AMA - Extended Stay Hotel

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http://victorjm.com/podcast

This question comes from Tomas.
I believe that on a previous podcast you mentioned that there is an expanding opportunity in the market for short stay accomodations. There are folks that are looking for 1-3 month stays in their local markets to fill the gap between moving from one property to another.
Do you think that it is possible to have a small boutique hotel with regular guests and a floor of longer term (1-3 month) guests all under one roof? Or are there simply too many negative issues. If so, would such an arrangement even be desirable from an asset management perspective?
I would love to get your perspective on this.
Best,
Tomas
Tomas, this is a great question and I love the way you’re thinking. What you’re describing is following one of the basic rules of business. That is, you’re solving a business problem.
The question is whether the hotel product in question is a suitable solution for the problem you’re outlining.
The problem exists in a number of specific areas. In business the more precisely you can speak to your target customer, the better the connection. You have a few distinct problems that can be solved here.

A seller is reluctant to sell because they know it’s going to take a while for them to find a replacement property. What if the realtor could present a solution to the problem of the seller has no place to go. So they don’t put their property on the market.
Maybe their replacement property is a new construction home and it’s going to take months for the new house to be built. But they don’t want to carry two loans. It would be better to rent during the period of construction so that the capital from the sale can be used to build the new house. Carrying double the debt might feel high risk for some home owners.A tailor made rental for the temporarily displaced homeowner could be perfect.
Maybe the seller has a new house under construction and the builder is delayed. This happens with alarming regularity.  There is clearly a market for solving this problem of delayed new home closings.

So the question is what is the right product to meet that needs of that target client.
When you say a hotel, I would assert that this would need to be a suite hotel with full kitchen, a large enough work space, and enough breathing room to be a viable location for a few months. There are very few hotels that meet that description. If it’s an extended stay hotel with high quality beds and high quality amenities, it could work.
If the hotel guests and the medium term residents are segregated on separate floors, that may be enough to entice medium term guests.
I think that the first reaction from a potential guest at the thought of staying in a hotel room for 6 months would be negative. So it would need to properly positioned.
But if you can market it as an extended stay residence that happens to be co-located on the same property as a hotel, it could work. It’s increasingly the trend in hotels to double brand a single hotel property with two different brands within a hotel family.
You will see a Residence Inn co-located with a Marriott Courtyard on the same property.
Another key to marketing this to clients would be a word of mouth recommendation from the real estate agent who is brokering the deal, or the builder who is responsible for the delay.
One of the objections is the perception that a hotel room priced on a nightly basis is going to be too expensive compared with a monthly rental. While the hotel might be willing to discount the nightly rate when renting by the month, the perception is still that the nightly rate is going to be too high.
In order to satisfy the client that you have the right product, I believe the product will need to be branded and positioned as a monthly, all inclusive, medium term executive rental.