Don’t let the multibillion-dollar deals from Blackstone and Starwood Capital for brands like Extended Stay America cloud one's brand judgment. Marriott is the massive player in the extended stay hotel sandbox — and has a leg up in appealing to more lucrative business travel.
Everybody’s talking about — and investing in — extended-stay hotels, and the world’s biggest hotel company would like its decades-long presence known. It is even making a few tweaks to appeal to even more customers on this increasingly competitive playing field.
Blackstone and Starwood Capital Group’s two extended-stay hotel deals — a $6 billion joint takeover of Extended Stay America last year and a recently announced $1.5 billion deal for a WoodSpring Suites portfolio — is a testament to how investors see long-term viability in the sector.
Extended-stay hotels have an image as being more of a budget-minded sector, but Marriott International is in the space with a mix of mid-priced and higher-end properties, which provide things like kitchenettes to appeal to guests wanting a longer stay.
Bigger extended-stay brands like Residence Inn can appeal to more business travelers who may not be as familiar with Extended Stay America, which also courts residential users, and want to earn points on a bigger loyalty platform than is found with the Choice Hotels-owned WoodSpring. Extended Stay America and WoodSpring Suites might garner headlines as of late, but both brands are significantly smaller than Residence Inn, which had a little more than 850 hotels, according to Marriott’s last annual report to the U.S. Securities and Exchange Commission.
Marriott sees further growth potential in the extended-stay sector and its three extended-stay brands — Residence Inn, TownePlace Suites, and Element. Providing more amenities can win over the lucrative, reliable revenue of business travelers who typically flock to extended-stay brands. These aren’t the kind of business travelers who flock to a JW Marriott or Ritz-Carlton, but who cares?
Extended-stay brands were the best-performing assets across the hotel industry during the worst of the pandemic because the customers who fill their rooms aren’t afforded the luxury of remote work. But they do keep the lights on at these hotels when so many others had to shut down.
“The brands have always had appeal, given their programming and given the room offerings, the layout, and the features of the hotels. They’ve always had appeal to a combination of both business travelers and leisure travelers,” Noah Silverman, Marriott’s global development officer of the U.S. and Canada, said Tuesday during a reporter breakfast at the Americas Lodging Investment Summit in Los Angeles. “These products are really kind of tailor-made to those that want to extend the purpose of their trip for varying reasons.”
Marriott certainly welcomes the arrival of institutional capital and investments from firms like Blackstone and Starwood into the sector. Their arrival also shows a lot of what Marriott already knew: There is significant money to be made here.
Marriott’s 1,400-hotel global extended stay portfolio is larger than Extended Stay America’s roughly 650 hotels and the approximately 300 hotels across the entire WoodSpring Suites brand. Towneplace Suites is Marriott’s fastest-growing brand while Element, a Westin extended-stay offshoot that came to the company through its Starwood Hotels & Resorts merger, has a lot of growth potential, Silverman said.
Residence Inn is the company’s original extended-stay hotel brand and has the bragging right of being Marriott’s highest operating profit margin of any of the company’s brands.
“When you think about owners of hotels and investors that are looking to maximize their return, margins certainly drive a lot of that,” Silverman said.
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Size isn’t everything, however. Marriott is still making adjustments to these and other flags beneath the company’s hefty umbrella of brands, and some of the latest tweaks are likely to make the company even more of a formidable force in competing for the business traffic so many companies anticipate flooding the extended-stay sector.
Marriott was an early adopter of the “bleisure” buzz word that has permeated throughout the entire industry. The mix of business and leisure trips is a newer and fast-growing type of travel hotel companies think can accelerate the recovery. Someone might have three days of work travel during the week and then extend a trip by a few days into the weekend.
Marriott wants to make sure the guest experience is more pleasant doing that at, say, a Residence Inn or TownePlace Suites than an Extended Stay America. Those brands are part of a four-brand initiative (which also includes Fairfield and Springhill Suites) at Marriott to elevate the free breakfast experience with new, higher quality items. Industry analysts have cautioned against adding expensive brand standards during the recovery while individual owners are still significantly down financially.
But Eric Jacobs, senior vice president of select brands at Marriott, told Skift the purchasing power of elevating the free breakfast component — a crucial part of guest satisfaction surveys at this segment of the hotel industry — across four brands and 3,000 hotels instead of just one brand should result in a price reduction for owners during the recovery.
This is more than offering more than boxes of Cheerios to guests. The new rollout — which includes items like hearty breakfast sandwiches, crustless quiches, and build-your-own breakfast bowls — actually has about 40 fewer items an individual hotel would need to stock compared to the outgoing breakfast bar.
Guests are happier, but it’s also a win for an owner, who could end up saving as much as 20 percent on food costs when these hotels fully recover, Jacobs said.
Investor dollars pouring into extended stay is good news for Marriott, even if Blackstone and Starwood’s biggest plays during the pandemic have gone to brands outside the hotel company’s network.
Extended Stay America appealed to investors as a result of its resilience during the pandemic: None of the company’s hotels had to shut down, even temporarily, because demand remained higher than other market segments. Occupancy at Marriott’s own extended stay brands were running between 15 and 20 percent higher than other brands during the worst of the pandemic, Jacobs said.
That kind of resilience is a massive asset and has major appeal for investors who might be thinking about where they want their cash parked during the next downturn.
“A lot of the stuff in the mid-scale space or the economy space has not necessarily been viewed as an institutional-quality real estate investment to groups like that,” Silverman said. “But I think that sends a signal that they [now] view those kinds of hotels differently.”
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Photo credit: Marriott's extended-stay brands like Residence Inn offer the resilient kind of business hotel investors are chasing these days. Marriott International