The extended stay sector’s outperformance on occupancy, rate and RevPAR makes the ground-up numbers work for developers and lenders.
SCHAUMBURG, ILLINOIS -- BASK Development & Management added further proof that the new hotel construction pipeline continues to flow (albeit more slowly) with its announcement of an agreement with Extended Stay America (ESA) for eight newbuild properties throughout Florida.
Despite ongoing concerns ranging from stormy macroeconomics to uncertain supply chains and far more certain cost escalation over the development cycle, Schaumburg-based BASK Managing Partner Bimal Doshi sees opportunities that more than justify the risk-reward equation for making a move now.
“We feel this is the right time for new construction projects because of ESA's business model and the fundamentals of our markets in Florida. The state is performing exceptionally well, with a robust tourism sector and growing population fueling a need for additional lodging accommodations,” Doshi told Hotel Investment Today. “Our strengths to manage the overall development and construction process allow us to mitigate the challenges of the current environment.”
...we're having to utilize our balance sheet and guarantees to supplement the merits of the project.
Bimal Doshi
These projects expand BASK's franchised presence in the extended stay market. Doshi said the firm’s experience with this sector over its 30-year history and its vertical integration of development, pre-construction, construction, engineering, technology and asset management expertise broaden the scope of its due diligence and go/no-go decision-making.
However, finding projects that meet return expectations remains a challenge, especially with a wide bid-ask gap and sellers trying to hold out for a stronger market. For Doshi, that doesn’t mean development won’t happen. It does mean it will take longer.
“We're being very selective with what projects we pursue. So, we have spent a lot of time and effort to secure these competitive markets in Florida,” he added. “We lean on the brands to provide high-level input as to where there is a demand for their product. We further validate that through our own research and supporting data.”
All eight of the properties will be branded under the Extended Stay America Premium Suites flag. BASK plans no changes to the standard 52,000-sq. ft., 124-room prototype. “We feel the product is well designed and does suit the needs for the Florida markets,” Doshi said.
The next hurdle is getting financing in place.
“It is no secret that securing construction loans are difficult in the current lending climate,” Doshi said. “But there are lenders out there who have a similar perspective as we do—to be prudent and selective, but to transact on opportunities in strong markets with sound fundamentals. We consider ourselves to be a strong sponsor with a long-standing track record and we're having to utilize our balance sheet and guarantees to supplement the merits of the project.”
Doshi said BASK is looking to grow its presence in the extended stay market as it builds out its current portfolio of 30 open hotels and six in the pipeline alongside the ESA projects.
And that, in turn, will keep the sector and its brands on a fast growth trajectory. “We are excited to welcome BASK Development as a new owner of Extended Stay Premier Suites brands,” said Mark Williams, managing director, franchise development, Extended Stay America. “Franchising continues to play a large part in Extended Stay America’s development strategy, and we look forward to working with all of our current and prospective owners to continue growing all of our brands throughout the United States.”