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Extended-stay Hotels Driven by Customers With Long-term Assignments
 and an Interest if Frugality; About 3 Extended-stay Properties Built for
 Every Traditional Hotel Between 2001 and 2004
By Leon Stafford, The Atlanta Journal-Constitution
Knight Ridder/Tribune Business News

Nov. 14, 2004 - If you want to know what's happening in the economy, just visit your local extended-stay hotel.

For the past three years, the apartment-like properties have reflected economic changes through who stays in them.

When the overall economy faltered but low interest rates fueled residential construction, many extended-stays were filled with construction crews and homeowners waiting to move into new or renovated houses.

Now, as the economy has picked up, so have the numbers of corporate trainers and salespeople lodging there.

What these customers have in common are long-term work assignments, an interest in frugality --- rates are from about $30 to about $120 a night --- and the desire to feel as much at home as possible in their temporary lodgings.

The ability to accommodate them has helped extended-stay hotels post occupancy levels that are the envy of the industry. The big, fancy hotels -- the skyscrapers with mints on the pillows, valet parking and posh restaurants -- have struggled to get 60 percent of their rooms filled since 2001. Meanwhile, extended-stays -- defined by kitchens, laundry rooms and perks like personal grocery shopping -- have remained at least 70 percent filled, industry experts said.

That happened despite more extended-stay hotels coming online: About three extended-stay lodges were built for every traditional hotel constructed between 2001 and 2004.

"Extended-stay hotel supply increased at almost three times the rate of the overall U.S. hotel supply," said Peggy Berg, president of the Highland Group, a hotel industry consulting firm based in Atlanta.

Atlanta is home to several hotel corporations with extended-stay properties. It's the American headquarters of InterContinental Hotels Group, operator of Candlewood Suites and Staybridge Suites, which had a combined revenue increase of 9.3 percent in the first half of this year.

Suburban Franchise Systems, which has Suburban Extended Stay Hotels, also is based here, as is U.S. Franchise Systems, operator of Hawthorn Hotel & Suites.

Hawthorn's hotel on Parkwood Circle in Cobb County has housed Donald M. Corley Jr. on and off for more than two years. Corley, a Lockheed Martin senior quality analyst from Fort Worth, Texas, said extended-stay hotels replicate the atmosphere most travelers have left behind.

"This is my home," he said. "My wife is not here, but this is where I live."

What Corley gets at his home away from home are daily necessities: pots and pans, plates, a microwave and refrigerator, TVs in two rooms. He also is close to a clubhouse where the temporary tenants socialize. Corley, who usually stays for five days at a time, often tries to get the same suite.

Cynthia Johnson has lived at the Hawthorn hotel since May while waiting for an essential home renovation -- mold is being removed from her Douglas County house. Her dogs, Flash and Coco, live in the hotel with her; she takes them on walks around the property three times a day.

"This has been a pleasant experience," said Johnson, whose insurance company is paying for her stay. "I had never heard of this kind of hotel until my adjuster suggested it. It has really helped. And I wave at a lot of my neighbors, who I think have been here awhile, like me."

Marc Greenberg, the Hawthorn's general manager, said extended-stay hotels aim to look like a place a customer would want to live.

Greenberg's Hawthorn is a former Post apartment community, so the two-story buildings have decks, outside entrances and lighted breezeways. Post's trademark landscaping completes the package.

"People who travel for a living want to feel like they are in a home," he said. "They don't want to eat out every day -- especially ones who travel 200 days a year."

Customers typically stay for more than a week, and that gives extended-stay hotels more consistent revenue streams than their traditional rivals, industry experts say.

Extended-stays also cost less to operate. The number of rooms is generally smaller -- between 150 and 300 -- and most hotels don't have restaurants, room service, a concierge or any of the other high overhead expenses of full-service properties. Longer stays greatly reduce the need for maid service, around-the-clock front desk clerks and on-site managers.

"It costs approximately two-thirds as much to operate an extended-stay vs. a traditional hotel like an Embassy Suites, Hilton Suites or Doubletree Suites," said Mark Woodworth, executive managing director at PKF Consulting, an Atlanta firm that tracks the health of the hotel industry. "Today the market fundamentals for extended-stay appear to be more sound than those of the industry as a whole."

Kevin Lewis, chief executive officer of Suburban Extended Stay, said it's simple math.

"With once-a-week housekeeping and limited office hours, your labor costs go down, your operating costs go down, and your profits go up."

Lewis has the kind of business problem most chief executive officers dream about. More people want to stay in his economy-priced chain than he has rooms to offer.

"There has always been pent-up demand for extended-stay lodging," he said. "But most of those people have stayed at [traditional] hotels because there wasn't the supply."

Like a lot of other companies, Suburban is trying to remedy that.

The company is on the hunt for new places to build, but land prices and the cost of construction are going up, making it a difficult to get new hotels built quickly. The company, which mostly has hotels in the Southeast and Southwest, wants to move into the Mid-Atlantic region. It has a new hotel opening soon in suburban Washington, Lewis said.

Jack P. DeBoer, founder of Residence Inn, now owned by Marriott, is considered the father of the extended-stay market. A real estate developer, DeBoer opened the first Residence Inn in Wichita, Kan., in the 1970s, after realizing the hotel industry needed to fulfill the needs of longer-term customers who didn't want to feel like they were living out of a suitcase.

The industry grew slowly and was largely on the fringes until the late 1990s. That's when the economic boom created a market for new office buildings and shopping centers, and the millions of workers needed to construct them required temporary housing.

When that need waned, residential construction, buoyed by low-interest rates, picked up.

All of a sudden, said Gina LaBarre, vice president of Candlewood Suites, extended-stay hotels were outpacing their traditional rivals. That success largely was based on having the right offering at the right time, many in the industry say. But extended-stay executives aren't relying solely on luck these days.

Now that residential building may be showing signs of a slowdown, LaBarre said Candlewood is sending salespeople to firms across the country that need to lodge employees for seven nights or more. About 60 percent of Candlewood's new business is coming in this way, LaBarre said.

How long the upward trend will last is anyone's guess, LaBarre said.

But as long as demand outpaces supply, extended-stay should continue to be a good investment, she said.

"It's still a very young segment," LaBarre said.

"Ten years from now, we might not be having this conversation."

BY THE NUMBERS

--242,614: Number of extended-stay rooms in the nation

--$64.13: Average per-night price of an extended-stay hotel

--74.2 percent: Average occupancy for extended-stay hotels for first three quarters of 2004

Source: Highland Group

-----To see more of The Atlanta Journal-Constitution, or to subscribe to the newspaper, go to http://www.ajc.com.

(c) 2004, The Atlanta Journal-Constitution. Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com. ICBK, MAR,

 
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