Extended-stay hotels are expected to perform better than the U.S. industry average during the pandemic.
REPORT FROM THE U.S.—The factors that make extended-stay hotels popular product types for owners and management companies are also what will help them through the pandemic.
The segment that will be affected by the coronavirus (COVID-19) pandemic the least will be the extended-stay product, particularly those in the economy chain-scale segment, said Mark Skinner, partner at The Highland Group. Following economy extended-stay hotels will be the midscale and upscale segments and so on up the chain scale, he said.
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Preliminary numbers from The Highland Group show the economy extended-stay segment in March 2020 reported a 10% to 15% year-over-year decline in revenue per available room and a less than 5% year-over-year decline in average daily rate. The overall U.S. hotel industry is reporting a 49% RevPAR decline for the running 28-day period ending 28 March, according to STR, parent company of Hotel News Now.
Extended-stay hotels have a large residential feeling to them, allowing guests to treat them like their home for longer stays, Skinner said.
While there are travel restrictions and non-essential businesses in most states have closed, big construction projects are by and large still going on, Skinner said. Similar to the downturn after 9/11, construction projects that were in the works continued, meaning their crews still needed a place to stay during the projects. However, after those projects ended, there weren’t newer ones to start right away, he said.
Several extended-stay properties have worked out deals with the Federal Emergency Management Agency, he said. Many COVID-19 patients aren’t sick enough to go to a hospital but may still need to be quarantined from the general population for a period of time. Extended-stay hotels are a natural fit for this need because they have kitchens in the rooms, so FEMA has taken over operations of many of them, he said.
“I believe they want total control of the hotel,” Skinner said. “They staff it. They lease it from you. And when they leave, they completely sanitize and disinfect the hotel.”
Another factor helping economy and midscale extended-stay hotels land government contracts is their rates tend to come in below government per diem rates, he added.
Looking at his company’s portfolio, LBA President Beau Benton said that at the time of the interview, the company’s extended-stay hotels were performing better than its other hotel types. Its Home2 Suites portfolio is running at 26.5% occupancy, its Homewood Suites are at nearly 30%, its Residence Inns minus one leisure property are at about 29%, its Staybridge Suites hotels are at 30% and its TownePlace Suites are at 41%. LBA’s transient portfolio, however, sees occupancies ranging from 7% to 16% with most coming in around 10%, he said.
These hotels’ sales teams are working on getting the type of business they’ve already been servicing, so the relationships already exist, Benton said. In these hotels’ cases, that’s medical, government and project-based work business. Several of his extended-stay properties are hosting National Guard units deployed to several locations, he said.
While LBA’s extended-stay hotels haven’t taken in COVID-19 patients as guests, they have been serving health care workers, particularly traveling nurses and doctors, Benton said.
Eleven out of the 25 hotels in McNeill Hotel Company’s management portfolio are extended stay, and 10 out of those 11 properties are performing better than the industry average, McNeill President and COO Mark Ricketts said. One of the advantages these properties have is they are not located in the big, urban markets that have been hit harder and have seen occupancy in the single or low double digits, he said.
Among McNeill’s extended-stay guests are international students attending college in the U.S. who can’t return to their home countries at the moment as well as National Guard units and health care professionals, Ricketts said. The company’s existing relationship with trucking companies has helped too, he said.
“The truckers, they’re kind of the lifeblood of the industry right now because they’ve got to get all the food and other supplies,” he said. “We’ve seen a large increase in that. They’re having to hire more, and we’ve got one hotel that’s picking up the training because they have to bring in these individuals to be trained now. … They bring them in for a week or two weeks.”
The extended-stay operating model was generally already light on housekeeping and other services, Benton said. His company’s extended-stay properties are running on a skeleton crew in which the GM and other salaried personnel are working most of the desk shifts, he said. The hotels aren’t offering a full breakfast, so that someone on the team can handle that task without dedicating a lot of hours to it.
“We’re only cleaning rooms upon check-out, so you’ve got very limited housekeeping that has to take place, because with that being extended-stay, you’ve got a lot fewer ins and outs from that standpoint,” Benton said.
The extended-stay model seems to work because of the limited services needed, Ricketts said. Most of the guests are doing their own grocery shopping or ordering their own food, so the hotel staff doesn’t really see them as much now, he said. They’re just going in and going out, and with many brands moving toward digital room keys, there’s not much face-to-face interaction now.
“We have texting capabilities, so we’re obviously trying to do the best we can keeping up with texts and making sure that we’re taking good care of the customer,” Ricketts said. “Even though we may not have face-to-face contact, we can still stay in touch with them.”