July 20, 2009
by Laurel A. Keller, published by Hotel Online
Hotel & Leisure Advisors has completed numerous studies for various extended-stay hotels over the past several years. My colleagues and I have noted that one new brand to enter the market – Value Place – differs notably from the other extended-stay brand offerings in terms of expense margins, amenities, cost to build, price point, and customer base. In short, Value Place looks like a hotel, but acts more like an apartment complex.
Just six years ago in 2003, Jack DeBoer saw a void in the economy portion of the extended-stay hotel industry and founded the Value Place brand. Mr. DeBoer is also the founder of well-known brands including Residence Inn, Summerfield Suites, and Candlewood Suites. It seems DeBoer’s concept was a winner, as there are currently 149 operational Value Place Hotels in the United States with 12 more under construction and slated to open in 2009. This makes Value Place one of the fastest growing hotel brands in the nation. The Value Place brand omits the whistles, bells, and frills found at other chains in order to offer the lowest rates possible and provide only what the consumer really needs. Additional services and amenities are available to guests on an à la carte basis. In actuality, what the Value Place brand offers consumers is a furnished apartment available for rent on a weekly or monthly basis. So is it a hotelment? An apartel? Call it what you like, frugal consumers recognize this Place as a good Value.
Don’t bother packing your bathing suit, as you won’t find a swimming pool at a Value Place Hotel. The same goes for an exercise room, business center, sundry shop, free breakfast, or evening wine & cheese reception with the property’s general manager. The suites at Value Place have a cozy dorm room feel, offering only the essentials in a clean and simple, rather spartan environment. Room types at Value Place Hotels include:
Studio (sleeps two)
Studio w/ Sleeper Sofa (sleeps four)
Studio Double (sleeps four)
In addition to beds with full linen sets, complimentary amenities include the following:
Dresser & nightstand
Dining table with two chairs
Two-burner stove, full-sized refrigerator, microwave, and sink
Sofa (Studio w/ Sleeper Sofa only)
Coffee Table (Studio w/ Sleeper Sofa only)
Television with cable channels & one free movie channel
Bi-weekly housekeeping service
First roll of toilet tissue and first bar of soap
Private secured entrance
À la carte amenities available for purchase at Value Place Hotels include:
“Dish Pack” with place settings, pots, pans, and cooking utensils ($49.95)
High speed Internet access ($10 per week)
Daily housekeeping service ($3 per day)
Weekly linen exchange ($7 per week)
Guest laundry facilities
A guest accustomed to staying in a typical extended-stay hotel might feel “nickel and dimed” by the Value Place pricing strategy. However, an individual comparing a Value Place property to a typical apartment or comparable extended-stay hotel may wel-come the option to choose only those amenities deemed necessary or worthwhile. The included picture is of a prototypical Value Place guest room.
Who is the Value Place Consumer?
Value Place branded properties attract consumers seeking furnished apartment accommodations from one week up to several months at a time. Guests typically include people visiting relatives for a week or more, relocating families, students, thrifty leisure-oriented guests, groups of construction workers, other corporate-oriented long term stay groups, student groups, sports teams, companies looking to house workers for extended periods, and individuals stationed in an area for long periods of time while working on projects, etc. According to a representative with Value Place, market segmentation for the brand includes approximately 45% work-related travelers, 30% housing transitioners, 15% leisure-related vacationers, and 10% others (students/residents, etc.). The 2009 year-to-date average length of stay is 67 nights as of May.
Benefits of the Brand
Value Place hotels offer minimal amenities and operate with approximately four to five employees on staff (including two to three resident supervisors). The budget-oriented nature of the hotels enables them to operate at lower expense levels than other competitive extended-stay and select-service hotels.
Typically, Value Place properties offer the least expensive extended-stay hotel rates in their respective competitive markets. They consequently appeal to both to penny-pinching extended-stay hotel guests as well as individuals looking to rent a furnished apartment for a month or more.
According to HVS International’s 2008 Hotel Development Cost Survey, the average development cost for extended-stay hotels in 2007 was $133,800 per room (excluding land acquisition. In comparison, development costs for Value Place Hotels are typically in the vicinity of $50,000 per room (excluding land acquisition).
Challenges of the Brand
Value Place branding prohibits a hotel property from accommodating transient overnight demand (as Value Place has a minimum length of stay equal to one week). Though guests can stay for shorter time periods, they are still responsible for the entire weekly fee.
Value Place hotels prominently display their weekly rate offerings (typically in the $199 to $229 range) via exterior signage. Though most extended-stay hotels offer discounted weekly and monthly rates, potential customers may be wary of a lodging facility charging such extremely low rates.
Value Place hotels do not offer frequent guest programs like some other competitive extended stay properties (such as Starwood Preferred Guest, Marriott Rewards, Hilton Honors, Choice Privileges, or IHG Priority Club). As points earned through these programs can be redeemed for free stays and other items, they are highly prized by travelers in all market segments.
According to “The Brand Report” by Hotel Business, the Value Place brand recorded a combined occupancy of 83% at an average daily rate of $28 for the fiscal year ending 9/30/07. The brand recorded an average daily rate of $29 as of 9/30/2008, but did not report its occupancy percentage for the year. As a means of comparison, I profiled both the performance of suite hotels without food and beverage from the most recent PKF Trends report, and U.S. apartment averages from the current RealtyRates.com survey. The results are depicted in the following table.
In 2006, the six existing Value Place Hotels (all company-owned) recorded a combined occupancy of 82.5% at an ADR of $24.35. As depicted, the Value Place properties recorded higher occupancy levels and lower rates than the suite hotels profiled by PKF. Additionally, the Value Place properties performance more closely represented the U.S. apartment averages than the suite hotels. From a consumer standpoint, the most notable difference is in the three property types’ monthly rent offerings. At $731 per month, the fully-furnished Value Place guest room would be an attractive option for a budget-conscious traveler looking for a long-term residence without signing a long-term lease.
As shown, Value Place hotels earn substantially higher net operating income as a percentage of revenue than other types of suite hotels without food and beverage, though apartments achieve somewhat higher NOI on average. Value Place hotels typically operate at lower expense levels than other select-service and extended-stay properties due to their stream-lined staffing levels (usually two to three resident supervisors and one or two managers per property); limited hours of front desk operation (typically Monday-Friday 9 a.m. to 6 p.m., Saturday 10 a.m. to 2 p.m., and closed on Sundays); à la carte pricing strategy; and reduced bi-weekly housekeeping schedule.
Smith Travel Research currently tracks 2,600 hotels with 302,000 rooms in the extended-stay lodging segment. Historically, extended-stay properties have weathered economic down-turns better than other segments of the lodging industry because their pricing model and amenity offerings provide higher value for long-term stay customers. Though struggling, extended-stay properties are fairing a bit better than other property types during this current economic recession. According to STR, RevPAR declines for the total U.S. hotel market and the extended-stay segment through April 2009 are similar, as RevPAR declined by 18.2% for the U.S. and fell 16.3% for the extended-stay segment.
The Value Place franchise model is carving a distinctive niche in the extended-stay hotel market due to its unique à la carte pricing strategy, no frills accommodations, and low operating cost. Though all segments of the lodging industry are currently sloshing through the economic downturn, Value Place hotels have the potential to outperform other property types as they also resemble and compete with apartment complexes. Demand for apartments in the U.S. is projected to remain high resultant of the recent and ongoing wave of home foreclosures from coast to coast. Conceivably, Value Place could be successful in turning some of these potential apartment tenants into hotel guests. As lenders and developers examine potential development projects in the back half of 2009 and beyond, Value Place’s high occupancy levels, low operating costs, and low cost to build will likely raise some eyebrows, making this brand an interesting one to watch as it continues its fast-paced expansion throughout the U.S.
This article was originally published by Hotel Online.