LOS ANGELES — The extended-stay segment has been the darling of the hotel industry through the course of the COVID-19 pandemic, and industry executives say that's not about to change.
David Pepper, chief development officer for Choice Hotels International, said investors are treating those assets more like multifamily real estate than traditional hotels, boosting their profile.
"These cap rates in economy, extended stay are going towards multifamily cap rates — low single digits," he said during the 2022 Americas Lodging Investment Summit's "CDOs Outlook" panel. "That allows developers to say, 'Now I can offset some of the added costs we're seeing in the supply chain.' It's gotten more expensive to build, but now with that lower cap rate, they can afford to build that asset."
That has helped buoy pipeline numbers for companies such as Choice and Wyndham Hotels & Resorts.
The flip side of that relationship is it can be more difficult to get those properties through governmental approvals because they're treated more like apartments and they continue to have a poor perception, Pepper said.
Ultimately, that won't be enough to stymie the segment's growth, he added.
"That perception is changing, and look at the infrastructure bill," Pepper said. "If you start building a lot of roads and bridges and you start having all these different crews coming in and staying for up to a year, those are great opportunities," he said.
Chip Ohlsson, executive vice president and chief development officer for Wyndham, said while the temptation will be there for all hotels to pick up some of that outsize extended-stay demand, hoteliers should do exactly the opposite.
"We have 23 different brands, and we spend 365 days a year identifying what each of those brands mean to the customer that comes in," he said. "Some of our transient hotels do some extended stay, but I think that's something you're going to see less and less. People are going to start to see, if you're an extended-stay hotel, that's what you need to be. If you're a transient hotel then that's what you need to be and cater to that customer."
Noah Silverman, global development officer for U.S. and Canada with Marriott International, said it's important to remember development interest and the overall recovery aren't occurring at the same pace universally.
"It's not a unified story across the country," he said. "The story around development and where it can be done and get financed ... there are pockets that clearly continue to suffer in significant ways and disruption will last a couple of years in other places."
Urban hotels, particularly those driven by corporate travel, have been the clear laggards in the recovery, but Aimbridge Hospitality Chief Development Officer Greg O'Stean said that segment is in the early stages of recovery.
"I think where it's headed is people are still social — at least most people — and people still want to have meetings," he said. "So it might not be big national conferences this year, but maybe it's more regional conferences. And those are in hotels."