There is no doubt that the COVID-19 pandemic hit the hospitality industry hard, but if there was one sector that seemed to do relatively well during this time, it was extended-stay hotels.
The latest Hotel Business Hot Topics session, “Lessons Learned: Strategies for a Resilient Portfolio,” sponsored by Choice Hotels, explored what made the segment so popular during the pandemic and took a look at why it will be a good one to invest in going forward.
Moderated by Christina Trauthwein, VP, content & creative, Hotel Business, the group of panelists included Jerry Bellows, COO, EXCL Management Solutions; Chip Johnson, CEO/founder, Turnstone Group; Philip Powers, partner, Paladin Equity Capital; Ron Burgett, SVP, extended-stay development, Choice Hotels; and Mark Skinner, partner, The Highland Group.
“What it is, is resilient,” said Burgett. “The ups and downs of the economy have not affected the performance of extended-stay across the segment. We kind of knew it already, but now it’s proven to a lot of new folks so it just as a good shield against ups and downs, such as COVID.”
Skinner said that the segment did “very, very well” under very different circumstances. “On the loss side, extended-stay hotels collectively saw RevPAR decline by a third,” he said. “Now that in itself seems horrible, except when you think that all hotels declined by 48%. And if you look at each and every extended-stay segment it fared better than the corresponding traditional hotel segment of the same class.”
Even before the pandemic, he said, the segment was growing in share. “If you go as far back as 2010, extended-stay hotels had 9% of all hotel demand in the U.S.,” said Skinner. “It was increasing anyway, partly because supply is growing much faster than the overall hotel industry. By 2019, that share of demand had grown to 10.5% from 9%, and the share of revenues have gone to 8%. In 2020, by the year-end, that demand share had gone from 10.5% to 14%, and the revenue share had gone from 8% to 11.5 %. So, market share for extended-stay hotels gained an enormous amount, the largest gainer in percentage terms, was the economy segment in extended-stay. Partly because they lost the least, but also supply was growing. Extended-stay supply didn’t decline in 2020 like the overall hotel supply did because of the closures.”
For Bellows, the labor shortage has been something that has helped extended-stay properties because of its model of needing fewer employees. “Our typical extended-stay hotel, we have at most 12 team members,” he said.
He also said that as companies have had trouble finding employees locally, some have brought them in from other areas. “They are shipping people in from all over the country to do distribution work, etc.,” he added. “They need a place to stay.”
Trauthwein asked the panelists what their message is for anyone considering entering the segment.
Johnson said that it is important to know your partners, whether it is financial, management or construction. “Pick a good team, and when I say pick a good team, we’re not property managers in the space,” he said. “We aligned with a group that we believe is best in class, and there are a number of good ones out there…Make sure you go with a general contractor that is familiar with the space…In the end, there’s a prototype that’s a box that is pretty similar, whether it’s built in Texas or Florida or Georgia, but it’s really easy to mess that up if you don’t use groups have been there before.”
Powers added that while the opportunities in extended-stay are “huge,” there are some barriers to entry. He said that the most important thing is to find the right site. “Building a project on the wrong site, particularly for extended-stay, is really the worst thing you can do,” he said. “But finding the right site which is near an on- or off-ramp near a major freeway is hard. There are opportunities out there, but they’re few and far between.”
Look for more coverage on this Hot Topics webinar in the Nov. 15 issue of Hotel Business.