Standing out from the crowd

From a product standpoint, the Homewood Suites brand has stood head and shoulders above the competition for some time, says Justin Knight, president of the Apple REIT Cos., whose portfolio of 193 hotels includes 26 Homewood Suites totaling more than 2,800 rooms. “We've owned a number of first-generation Homewood Suites that have continued to perform extremely well, that do not have any functional obsolescence really of any kind,” says Knight.

Because it was not the first chain to enter the extended-stay space, the architects of the Homewood Suites brand had the advantage of being able to study the strengths and weaknesses of hotels already established in that niche during the 1980s, says Knight.

Still, the Apple REIT Cos., based in Richmond, Va., isn't putting all of its apples in the same extended-stay basket. Collectively, the four non-listed real estate investment trusts that make up the Apple REIT Cos. own 29 Residence Inn by Marriott properties totaling more than 3,500 rooms.

“If there is one disadvantage to Homewood Suites, it is not the No. 1 recognized extended-stay brand,” says Knight. “As the market picks up, Residence Inn historically tends to perform extremely well. Because of brand recognition, Residence Inn picks up a transient piece of business at a higher rate, which really juices the returns on that particular brand.”

Homewood Suites is popular with hotel owners and guests alike because the public spaces are smartly designed, says Shinn of Magnolia Lodging. “The lodge functions as a breakfast area, a meeting area, and a socializing area, plus a business center is included and typically a small meeting room or two.”

Another drawing card: the spacious suites come with fully equipped kitchens. Other features include a complimentary hot breakfast, plus free Internet access in each suite. A reception Monday through Thursday evenings also provides guests with a complimentary light meal and beverage.

Amid a deep recession and a decline in business travel, Homewood Suites holds a competitive edge, Shinn believes. “When you are offering a full suite, kitchen, social hour and breakfast, it's very attractive to all types of travelers, especially in this day and time when the economy is down and travel budgets have been cut somewhat. The amenities that we offer make it more versatile versus a typical hotel where there is a charge for everything.”

Overbuilding concerns

While extended-stay hotels are weathering today's economic downturn better than the U.S. hospitality industry as a whole, the sector is not recession-proof. During the first four months of 2009, revenue per available room (RevPAR) among extended-stay hotels dropped 16.3% compared with the same period a year ago, reports Smith Travel Research. Across the entire hotel industry, RevPAR declined 18.2% during that stretch.

The good news for the extended-stay segment is that room demand dropped only 1.9% January through April on a year-over-year basis. The bad news is that supply rose 9.3%. As a result, the occupancy rate at extended-stay hotels averaged 61.2% during the first four months of 2009, down from 68.1% during the same period a year earlier.

“The cautionary flag is that there is more supply,” says Jan Freitag, vice president of global development for Smith Travel Research. But he is quick to point out that the national data doesn't tell the whole story. “You could probably make an argument that a lot of those extended-stay properties are the right product in the right market, otherwise the bankers wouldn't have supported them.”

The supply-demand figures for the broader hotel industry reveal somewhat of the opposite problem. While room supply across all hotel segments rose a modest 3.2% during the first four months of 2009 on a year-over-year basis, demand fell 8.1%. The occupancy rate across the entire hotel industry averaged 52.6% during the first four months of this year.

Duncan of Homewood Suites says that 20 years of historical data show that demand in the extended-stay segment tends to hold steady or dip only slightly during a recession. That's because when companies restructure, reorganize or outsource work, those moves create new demand for extended stay.

The deployment of new technology or the launch of a new product or service in Corporate America also is a demand driver for extended-stay business, explains Duncan. “Typically the travel is so essential to the ongoing financial success of these businesses, if they pull the travel they will lose the revenue generated from it.”

Back in Dallas, Magnolia Lodging has brought a lot of pride to the Homewood Suites brand by developing award-winning hotels. “Homewood is very good at providing the specs that they need you to adhere to,” says Shinn. “They're also flexible enough that they don't expect cookie-cutter hotels.”

Matt Valley is editor-in-chief.

A Hotel Study In Contrasts

Much of what ails the broader U.S. hotel market is a sharp drop in demand on a year-over-year basis. That problem is far less acute in the extended-stay segment, where supply is more of an issue.

% Change in Supply YTD*	% Change in Demand YTD*
Total U.S. Hotel Market	3.2%	-8.1%
Extended-Stay Sector 9.3%	-1.9%
*Year-to-date through April 2009 Source: Smith Travel Research