Extended Stay Sector Absorbs Acquisition Aftershocks

The sale of the Candlewood Suites extended stay brand in late 2003 to InterContinental Hotels Group set off a chain reaction that has reshaped a portion of the extended stay marketplace. The changes come at a time when the extended stay tier still is in the process of absorbing the significant growth and segmentation that occurred in the 1990s. Candlewood founder Jack DeBoer is building a new extended stay chain, called Value Place. Four properties are scheduled to open this spring, joining three already operating. The owner of five former Candlewood Suites properties in the Northwest, Larkspur Hospitality, chose not to be part of IHG and has converted the hotels to be part of its own Larkspur Landing flag. IHG, meanwhile, has announced extensive renovation plans for the Candlewood Suites still in its system and sees room to increase the brand's distribution significantly as well.

While chains with large distribution, such as Marriott International's Residence Inn and the Blackstone Group's Extended Stay Hotels, have dominated the sector, the number of start-up chains and regional niche players is growing. During the 2001 to 2003 industry downtown, many buyers leaned on extended stay chains for transient bookings because they were a cost-effective alternative to full-service hotels. As the lodging industry recovers, however, extended stay hotels are less willing to take bookings of fewer than five to seven nights because the longer stays are more lucrative in the long run. While five-to-seven night bookings are considered extended stay, many travelers book the hotels for weeks or months at a time.

The Value Place hotels opening this spring are located in Arkansas, Oklahoma, South Carolina and Texas. They join hotels already operating in Kansas and elsewhere in Oklahoma. Sixteen additional sites are in development. As the chain's name implies, Value Place's business model targets the economy business traveler. "When we looked at the options already available in the marketplace, we saw there was still an opportunity, if the price point was affordable," said Gina-Lynne Scharoun, president of Wichita, Kan.-based Value Place Franchise Services. "Numerous other brands have entered the market over the years, but even those that promote themselves as economy can have rates that are beyond the reach of many travelers' budgets."

Junior salespeople on training assignments and travelers in a community to set up local outlets of national retail chains are among the target guests, as are contractors and construction crews. "We've designed the prototype so that the properties have a highly residential feel," Scharoun said. "We think of them as an apartment building/hotel hybrid."

Helping to keep operating costs low, the hotels are designed to be operated with as few as four or five full-time employees. Rooms come with a full-size bed with storage underneath and a kitchen with full-size refrigerator, stovetop and microwave. Unlike other extended stay chains, however, Value Place does not stock the kitchen with items such as dishes, cookware and utensils. Nor do rooms come with VCR or DVD players or complimentary high-speed Internet access. "Our research found that many travelers don't want or plan to use these amenities, but they end up paying for them because many chains build the charges for them directly into the rate," Scharoun said. "In our model, we'll rent travelers what they require on an as-needed basis."

In converting the five Candlewood Suites hotels, Larkspur Hospitality created a new division of Larkspur Landing, called Home Suite Hotels, designed for extended stay travelers. The hotels are in California, Oregon and Washington. The remainder of Larkspur Landing's inventory is full-service hotels. While Value Place operates in the economy extended stay tier, Corte Madera, Calif.-based Larkspur intends its former Candlewood Suites to operate in the upscale extended stay category, with rates adjusted accordingly.

"Kitchens are fully equipped, rooms come with DVD players and each property has complimentary laundry facilities, and exercise room, among other features," said chairman and CEO Karl Hoagland. All Larkspur Landing hotels also offer amenities specific to business travelers, such as complimentary high-speed access, extra-large work spaces and onsite business centers.

Since assuming management of Candlewood, IHG has not made wholesale changes in the chain's positioning as a midprice extended stay product, according to vice president of brand management Gina LaBarre. "The brand didn't really need to be fixed since it already was well thought out," LaBarre said.

However, because complimentary high-speed Internet access has become an industry standard at the midprice and upscale extended stay tiers, IHG made it a Candlewood brand standard. "Guests also told us they missed not being able to collect loyalty points for their stays, so we moved quickly to include Candlewood in IHG's Priority Club frequency program," LaBarre said. "They're now able to accumulate points good for redemption for free nights at InterContinental, Crowne Plaza or any other IHG property."

This put Candlewood on equal competitive footing with Residence Inn, Marriott's other extended stay brand, TownePlace Suites, and Homewood by Hilton. Extended stay travelers at these brands already earned Marriott Rewards and Hilton Honors points, respectively, redeemable for stays at those multi-brand companies' full-service properties.

IHG also has begun renovating the Candlewood properties, depending on their normal renovation cycle. All properties should be updated within two-and-a-half years. "Travelers told us they felt the room décor was kind of dated and not really homelike, which is how they viewed the rest of the hotel," according to LaBarre.

Like Marriott, IHG has a second extended stay brand, Staybridge Suites, which operates in the upscale tier of the business. "As we integrated Candlewood into IHG, some education has been necessary internally to clarify the difference between the two," LaBarre said. "To our minds, they clearly are two different products with two different types of guests."

Candlewood guests tend to be self-sufficient travelers who don't want someone waiting on them. "They're not interested in daily housekeeping, for example," LaBarre said. "At Staybridge, there's more staff in the hotel, it's more of a hotel-type experience."

Candlewood already has benefited from being part of IHG, LaBarre said, and expects the benefits to grow. "As our salespeople meet with their clients, they're getting a better understanding from a price perspective what ballpark the client is in and which IHG extended stay brand is going to be a better fit, first from a rate perspective and then regarding services and amenities," LaBarre said.

Factoring in projects initiated by the chain's prior management and projects developed under IHG, Candlewood has more than 40 hotels in the active pipeline, 18 of which are on track to open this year. One of LaBarre's goals is to geographically replace the five properties in California and the Northwest that Larkspur rebranded.

Candlewood traditionally has been a new-construction brand, but LaBarre did not entirely rule out conversions. "We're a bit of a stickler on conversions," she said. "The brand has been so consistent, any one hotel generally has been representative of the majority. The room, for example, was designed as more square than traditional hotel rooms to allow more natural light. It makes finding suitable conversions difficult."