PHOENIX — Blackstone and Starwood Capital partnered starting in mid-2021 on a pair of big investments in the extended-stay hotel segment, and now those investments are combining into a new brand for Extended Stay America.
ESA officials announced Tuesday at The Lodging Conference that more than 100 hotels acquired by Blackstone and Starwood are being converted to Extended Stay America Select Suites, the company's third brand.
ESA President and CEO Greg Juceam told Hotel News Now the new economy brand is designed for travelers with tight budgets seeking longer stays.
"We've come to realize that extended stay is actually comprised of many different types of customers and many different types of price points," he said. "And through these decades [as a single-brand company] we've been missing out on that stratification opportunity."
Juceam said the company began capitalizing on that with the introduction of the Extended Stay America Premier Suites brand, which sits just above the core Extended Stay America brand in the chain scale and offers a higher level of amenities. The new Select Suites brand goes in the opposite direction, stripping away amenities like breakfast and cutting down on the labor model by not staffing the front desk 24 hours a day.
"Select Suites is really designed to go after the longest-staying, most price-sensitive guest, so somebody who doesn't necessarily want to pay for breakfast and is staying months, not days or weeks," he said, adding they're likely also guests that don't want to lock into long-term leases at apartments.
Juceam said that — unlike many hotel brand launches — Extended Stay America Select Suites is already launching with some scale due to the portfolio acquired by Blackstone and Starwood earlier in the year.
"The hotels that we acquired earlier this year in February, not all of them but most of them, are going into this suites brand by the end of this month," he said. "Literally, we did 10 this week, and we've got a batch of another 80 coming in a couple of weeks."
Blackstone and Starwood spent $1.5 billion in February to pick up the portfolio of former WoodSpring Suites properties from Brookfield Asset Management. That came just months after the two investment giants combined forces to acquire ESA for roughly $6 billion, taking the company private in the process.
A big part of the reason those companies made those investments is the continued outperformance of the extended-stay segment since the onset of the COVID-19 pandemic, and Juceam said he expects the high level of performance to continue.
"We still think there's a pretty long runway for extended stay to perform, and I think a lot of that has to do with there's just not enough multifamily options for people that they can afford these days," he said. "Rents have gone up quite a bit."
He also noted that the brand and the overall segment is somewhat recession-proof.
"If the economy does dip, we have the historical expectation based on previous trends that the economy segment and midscale segment will do well, so it feels like it's going to be years in the making for us," he said.
ESA Executive Vice President and Chief Commercial Officer Kelly Poling said the new brand will benefit from a distribution platform designed specifically for extended-stay hotels and longer-staying guests.
"That's one of the things that really sets us apart as a brand and as a franchisor," she said. "We have a reservations delivery and distribution platform that is truly focused and honed towards serving the needs of a seven-plus-day guest. We're not putting a new brand on some massive, transient platform where the majority of the reservations are people staying two nights for a vacation."
She described the ESA Select Suites core customer as someone going through "some period of transition" that requires them to find new housing but also not willing to commit.
"You're talking about folks who may have recently moved into town who haven't yet figured out where they're going to live," Poling said. "You have folks who are frankly going through life transitions like divorce and separation. Even folks who, from a residential standpoint, it makes more sense for them to stay with us versus getting an apartment because they don't want the commitment that comes with a one- or two-year lease and first and last month's rent and everything else. Particularly with this new generation of digital nomads — younger people who are less anchored to any particular location and who might want to live in Denver to ski in the winter."
She added that over the course of the pandemic, business demand remained strong across ESA's portfolio, which she believes will carry over to the new brand.
"We got really good at servicing the needs of construction crews, railroad workers, warehouse workers, temporary medical workers, traveling nurses and that type of thing," she said.
ESA Managing Director of Franchise Development Mark Williams said the company has already started the next step of selling Select Suites franchises to hotel owners, and added there is significant interest among investors.
"We have immediate interest from franchisees who have some of the competing brands but are building our premier suites because they want to stay with ESA," he said.
Juceam said there are currently no plans to launch additional brands, but "you never know."
"We are in a dynamic industry," he said. "I would say I doubt that we're ever going to be ... a parent company that tries to emulate the conglomerate hotel brand franchisors. Part of our value proposition is we are focused on the extended-stay market ... but what we have found is there's a lot more stratification within the segment than we had previously thought."
He said the company is on a growth trajectory already, partially fueled by the strength of Blackstone and Starwood. ESA owns or manages 660 hotels and plans to invest $1 billion in renovations across its portfolio over the next five years.
"We have a lot of capital available to get them up to speed," he said.