Mark Williams, managing director of franchise development, Extended Stay America, delivers straight talk on the potential and pitfalls of transforming a tired transient hotel into a dynamic extended stay property.
With the high costs of construction and finance, conversion provides opportunities for strategic repositioning to better capitalize on market demand, especially in areas already saturated with transient hotels, according to Mark Williams, managing director of franchise development, Extended Stay America (ESA). “That’s why we’re seeing record numbers of conversions in the pipeline aimed at doing just that.” But he’s quick to add that easy doesn’t mean foolproof.
As hotel owners and developers have learned from their own experience and countless conference presentations, they need to understand the fundamental differences in the transient and extended stay models to reach their objectives. Some of those differences are obvious, he pointed out, but the ones that aren’t can undercut success.
In this interview with Hotel Investment Today, Williams took a deep dive into the how-tos for maximizing potential and sidestepping pitfalls in transient-to-extended-stay hotel conversions.
...there is a formula for extended stay and if an owner tries to interject transient business, their costs will be more than anticipated. So the key is, ‘Do not break the model.’”
Mark Williams
1. Get the zoning and building codes in order first.
Due diligence for transient-to-extended-stay hotel conversions should include a stop at city hall to determine how the local municipality classifies extended stay properties in the context of building codes and zoning ordinances.
“Various codes are going to need to be addressed. You're taking a transient asset and converting it to an extended stay model. Some municipalities will consider it a multi-family unit. It's not. So, there are some discussions needed with the individual municipalities to explain that,” Williams said.
In some instances, that timeframe will stretch the timeline because the codes for extended stay haven’t been written. “It's a learning curve for a lot of cities, but the municipal officials should recognize that the result will be positive for the community. Guests who stay 30-to-40 days because of their jobs tend to support local businesses as they would at home—from grocery stores to gyms,” he added.
2. Construction will be the largest cost.
One of the main opportunity drivers for a conversion is the lower entry cost compared to a newbuild project, but construction will still account for the bulk of redevelopment investment funds. Primarily, these costs are associated with the logistics of installing a kitchen and its required water and power lines into what was formerly a standard guestroom bay.
“The biggest cost is putting in kitchens and making sure that all the boxes have been checked regarding codes for electrical service and water,” ” Williams said.
3. Alternately, you will save on labor.
Fortunately, the extended stay model’s inherent operational upside is designed to offset the upfront investment in the physical plant conversion—provided it’s implemented correctly and targets the right market of guests who book stays from one to several months.
Extended stay hotel owners can realize significant labor savings versus a transient hotel because of higher occupancy levels generated by these long-stay guests. Unlike transient hotels, extended stay properties do not bear the labor-intensive burden of more frequent guest turnover or daily housekeeping and check in/check out. In today’s ultra-tight labor market, that’s no small point to consider.
Mark Williams, Extended Stay America
“You don't have to check in large groups of people one day and then check them out the next morning,” noted Williams. “The staffing is very different. The key is to train the staff you do have onsite to be more personal and engaging than at a transient hotel, since many guests are long-term customers.
4. Customer growth = greater profits.
It’s true, in many cases reliable extended stay customer segments like healthcare and construction workers will comprise a large portion of demand at a formerly transient hotel that has been converted for extended stay business. But there are plenty of other potential guests ready to expand the target market.
“We see opportunities to grow extended stay near military bases and colleges/universities,” Williams said. “As a converted property with a new extended stay brand, it’s up to you to go out and educate your market on the new amenities you offer.”
Owners may also want to add market-driven modifications. For example, ESA does not require meeting rooms. But Williams said that an owner who is a converting a transient hotel that has an existing meeting room can keep it “if it makes sense for them.”
It’s all part of a unique approach to customer acquisition. “Don’t forget to ask who your salespeople are going after because you need to build extended stay business. You’re not looking at guests coming in every night. That’s just not going to happen,” Williams added. “You need to develop a base of long-term stays. You also have to know your community and what's ahead—which businesses are coming in or going out; what amenities the city is adding, how the local hospital is expanding its facilities. You're accommodating the needs of a specific market. You're not a transient asset where the billboard along the highway will draw people in. That's not this product.”
5. Don’t overthink it, especially at first.
Extended stay is a proven product with a dedicated user base, and sticking to the franchise’s guidelines and suggestions can be the difference between celebrations and headaches, according to Williams.
“ESA has been through the development curve so many times. The expertise gained with each project saves owners the time and risk of learning on their own. It’s essential to trust the process,” he added.
“The extended stay model is considerably different from transient. You don't want to overthink it,” cautioned Williams. “There are things you don’t want to touch. The important thing to remember is there is a formula for extended stay and if an owner tries to interject transient business, their costs will be more than anticipated. So the key is, ‘Do not break the model.’”
Brendan Manley is a writer, editor and digital marketer specializing in hospitality content creation based in Warrensburg, New York.
The views and opinions expressed in this content do not necessarily reflect the opinions of Hotel Investment Today or Northstar Travel Group and its affiliated companies.