Everyone loves extended stay. If it sounds like a popular American sitcom—maybe that’s the point—just minus Ray Romano. Instead, it stars the usual hospitality suspects, from Hilton to Marriott, Hyatt to Choice, who all see space to run, especially in what can only be described as the lower echelons of extended stay—spartan, though larger rooms, equipped with essentials to live, like fully equipped kitchens. Translation: cheaper to build, cheaper to run and easier on a guest’s wallet.
The brands see it that way. Developers do, too.
Concord Hospitality, a developer and operator based in Raleigh, N.C., with a portfolio of 150 hotels, is not just dipping its toe in, it’s diving in headfirst and deep. Proof of concept is important and for Concord, one of its first investments, or experiments, was with WoodSpring Suites, part of the Choice Hotels brand family. Born as Value Place and founded by long-stay legend Jack DeBoer, the brand was acquired by Choice in 2017, and though the name changed, the promise remained the same: cost-effective for owners and guests.
The real reason Concord and its president and CEO, Mark Laport, were attracted to the brand was because it was already gaining institutional interest. “That was very important to me,” said Laport. Historically, the lower segments of extended stay were mom-and-pop kind of assets, where cap rates, for example, were higher on exit. They were not the strongest type of investment. But when real estate titans like Brookfield began to embrace the concept, it changed the game.
In 2018, Brookfield acquired 110 WoodSpring properties from investment firm Lindsay Goldberg for around $750 million. Four years later, it sold the portfolio to Blackstone and Starwood Capital for more than $1 billion. “A friend of mine said: ‘You should take a look at it,’” Laport said, calling the operating model “extremely attractive.” A 125-room WoodSpring, as example, can be run by around seven full-time equivalents compared to a Courtyard by Marriott or Hilton Garden Inn that might require as many as 30. Laport said that some 40% of its WoodSpring guests stay more than 60 nights.
Concord started with a couple of WoodSprings to confirm the concept and to date has now built and opened 15 with its investment partner Whitman Peterson, with more to come.
No Secret
Other hotel companies began to catch wind. Laport said that while they were pushing out WoodSpring properties, Marriott started to look at the concept and the proof of concept led them to believe that “there must be something to this,” Laport said.
In June 2023, Marriott unveiled the StudioRes brand, which operates in the mid-tier space, and which Concord, a longtime Marriott partner, had a hand in developing. Makes sense, then, that Concord became Marriott’s first partner, breaking ground on the first StudioRes property in January, in Fort Myers, Fla., with some 50 more promised to come—again, in partnership with Whitman Peterson. There are 11 other sites under contract that are going through entitlements.
“Taking a new build brand from announcement in June to groundbreaking in January is thrilling,” said Noah Silverman, global development officer, U.S. & Canada, Marriott International.
At 124 rooms and 54,000 square feet, the StudioRes prototype is expected to be Marriott’s most affordable cost-per-key product to develop and build. Rooms include a kitchen and queen beds. Public spaces offer amenities such as daily coffee service, a fitness center, laundry room, vending area, communal table and covered patio.
These are hotels that must be done at scale—not one or two and through. As Laport pointed out, whereas a hotel like a StudioRes, in a secondary market, will generate $2 million to $3 million of top-line revenue per year, a downtown AC Hotel (Concord has 14 of them) will do six times that: Concord’s AC Hotel in Washington, D.C., a city still not even fully recovered, did $18 million in top-line revenue last year.
Laport said that a StudioRes would command a price premium of around $10 to $15 above a WoodSpring.
Marginally Better
Revenues might not be as high in a mid-tier extended-stay hotel, but the profit margins are—running as high as 60%. A percentage like that makes underwriting these types of hotels much easier—they just pencil out. As Laport pointed out, “We can still afford this run up in interest rates we face.” Where with other, higher-rated hotels, “You can’t underwrite them successfully at an 8% or 9% mortgage rate,” he said.
StudioRes is not the only extended-stay brand Concord is bedding down with. In the hotel industry, cheating on a brand is not shameful. Last October, Concord, with its partner Whitman Peterson, and Extended Stay America signed an agreement to develop 15 new Extended Stay America Premier Suites hotels in markets throughout the Western United States, including Denver, Phoenix, Las Vegas and Salt Lake City. Laport said they have now broken ground on the first few.
Like WoodSpring Suites, ESA has institutional ownership: In 2021, Blackstone and Starwood Capital acquired it and its paired-share real estate investment trust, ESH Hospitality, for $6 billion. At the time of the deal, during the throes of the pandemic, Barry Sternlicht, CEO of Starwood Capital, said this of the segment: “Extended stay has demonstrated resilience over the past year despite persistent challenges due to government lockdowns and travel restrictions.”
The prescient Sternlicht likely understood the value of the company, and the extended-stay segment, in a post-pandemic world where long-term travel and the blending of work and leisure continues to keep extended stay successfully afloat.
At the same time, hotel companies are stratifying their extended-stay offerings. ESA’s Premier Suites, for example, is a bump above its baseline ESA brand, new or fully renovated and offering an elevated experience with amenities like upgraded bedding and a free breakfast. Laport calls them a “unique business model that allows us to reach business and corporate extended-stay travelers looking for a higher level of amenities.”
Hilton is not allergic to mixing it up in the extended-stay segment, long committed to it with brands including Homewood Suites and Home2 Suites by Hilton. The former upscale, the latter midscale, Hilton decided to climb farther down the extended-stay chain scale with LivSmart Studios by Hilton, aimed at the lower mid-tier, competing with brands like Marriott’s StudioRes.
Hilton calls its latest addition to the Hilton portfolio “a lower midscale, long-stay hotel brand offering simplicity, consistency and convenience to guests who may be traveling for weeks or months at a time.”
LivSmart, which for an extended time worked under the working title Project H3, includes a retail market, guest laundry room, fitness center, outdoor communal space and rooms with full kitchens, including dishwashers and two-burner cooktops.
Concord likes the model, an almost facsimile of other new entrants into the space, though with some distinction. It is working with Hilton with plans to develop 20 to 30 LivSmart properties.
In the case of LivSmart, Laport said the brand was poised to charge an even higher ADR than Marriott’s StudioRes, but there is some concern that it could get so high as to potentially cannibalize a brand like Home2. “It’s getting up there [in price],” said Laport.
Other entrants into the space include Wyndham Hotels & Resorts’ ECHO Suites Extended Stay by Wyndham, launched in 2022, with a pipeline of more than 120. “Simple, minimal, modern” is how Wyndham describes it.
Hyatt Hotels Corp. launched Hyatt Studios last year in the upper-midscale space. Concord’s track record goes far back with Hyatt, with Hyatt House and Hyatt Centric, to name two brands it has developed. Concord doesn’t have imminent plans to develop Hyatt Studios, but for a fair reason: “We just don’t have the bandwidth,” Laport said. You can’t do everything.
You can love everything that these new extended-stay entrants promise. Namely, an ideal operating model that is lean on labor and high on margin. In sum, Concord is doing around $1.8 billion in development with its extended-stay brand partners.