Economy Segment Ripe With Opportunity

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While several execs on the opening general session at The Lodging Conference last Wednesday were talking about how hot the upper midscale and upscale segments were, I couldn’t help but think about the economy segment. Maybe it’s because I’m a contrarian or because that same morning I had just read about Motel 6’s 50th anniversary and its new start with Blackstone.

I remember writing a story a couple years ago about Red Roof’s financial distress, and someone said the economy segment was really the only one without a dominant player. In the upper upscale chain scale, Hilton and Marriott battle for supremacy. In upscale, Courtyard is usually a developer’s first choice, with Hilton Garden Inn close behind. The upper midscale segment is dominated by Hampton Inn & Suites, and midscale features strong players like Best Western and La Quinta.

But in the economy segment, it’s not nearly as clear cut. Days Inn and Super 8 have the numbers (in amount of properties), while the smaller Microtel brand typically takes the annual guest-satisfaction awards. Motel 6 has the longest history, while Red Roof was an emerging player climbing beyond its Midwestern roots before being slowed by financial difficulties. Americas Best Value Inn also has the numbers —more than a 1,000 properties in just over a decade — but not the name recognition yet.

Not one of those brands is the first choice among consumers and developers across the country, but the opportunity is there and beyond (globally). For some, cleaning up quality and improving consistency would help, while others need to increase density and/or name recognition.

While extolling the virtues of upscale select-service brands like Hilton Garden Inn and Courtyard by Marriott on that Lodging Conference general session, Interstate Hotels & Resorts CEO Jim Abrahamson casually mentioned the economy segment would always be there. It’s not going anywhere, and many customers — perhaps more than ever after the recent downturn — still crave value and seek the lowest price.

It may not be the hottest market, but it’s steady. Local banks combined with SBA and USDA participation make development very possible even today. Plenty of interstate markets have outdated product ready to be razed and replaced.

Blackstone clearly sees opportunity and is betting $1.9 billion on Motel 6. At last week’s brand conference, it announced plans to take Motel 6 global and invest half a billion dollars to grow it and Studio 6.

Speaking of Blackstone, there was also news later that same day at The Lodging Conference that La Quinta was going to market 46 of its bottom performing properties for sale. Those exterior-corridor midscale hotels could probably make nice economy properties. You’d have to think if Blackstone was interested in those for possible sale and conversion to Motel 6, there wouldn’t have been this announcement. So that leaves those assets available for other midscale or economy conversions. They might fit into some of Choice or Wyndham’s brands, but those companies would have to find the right buyers first.

Red Roof could be another option. CEO Andy Alexander said at Red Roof’s conference last year that the company’s new capital partners would open the door for potential acquisitions of smaller portfolios or chains. The year before that, a Red Roof survey said many of its customers preferred exterior-corridor hotels. Could some of those older La Quinta Inns be in the South and West, where Red Roof is looking to grow?

With or without those 46 properties, there is now a great opportunity for someone to take control of the economy segment.

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