Suddenly every hotel group seems to be inventing an extended stay brand. But the pioneer U.S. company in the segment, Extended Stay America, says its new strategy will help it fend off rivals.
It may have taken a quarter century for Extended Stay America to find its stars aligned. Yet several factors, such as U.S. infrastructure spending and the resilience of blended travel, look ready to support U.S. domestic demand for extended-stay hotels. And privately owned Extended Stay America has been adjusting its strategy to benefit from these trends over the next few years.
Three years ago, Blackstone and Starwood Capital Group bought Extended Stay America for about $6 billion. Two years ago, those same giant U.S.-based real estate investors jointly bought 111 WoodSpring Suites to bolster Extended Stay America’s portfolio for about $1.5 billion. So how has Extended Stay America’s strategy evolved since then?
Some backstory, first: Founded in 1997, Extended Stay America was essentially the first company to gain traction as a national brand for extended-stay properties. Yet the physical offerings and services often felt more like a college dorm than a home-away-from-home for professionals. The great financial crisis of 2007-2008 caught the company off-guard. A fall-off in rates customers were willing to pay, and a crushing of the value of its real estate sent the company into bankruptcy.
In 2010, Blackstone, Paulson & Co, and Centerbridge Partners bought the hotel chain for $3.925 billion as it emerged from bankruptcy.
“I can’t think of another hotel brand that was literally in the gutter and was resuscitated and now is a brand to aspire to own,” said Scott Berman, who spent three decades at the hospitality and leisure consulting practice at one of the four largest accounting and consulting firms. “Smart money came in and installed new leadership and attacked the core issues efficiently.”
Extended Stay America went public in 2013, but Blackstone and partners later took it private again in a takeover that closed in 2021. Today private equity is fine-tuning the company again.
Brands Piling Into Extended Stay
The whole long-stay category seems to be enjoying a heydey. Roughly a third of the construction pipeline for hotels in the U.S. is extended-stay projects, or roughly 30 percent of planned rooms, according to Lodging Econometrics.
Brands are paying attention. Earlier this week, Hyatt announced the debut of a new brand, Hyatt Studios, as its first entry in the segment. Since October, Wyndham launched ECHO Suites by Wyndham, and BWH launched @Home by Best Western.
In November, Marriott said it planned to add a serviced apartments brand in North America, perhaps recognizing the success of its Residence Inn by Marriott brand in the broader extended stay segment. Hotel impresario Tyler Morse told attendees at Skift’s Future of Lodging event last month in London that Residence Inn was the most profitable of the brands in his portfolio — which he called the third largest in the U.S. market.
As mentioned above, there’s been a bit of a gold rush in the long-stay space, with brands like Hyatt, Marriott, Wyndham, and BWH adding inventory. But Extended Stay America believes it can hold its own as a competitor.
“We have the first mover advantage in having brand name recognition,” said Extended Stay America CEO Greg Juceam. “We have three decades of experience as an owner and operator, which gives us insight into the nuances that others may overlook. We’re essentially the only brand of any consequence that is purposely built for extended stay guests, in the economy and midscale only, and that’s a differentiator in giving us knowledge on how to serve the guests in these segments effectively.”
Will it go upscale like the others? The CEO said no.
“We’re focused on economy and midscale only,” Juceam said. “We have a cost-conscious value proposition not just for our guests but for our investors. We’re not mixing our value-oriented mantra with upscale or luxury segments. When we change a brand standard, we have to change it not just for franchisees but for ourselves 600 times across the properties we own. So we’re eating our own cooking and are incentivized only to make decisions that will be profitable.”
“A lot of the newly announced brands [from these hotel groups] use buzzwords like ‘premium economy’ or ‘midscale,” Juceam said. “But if you really look at the models they’re putting out, they very much skew to upper midscale and even higher. So they’re not even, in most cases, direct competitors.”
Extended stay hotels have increasingly faced competition from non-hotel lodging for stays more than 28 days in length but less than a year — even though the pandemic has waned. Year-over-year records of nights sold in the fourth quarter showed a 29 percent year-over-year increase in U.S. stays and a 31 percent year-over-year increase within Europe, said vacation rental data provider Key Data. Looking ahead, 10,732,555 nights of “mid-term” long-stay rentals had been booked for the second quarter in Europe alone, as of March 26, Key Data reported.
Airbnb appears to have added more of the extended-stay market to its mix.
In 2022, more than 20 percent of stays booked through Airbnb were 28 days or more in length, compared with only 14 percent in 2019, estimated data analytics firm Airdna.
Long Stay Trend for the Long Haul
“The risk of oversupply in extended stay is very low in the next couple of years,” Skinner said. “Out of roughly 5.6 million hotel rooms in the U.S, just under 600,000 are in extended stay, meaning seven nights consecutively or longer stays in properties with kitchens. The increase in supply for extended stay hotels on an annual basis has recently been at the lowest level in ten years, and supply growth was below trend after the great financial crisis, too.”
Demand will likely also be at above-average rates in the U.S. over the next couple of years.
“The U.S. passed more than a trillion dollars in infrastructure spending and spending for the greening of industry, and that will generate a lot of demand for years to come,” Skinner said. “Regional projects are also important. For instance, in California, they have a multi-year plan to bury all of the powerlines because of wildfires, and that will take a decade of workers being on the road to complete.”
Another demand driver is the U.S. housing crisis. After the circa-2008 recession, home construction failed to keep pace with demand in many U.S. markets. That trend is causing some people to turn to extended-stay lodging when they’re in-between places to live.
“Recently, apartment rents have been very high, and many people are looking for a new place to hang their head for a minute until they get a new home, and that has been a tailwind for us,” Juceam said.
For more context, read Skift’s earlier piece: Why Extended Stay Hotels Aren’t in Just a Hype Cycle.
In 2013, Extended Stay America owned and managed all 682 of its hotels. While a public company, it created a second division for franchising. But the franchising effort stayed on the back burner, with only about 86 hotels flipped into a franchise model over a decade.
The company’s new owners have made franchising a priority partly because franchising spreads the footprint faster than buying hotels.
“Franchising is a growth engine that goes on top of the owned and managed group,” said Extended Stay America CEO Greg Juceam. “At times in our past, there was no commitment to franchise in the company, but today, there is both commitment and clarity.”
In promising news, the company’s core product may have demand tailwinds behind it. Its core product has a national average target daily rate averaging between $65 and $100, based on a Skift random search of properties.
“That is a sweet spot of development for a number of reasons,” Skinner of Highland Group said. “Within that segment, there’s probably 150,000 rooms that are mostly 20-plus years old, so there’s an opportunity for new construction and newly refurbished properties to steal share.”
Extended Stay America plans to talk with owners next year about a renovation refresh.
Creating Brands, Making Acquisitions
Extended Stay America’s leadership decided it needed more than just one brand.
“We’ve pivoted to having three brands, each at a different price point,” Juceam said.
Some context: The company used only to have its single namesake brand, straddling the economy and midscale segments. But its leaders didn’t fully appreciate that there were different guests at different price points within the extended stay segment that they were missing out on.
“For example, if you’re paying just $10 more a night over 30 days, that creates a $300 a month difference in the total bill, and it is largely a different customer whose willing to pay that than someone with a budget to pay $25 more per night, which is $750 a month,” Juceam said. “We were missing out on that opportunity, both moving up and moving down.”
In 2021, it created its second brand, Extended Stay America Premier Suites — typically about $20 a night higher than its legacy brand average. This brand includes properties that have been recently or newly built and offer heartier breakfasts and somewhat nicer furnishing and amenities. The company first upgraded 25 older properties to the new model, and this year has upgraded another six.
“Most of our pipeline right now is dedicated to that franchise brand,” Juceam said.
In September 2022, it launched a pure economy brand, Extended Stay America Select Suites. (Think: no breakfasts served, no swimming pools.) It took 87 of the 111 Woodspring hotels it acquired and rebranded under this label.
“We’re finishing our prototype to show developers so we can grow the franchise engine for that brand as well,” Juceam said.
Is the company looking for more deals like Woodspring?
“There’s plenty of opportunity, and if another acquisition presents itself to us that is exciting to us, we will pursue that,” Juceam said.
And is franchising the whole story from now on?
“We’re committed to growing our franchise engine, but that doesn’t mean we’re going asset-light,” Juceam said. “We believe all good brands should own and manage a portion of their hotels.”
Keeping Guest Acquisition Costs Low
The company keeps its distribution and marketing costs lower than average because of its brand name recognition thanks to being a pioneer in the space.
The company’s comparative lack of reliance on online travel agencies to find customers helps it avoid paying the 10 to 30 percent commissions those intermediaries charge.
“Almost of our guests find us directly, through our website, call center, or walking in the door,” Juceam said. “Third-party intermediaries? That percentage of our business is incredibly low. Our occupancy runs more than a 10 percent premium to the industry average, so we aren’t struggling with demand.”
It certainly will help Extended Stay America that its brand name has the words “extended stay” in it, which is a phase that some people might type into a search engine when looking for a place to stay.
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Photo credit: A room at new mid-priced brand Extended Stay America Premier Suites. Source: Extended Stay America.