better-than-expected returns over time.”
The Value Place/West77 deal represents a healthy addition to the extended-stay segment. Haase said further education, particularly for lenders, is needed to understand the full potential of the sector. “We need to do a better job of explaining why our margins are so high; why the average length of stay is high; why distribution costs are so low; why labor costs are lower; and why consumer acquisition costs are lower, too,” he said.