LODGING brings you the final installment of our three-part Ownership Series, providing owner perspectives on various hot topics and industry trends. For this installment, Mason Miller, managing director for Provident Realty Advisors, elaborated on the benefits of investing in the extended-stay market following Provident Realty’s purchase of 16 hotels from Extended Stay America, conversion of seven hotels to the brand, and experience building two Premier Suites hotels.
With a deep background in developing multi-family apartments, Provident Realty Advisors several years ago identified many similarities within the extended-stay segment and recognized the segment’s seemingly unlimited growth potential. The Dallas-based company also identified Extended Stay America (ESA) as the ideal brand through which to increase the likelihood that such growth would occur.
In 2018, Provident Realty purchased 16 hotels from ESA and the company has subsequently converted seven hotels to the brand, acquired in 2019 and 2020. The company is also currently building two ESA Premier Suites, including a 115-room hotel in Schertz, TX, which is expected to open by the end of the year.
Mason Miller, managing director, Provident Realty, touted ESA’s singular focus on the segment and its reputation as critical factors in selecting the brand.
“They’ve got the best brand name in the space because they’ve got extended-stay in the name. They’ve also got a 30-year history in this space, so while you’ve got a lot of brands that have recently announced extended-stay product, ESA has been doing this for 30 years now and has a proven track record,” he said.
Miller further added, “they also have a great commercial engine to help drive business to their franchisees’ hotels with their distribution. They’ve got a great national sales accounts team and national sales account listing,” he said.
Miller, meanwhile, elaborated on some of the benefits of investing in extended-stay development in comparison to multi-family apartments.
“From a project economic standpoint extended-stay hotels typically are built to a higher return on cost and generate higher cash-on-cash returns. As Provident Realty CEO [Leon Backus] puts it, ‘when looking at these assets and the performance that we’ve generated over the past five years these extended-stay hotels when they work right can be like an apartment complex, but with twice the yield,’” he said.
The company’s timing for entering the segment couldn’t have been better as Miller referenced the robust performance of its ESA portfolio of properties with occupancies generally exceeding 80 percent.
“We’ve had a tremendous experience and especially with that first portfolio that we purchased from ESA back in 2018. I think we got in at the right time because COVID obviously lit some rocket fuel under this asset class because of how well it performed and asset prices appreciated,” he said.
Miller acknowledged there are some inherent advantages to conversions noting that the extended-stay properties the company had acquired from other flags already had kitchens in each guestroom, as an example. From there the company focused its efforts on exterior/interior signage, making sure the IT systems were compliant with ESA brand standards, and refreshing the lobby and seating in the guestrooms.
“We’ve converted seven assets in the past few years to the Extended Stay America brand and generally speaking we were able to increase overall hotel occupancy and reduce operating expenses, which will result in better flow-through and better profit margins,” he said.
The company is also involved in new construction projects. Miller pointed out that Provident is particularly bullish on ESA’s new Premier Suites brand, which was launched in 2021 and features new construction and fully renovated properties, as well as upgraded amenities.
“We really like the Premier Suites brand right now and currently have two under construction with plans for more in the very near future. We like the idea of having a new nice box that is more positioned in the moderate, mid-price segment to go after higher rates, but still be affordable and a true extended stay. I know from some of the other Premier Suites hotels that have been developed across the country that they’ve achieved some very good results,” he said.
Miller noted that while the company has ranged outside of Texas for some developments, Provident remains very much focused on the area “in our backyard,” particularly as the ESA Premier Suites brand has a relatively limited presence in the state. He further referenced a recent Wall Street Journal article that stated that 5 of the 10 fastest growing markets in the country were in Texas.
“We’ve found some great business friendly, development friendly cities here in Texas making our lives easier to get a project out of the ground. It’s in our backyard so it makes it efficient. In addition, we are most effective at managing the development from a city process to the construction process and then to the management and asset management process,” he said.
Finally, Miller talked about the evolution of the company within the hospitality space and the role that ESA has played in moving that forward.
“I think to start with it would be the familiarity and how we have matured as a hotel investor and developer in this space starting with Extended Stay America and keeping that relationship going past 6 years. We’ve always had a great relationship with them and that just makes it easier to do business when you know someone can help get some things done for you if you need it,” he concluded.
