Ext. Stay Pipeline Flowing As Transient Tapers Off

While the development pipeline has dried up for much of the lodging industry, major milestones in recent months continued to be achieved in the extended stay sector, suggesting that travel buyers and relocation managers have realized the advantages of extended stay lodging's special niche in the market.

Buyers have gotten beyond nominally grasping the distinctions between transient business hotels and their extended stay counterparts. Through improved data analysis, they also have a better handle on the amount of extended stay travel their travelers actually are doing and, subsequently, how they can make extended stay pricing work more to their advantage.

Blurring the issues, however, is the fact that many buyers have begun using extended stay properties to fill their transient room night needs driven by considerations of either price, availability or location. For their part, operators of extended stay hotels were wary of turning away these one night to five night bookings when availability existed, even though enough of such bookings plays havoc with the true extended stay model.

Still, extended stay operators reported seeing significantly more requests for proposals for 2003. "Buyers have been under pressure to save money and this is one of the things they looked at," said Jeff Waldt, western region vice president of sales for Wyndham International, which includes Summerfield Suites. "Consequently, we increasingly have gone to customers who we've worked with on transient programs and updated them about extended stay because it's to our advantage to work with them on all their lodging needs."

Through year-end 2002, openings of both midprice and upscale extended stay hotels occurred with startling regularity. Should the economic downturn linger—and with it cutbacks in corporate training and relocations, two of the main sources of extended stay bookings—prospects for continued development in the next few years may not remain so rosy.

Marriott International, a pioneer in the segment with both midprice and upscale products, last fall opened its 500th extended stay hotel. Hilton Hotels Corp.'s upscale Homewood Suites by Hilton brand at year-end passed the 120-property mark and Six Continents Hotels & Resorts' more recent entry into the field, the upscale Staybridge Suites by Holiday Inn, in November opened its 50th unit.

Extended Stay America, a midprice operator, recently surpassed the 450-property milestone for its three brands and last fall announced equally aggressive expansion plans for 2003. While ESA broke ground on 31 projects in 2002—seven more than originally budgeted—the company has financing in place for another 31 projects this year and has 10 additional sites identified, pending the state of the economy.

George Johnson Jr., Extended Stay America CEO, acknowledged that the current economic outlook isn't promising. Given the extended stay segment's overall track record, however, he said the industry needed to get a jump on the next cycle.

"With the projected decline in the rate of supply of new hotel rooms for the next few years, we believe now is the time to prudently accelerate our pace of development," he said. This way, ESA will be able to increase marketshare "by having additional hotels in operation as the economy recovers."

At Marriott, the 500-property mark meant the opening of its 400th upscale Residence Inn in downtown Philadelphia, while its 100th midprice TownePlace Suites opened in Redwood City, Calif. The 269-suite Residence Inn was a conversion of a historic building, the 95-suite TownePlace Suites was new construction.

"While we're doing more downtown projects, such as the Center City Philadelphia Residence Inn, those projects are harder to develop partially due to the scale involved, but also because of the high barriers to entry that tend to exist in those locations," said Tim Sheldon, Marriott senior vice president of extended stay lodging. "Consequently, the bulk of new development will continue to be in suburban highway or office park locations where we've been successful up to now."

To illustrate the relative importance of the extended stay sector within a multi-brand company, Sheldon noted that Marriott late in 2002 opened its 2,500th hotel across all of its brands, so extended stay represents 20 percent of the total portfolio.

Hilton's Homewood Suites reached its 120-property marker by opening three units—in Memphis, Tenn., New Orleans and San Francisco—in one month, December. While it was the first Homewood Suites in New Orleans and San Francisco, it was the brand's third property in Memphis. The new properties range in size from 123 suites to 177 suites.

"Our goal is to be a national brand, which means having distribution in most of the gateway business travel destinations," said Jim Holthouser, Homewood Suites senior vice president for brand management. "Beyond that, certain markets have deep enough demand to warrant multiple development. At that point, you begin thinking of a market as a collection of submarkets. The underlying objective on both fronts is the same: You don't want your frequent guest to arrive in a destination and have to stay with the competition because you don't have a flag there."

Holthouser added that this was especially true with extended stay frequent travelers, because their stays tend to be for more than a night or two.

The 50th Staybridge Suites by Holiday Inn, an 85-suite unit, is located in Tulsa, Okla. According to Jim Anhut, vice president of marketing, the occasion is particularly significant because the brand only opened its first property in 1998. In fact, Anhut claimed Staybridge was the first extended stay brand to achieve that degree of distribution in such a short time. By contrast, Residence Inn began operations in 1975. Given the crowded field, Anhut added, it's hard for a new brand to establish a distinct identity.

While buyers have become better educated about the value of extended stay pricing, operators of these brands do not pretend the interest is all that deep.

"Their interest in transient pricing still is greater and probably always will be because that's their core travel segment," said Michael Miller, vice president of sales for LodgeWorks, whose extended stay portfolio includes Sierra Suites among other brands. "But there might be a company location in a secondary destination, where they are saying to us, 'Hey, we have this long-term program in 2003 and we're going to need extended stay pricing.' "