Extended-Stay Power Surge

It doesn't take a genius to grasp the worth of the extended-stay hotel segment. Just look at the value of Extended Stay Hotels. When The Blackstone Group bought the brand in spring 2004, it paid just under $2 billion. When The Lightstone Group bought Extended Stay Hotels in April, it paid $8 billion.

Small wonder brands like Marriott's legacy entry, Residence Inns; InterContinental Hotel Group's rapidly growing Candlewood Suites; and market leader Extended Stay Hotels itself are doing so well, even in the context of a very healthy hospitality market.

The segment is so attractive that Starwood Hotels and Resorts has developed Element, a Westin extension that will debut next July with a 123-room property in Lexington, MA. “The development community, as well as the consumer community, has been clamoring for something new and different,” says Nicholas Lakas, Element's senior director. Current extended-stay brands cater to the “travelers of yesteryear,” while Element will appeal to travelers of today and tomorrow with sophisticated aesthetics and forward-looking technology, he vows.

While it doesn't take a genius to see the promise and profitability of the segment — Gina LaBarre, Candlewood's vice president of brand management, says occupancy premiums run 10 percent higher than in conventional, more transient lodging — it does take a special approach.

“This brand, and extended-stay in general, but especially in the upscale segment, is not for the developer who wants to build by the highway, open the door, watch the cars exit the Interstate and fill up the parking lot,” says Rob Radomski, vice president of brand management for Staybridge Suites. “It's very much a sales-oriented brand. You need a competent director of sales who can be aggressive; these people need to own their own back yard. They can find most of their business within a three-to five-mile radius of the hotel. We make it clear early on that the more engaged owners are and the more they understand the sales and operations approach, the more satisfied they'll be.”

LaBarre agrees: “You really need to know your local marketplace. Most of the business is coming from the local market, so the sales team at the hotel is critical in driving business.”

“Building a solid, back-yard relationship with local companies that are going to bring people in” is key, says Nick Kellock, Marriott's SVP, owner and franchise services, select-service and extended-stay brands. Capturing “that particular type of demand rather than letting it drift off into other regular, transient hotels” is the goal.


Since Blackstone bought Extended Stay Hotels, lender perception of the segment has “changed dramatically,” says Kevin Lewis, Choice Hotels president of extended-stay flags MainStay Suites and Suburban Extended Stay. And when Lightstone bought the flag, that perception only solidified.

“There's a lot of institutional dollars backing the segment now,” he says. “It's a commodity that's done well and is in demand,” he adds, citing his own MainStay brand — and competitor Candlewood Suites.

Money is less of an issue than location. Also a limiting factor: the permitting and planning process. The market is key.

“The market must be at least 100,000 population, typically,” Lewis says. “It's a market where population is in growth mode and unemployment rates are low.”

His team looks for demand generators that will create stays of at least five consecutive roomnights. Such drivers include training, relocation, long-term job assignment and what Lewis calls “life happens.” In that last category are natural disasters, divorce, separation, “your house burns down,” he says. While these are hard to quantify, they're common — and profitable.

Look for landscape companies developing golf courses, companies laying fiber-optic cables, “asphalt, concrete folks, steel,” Lewis advises. Generating business from such sources will help maintain the reputation and gross operating profit of a segment Lewis considers relatively “recession-proof.”

“As a product type, extended-stay hotels are able to lock in customers for a longer amount of time,” says Rod Clough, managing director of the Texas office of HVS International. “A typical hotel has to sell each room every night. An extended-stay hotel has to find that one customer who needs a hotel for 30, 60, 90 days — or more. You ultimately are selling to fewer customers and gaining greater occupancy from those fewer customers.

“They're paying a lower room rate, so there's a trade-off,” Clough says. “But that's part of the reason different segments cater to different needs.”

At Candlewood Suites, where the average length of stay is 14 days, the operation is lean, says brand head La-Barre. Candlewoods function with a staff of 12; average property size is 100 rooms, and the per-key construction cost, without land, is about $55,000. Not only does Candlewood do well on its own, it can cross-sell with other InterContinental brands.

“We have several owners who have both a Candlewood and a Holiday Inn Express on the same plot of land,” she says. “If guests are coming in for a night or two, they might be more comfortable at the Express. If they're staying longer, they could be more comfortable at the Candlewood.”

At Hyatt, senior vice president of franchise operations and owner relations Jim Chu splits extended-stay stays three ways: one to five nights; six to 29 nights; and more than 30 nights. Even though the kitchen requirement means it might cost more to build an extended-stay Hyatt Summerfield Suites than a more traditional, kitchenless Hyatt Place, the operating profit is higher. The reasons are leaner staff, fewer transactions and lighter housekeeping.

About 15 employees staff a typical Extended Stay Hotel, says brand president Gary Delapp. The largest owner-operator of such hotels — 684 are open, with 14 in the pipeline; another giant is Residence Inns, with 526 open and 141 in the pipeline — Extended Stay Hotels caters to government or military personnel; temporary medical workers, a particularly potent market at a time of nationwide nursing shortages; construction workers; and information technology consultants.

“The biggest challenge is communicating the message of extended-stay because it's a relatively new segment,” Delapp says. “A lot of individuals that stay long-term are still staying at transient hotels.”

“If you take the extended-stay market as a whole, there is still a great deal of opportunity,” says Kellock, the Marriott executive overseeing Residence Inn and TownePlace Suites. “Although we understand it very well as lodging brand owners — I'm talking as much about the Hiltons of the world as Marriott — numerous travelers and companies through the country aren't that familiar with the extended-stay product or don't have it available in markets where they could use it.”


Brand representatives say prospective developers, operators and owners of extended-stay hotels should approach them with their eyes wide open — and recognize the uniqueness of the segment from the start.

“People build extended-stay properties but operate them as traditional hotels because they think they can receive higher rates for a shorter stay than for an extended stay,” says Hyatt executive Chu. “But it costs you more money to turn the rooms, so that's a fallacy.”

The “skill base” for extended-stay is similar to that required for more traditional lodging, says Kellock. “It's where you put the emphasis. You're putting much more emphasis on creating the guest residential experience rather than insuring the obvious efficiencies of the short, transient visit.”

“From the investor standpoint, we feel we're able to offer better and more consistent returns,” says H. Mark Daley III, president and CEO of The Generation Companies, which owns and operates extended-stay hotels exclusively; its portfolio covers more than 20. “From a guest standpoint, we're able to build closer relationships with customers who stay longer and that allows us to provide a level of hospitality and build a sense of loyalty that are very difficult (to achieve) with a guest for one night.

“It's becoming a product that guests prefer, in some cases even when they're not staying for a long time,” he says. “But certainly when they're staying long-term.”

With corporate accounts as its “bread and butter,” Generation Companies has “no intention of changing our focus,” Daley says. “We think that extended-stay gives us more marketing opportunities just by virtue of the product type.”

For more information and related articles, go to www.LHonline.com


Think local, local, local

Extended-stay business is local. Develop an aggressive local sales team to work your back yard.

Pick the right market

Go for growth areas of at least 100,000 population and demand generators like construction projects and training programs.

Differentiate the marketing

Stress the residential nature of extended-stay. Raise your property's local profile.

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