The extended stay hotel sector continues to attract owners and investors due to its seemingly recession-proof traveler base, even during a global pandemic.
The extended-stay hotel sector in the U.S. continues to be a bright spot for the struggling hotel industry.
RLH Corp., owner of brands like Red Lion Hotels and Americas Best Value Inn, this week announced it was repositioning its GuestHouse International chain as GuestHouse Extended Stay. The brand aims to target guests looking for longer stays at “upper-economy” pricing as well as owners of existing hotels considering taking on a new brand affiliation, a process known as a conversion.
RLH executives maintain the branding shift was in the works before the coronavirus pandemic shattered hotel industry performance around the world. But the rebrand comes as investors are increasingly drawn to the extended stay sector following its relatively strong pandemic performance.
“It was almost baked before Covid hit,” said RLH Corp. CEO John Russell. “We think there are a lot of opportunities for the category, particularly now.”
RLH leaders decided on shifting GuestHouse to extended stay, as the company lacked a brand in that segment of the market.
Extended stay hotels see anywhere between a 14 to 20 percent higher revenue per available room — the industry’s key performance metric — relative to other industry sectors, Russell said. The stronger performance stems from these properties needing less labor and lacking the often costly amenities of a full-service hotel.
RLH isn’t the only one drawn to extended stay. Companies like Extended Stay America significantly outperformed the overall hotel industry during the worst of the pandemic, attracting high-profile investments from firms like Blackstone and Starwood Capital.
“You always look where the opportunities are,” Russell said. “When you get the Blackstones of the world investing and other companies looking at different markets and product categories, they see an upside with extended stay as opposed to doing more big boxes.”
The company’s leadership team sees the brand update as an important step in signing new franchise agreements with owners of existing hotel properties.
Russell sees similar conversion strength around its Signature Inn brand, which targets roadside hotels with exterior corridors. RLH estimates there are more than 500,000 U.S. hotel rooms in this sector, and many of the owners are likely looking for a new brand affiliation.
“A lot of legacy brands are trying to move those out of their system because they’re older,” Russell said. “We can provide a home for those hotels that were Holiday Inns, Days Inn, or Motel 6 and with a cost-effective conversion process.”
Much bigger brands, from Marriott to Wyndham, tout the conversion process as a vital growth mechanism during the pandemic when the lending environment for new-build hotels is tight.
The big brands expect the conversion trend to go in their favor, as travelers — and investors — would crave the familiarity of a bigger brand. But RLH also sees growth in conversions during an economic environment where cash is sparse.
While bigger brands can dictate buildouts throughout a property, RLH’s brand standards for GuestHouse are largely centered around furniture and equipment. Areas like the hotel lobby can have more of a local feel, subject to the property’s market.
“We have a great opportunity there,” said Harry Sladich, executive vice president of lodging development and franchise operations at RLH. “The [property improvement plan] a bigger brand is going to require you to do is millions and millions more than what we’re going to ask you to do.”
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Photo Credit: A GuestHouse Extended Stay guest room. RLH Corp.
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