Choice Courts Institutional Investors With New Extended-Stay Brand

LOS ANGELES—With 400 extended-stay hotels in its portfolio, Choice Hotels International Inc. is doubling down on the segment with Everhome Suites, an all-new-construction, midscale, extended-stay brand. With 13 franchise commitments signed for properties here and in Austin, TX, the company is following the blueprint for success that it used with WoodSpring Suites, its all-new-construction, economy, extended-stay brand.

“When you look at the rooms that were sold in the United States in the last year, 20% of those were for an extended-stay of seven nights or more, and yet only 9% of existing supply is purpose-built extended-stay,” said Pat Pacious, Choice’s president/CEO, at a media event at ALIS previewing the new brand. “The customer in this segment, we believe, has been underserved.”

Extended-stay is a high-growth segment for Choice; Pacious noted that 20% of the existing extended-stay supply line comes from Choice’s brands. Everhome Suites is the company’s fourth extended-stay brand, joining WoodSpring Suites; economy, conversion product Suburban Extended Stay; and MainStay Suites, which will be the company’s midscale conversion offering, as well as a vehicle for dual-branded properties, along with Sleep Inn.

According to Pacious, Everhome is targeted at the heart of midscale. “We’re looking at the value-conscious customer who is really looking for an apartment-style accommodation that can accommodate their needs, the way they live, the way they work, so when they get into the space, they can adapt it to the way they want,” he said, noting that the brand will skew more toward the business traveler, though it all depends on the market. “The idea here is for them to be able to continue their routines while they’re on the road.

“You’ll see things in this product you would not see in our other brands,” Pacious added. “From the standpoint of it being a differentiator for us with our existing franchisees and owners, it’s going to be a really exciting opportunity for them to develop another extended-stay product for us.”

Features of the new brand include studio and one-bedroom apartment-style layouts; guestrooms with defined spaces that separate work from play; rolling, variable height workstations; full-size closets and additional open and closed storage; spa-like bathrooms with ample counter space; fully equipped kitchens with full-size refrigerators, dishwashers, stovetops and microwaves, as well as flatware and cookware; multipurpose lobby areas with locally inspired design; fitness centers with cardio and strength training equipment; libraries and guest laundry facilities; 24/7 self-service marketplaces with hot and cold breakfast options; and outdoor pools, depending on the market.

“We set out to create a brand that would let guests build life on their own terms in an extended-stay trip with comfort, convenience and stability,” said Anna Scozzafava, VP, brand strategy and operations, extended stay, Choice Hotels.

Choice broke ground last week on the first property in Corona, CA, which is expected to open in 2021. With a focus on top 50 MSAs in the U.S. and Canada, Ron Burgett, SVP, franchise development, extended stay, Choice Hotels, said Everhome will follow in WoodSpring Suites’ footsteps, with an area development model, which gives developers the freedom to grow in their desired market.

“The same way we did WoodSpring, we’re going to have somebody buy an area for a period of time—we usually give them a year or two and they’ll commit to a certain number,” he said. “We’ve proven we can deliver a good product with WoodSpring.”

David Pepper, Choice’s chief development officer, noted, “We sold these master developer areas here in L.A. and Austin, so what we will see is more of this institutional type of buyer, these really sophisticated developers who will buy these areas and stamp them out, the same prototype, around that market. We’re very strategic where we’re putting them.”

He added, “We will do some one-offs but right now there’s a lot of interest in the master agreements. It’s really attracting institutional capital.”

Pacious elaborated on why. “Think about the amount of equity they have. The amount of equity you have to put into an Everhome is a lot smaller than an upscale hotel, so you can spread your geographic risk out somewhat by putting $2 million each into 10 hotels instead of $20 million in a single asset,” he said.

The target average national rate for Everhome is $85, about a 40% price differential from WoodSpring Suites. The cost per key is on average 20% higher than WoodSpring Suites, at about $85,000 per key.

The company is looking at site costs between $1 million and $3 million. Pacious noted that there are WoodSpring Suites owners “who want to do a product but the land costs require you to drive a higher rate. That’s another driver of what we think will make Everhome a real success for us.”

“This is probably the first brand to be launched in the heart of midscale extended-stay in over a decade,” Pepper said. “Most of the hotels in this segment probably average about 15 years old, the age of the properties. What we’re looking to do is breathe new life into this attractive segment.”

According to Pepper, developers are attracted to Choice’s extended-stay brands because of its proprietary operating model. “That’s kind of the secret sauce,” he said. “We know how these things operate and how to bring this into the midscale segment. It offers high returns and is also very cycle resistant, which obviously is attractive for potential developers.”

Scozzafava noted that the brand was also designed to hit the profitability threshold, with about 10-12 full-time employees at the properties.

“At the end of the day, there’s a lot of brands in the extended-stay segment, particularly as you get to the higher tier, where the amount of transient business is significant,” Pacious said. “For this to work, you’ve got to keep your extended-stay occupancy above a certain threshold. The more transient business you have, the heavier your operating costs. The secret to this is to make sure you’re putting it in a market where the types of demand you’re getting is truly extended-stay. If you turn it into a transient hotel, then you should be doing a MainStay/Sleep product. It really is making sure we’re not overloading the owner with amenities or services the guest doesn’t value.”

How many Everhome properties does Choice hope to have signed? “This year, we’re shooting for at least 50,” Pepper said.

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