During the early months of Covid-19, these properties, which cater to guests staying from a week to three months, were popular with first responders, nurses, military personnel, and construction workers. They drew vacationing families, project managers, and information technology workers as the pandemic progressed and more Americans began to travel.
As real-estate investors look beyond the pandemic, the demand for extended-stay properties shows no signs of abating.
This month, Blackstone Inc. and Starwood Capital Group, two of the largest real-estate investors in the United States, agreed to buy 111 extended-stay hotels under the WoodSpring Suites brand for approximately $1.5 billion. The transaction comes less than a year after the same two companies paid approximately $6 billion for Extended Stay America Inc.
Extended stay hotels are popular with guests because their rooms are less expensive than full-service and even some limited-service hotels. Rates for a roughly 300-square-foot room with a kitchenette that usually includes a stovetop and microwave start at less than $50 per night. More upscale versions, such as Marriott International Inc.'s Residence Inn, can charge closer to $140 per night and have larger rooms with higher-end finishes and appliances like dishwashers.
According to Ryan Meliker, president of Lodging Analytics Research & Consulting, a hospitality consulting firm, property owners prefer extended stay hotels because they offer profit margins of about 50% of revenue, or nearly double the industry average.
Mr. Meliker described them as "like ATMs with a roof." "Money is printed."
The hotels benefit from these margins in large part due to a lack of staff, which is an even greater advantage now that the lodging industry is experiencing a labor shortage. Because of the longer stays of guests, extended stay properties require fewer employees at the check-in desk, and housekeeping is usually provided on a weekly rather than daily basis. The hotels provide limited food service.
Last year, Starwood Capital Chief Executive Barry Sternlicht said of his Extended Stay America deal, "This isn't glamorous." "It's a standard-issue investment."
Beginning in the 1970s, hospitality entrepreneur Jack DeBoer pioneered the extended stay sector and all-suite hotels. After noticing his success, large hotel operators such as Hilton Worldwide Holdings Inc., Hyatt Hotels Corp., and Marriott acquired extended stay brands from Mr. DeBoer or others.
Even in 2020, the worst year in hotel history in terms of dwindling business, mass layoffs, and property closures, extended stay hotels held on.
Mr. Meliker predicted that revenue per available room, or revpar, in the U.S. hotel industry would fall by about 48 percent in 2020 compared to the previous year. However, he added, revpar for the extended stay segment fell by only about 33%, and revpar for the lowest-cost extended stay hotels fell by less than 6%.
Because they have few other options, some extended stay customers are guests. Rooms are sometimes crowded with people who have lost their homes. Some have recently divorced or are in other difficult situations and require a temporary place to stay.
"You see that more in extended-stay hotels than in full-service hotels," Mr. Meliker observed.
However, the segment continues to grow and evolve in new directions. Gary DeLapp, former CEO of Woodspring Suites and Extended Stay America, is now CEO of stayAPT Suites, a midpriced offering that debuted in 2019.
His new brand charges less than $100 per night for lodging, which he describes as looking more like a one-bedroom apartment with 500 square feet, a full-size kitchen, and a separate bedroom. He currently has about 20 properties open, under construction, or in the planning stages, mostly in the South, from North Carolina to Texas.
"Especially during Covid," he says, "everyone is looking for that extra space."
According to Russell Urban, CEO of Electra America Hospitality Group, a hotel investor that partners with and invests in AKA properties, the lodging company AKA Hotels + Hotel Residences offers a more luxurious take on extended stay, charging $250 to $400 per night for guests who book on average 19 days in advance.
AKA hotels have higher-end design and finishes, as well as members-only lounges serving food and cocktails. Mr. Urban believes that the rise of remote work has boosted business because more guests are traveling with their spouses or families and staying longer.
Rather than leaving on a Sunday, they will "extend their trips to Monday or Tuesday and work remotely," he said.