When Chatham Lodging Trust, a hotel-focused real estate investment trust, decided to enter the San Fernando Valley, it didn’t build a regular hotel but instead decided to create an extended stay facility.
The 170-suite Home2 Suites by Hilton Woodland Hills opened on Jan. 24. The property, which is located at 21110 W. Oxnard St., will be managed by Island Hospitality Management, which is owned by Chatham Chairman Jeffrey Fisher.
“This beautiful asset is an ideal addition to our industry-leading portfolio of premium-branded, extended stay hotels,” Fisher said in a statement. “The Home2 Suites by Hilton Woodland Hills will appeal to any traveler coming to the area for business, leisure or both.”
The Warner Center opening adds another extended-stay hotel to the Chatham portfolio, the third such property in the last six months with total investment of about $140 million.
“It’s a relatively new brand for Hilton,” said Dennis Craven, chief operating officer of Chatham. “It’s identified as more mid-scale extended stay.”
The new hotel also aligns with the Warner Center 2035 Plan, the development blueprint for the Woodland Hills submarket. The plan facilitates the creation of a regional center where people can live, work and play in close proximity. It encompasses about 1,100 acres and allows for a net increase of 12.5 million square feet of office, 2.3 million square feet of retail and 23.5 million square feet of new residential apartments.
“The Warner Center market is poised to boom over the next decade, and components of the Warner Center 2035 Plan are already underway, including the massive Westfield Mall redevelopment, a lot of newly constructed retail space and the opening of several new residential communities,” Craven said. “The opening of this hotel concludes the successful recycling of the proceeds from the sale of an older hotel in San Diego for $67 million into this trophy asset with an investment of $70 million. We expect the reinvestment will contribute incremental stabilized EBITDA of over $1 million compared to the sold hotel. In 2022, we will continue to recycle capital out of older assets into newer hotels with higher growth prospects.”
Craven explained that Chatham generally doesn’t have hotels in a major urban center such as downtown Los Angeles. “We tend to be specialized in semi-urban markets,” he said.
Island Hospitality Chief Operating Officer Gregg Forde said the Home 2 Suites by Hilton can accommodate locals as it is for businesspeople and leisure travelers.
“If you look to stay in town say for a project for a month or you’re staying for family for seven days or maybe you’re relocating and you’re waiting for your house to be built, purchased or renovated, this type of hotel can facilitate for you and your family to stay for weeks if not months with the type of product and the amenities that the hotel has to offer,” he said.
Extended stay trend
Extended stay may not be a new type of hospitality, but it continues to prove a popular model.
“It’s been the fastest growing segment for 20 years and represents 10 percent of hotel supply,” said Mark Skinner of Highland Group, a hotel consulting firm. “In the last 20 years, it has quadrupled. There are 560,000 rooms in the nation.”
Geoff Ballotti, chief executive of Wyndham Hotels & Resort – the hotel giant which recently announced it will launch its first economy extended-stay brand – said in a recent fourth quarter and full-year conference call that the segment is “recession- and pandemic-proof.”
Mark Williams, managing director of franchise development for the North Carolina-based Extended Stay America chain, explained the one major factor that distinguishes extended-stay hotels from the transient hotel model.
“Every one of our properties’ rooms have full kitchens,” Williams said. “There’s a cook top, full size refrigerator. It’s home away from home.”
Extended Stay America has 652 hotels nationwide. In the Valley region, the company has a  location at 20205 Ventura Blvd. in Woodland Hills, plus others in Northridge and Simi Valley.Â
For extended stay, there are certain demographics that are consistent drivers.
“If it’s a high divorce rate area, people are going to be displaced,” Williams said. “The other thing is hospitals. During COVID, we had traveling nurses staying with us. We also open in military and university areas.”
That would explain some of the Extended Stay America locations: Northridge has California State University – Northridge, and Woodland Hills has West Hills Hospital and Kaiser Permanente.
Skinner, the consultant, said often the extended stay customer is “not a tourist, it’s somebody essentially using that facility as housing for a period of time.”
During the pandemic, extended stay opened up new segments of demand, Skinner said, such as with groups of traveling medical professionals. With a private kitchen, there is no need to risk one’s health by dining at restaurants.
“They discount the rooms by length of stay so it often becomes a value proposition,” Skinner said.
“Los Angeles is one of the best performing extended stay parts of the country,” Skinner said. “The motion picture industry is a major generator of longer stay hotels. You’ve got massive migration from Los Angeles and to Los Angeles. There are industries that are known generators: aerospace.”
Williams said that as a result of its long-game model, Extended Stay America was able to weather the pandemic.
“Our rates are down 10 percent but our occupancy is on par with what we had in 2019,” he said, adding business was good “even during COVID in 2020 when the transient hotel market was hit extremely hard.”
Williams added that Extended Stay America has become the number two branded extended-day chain behind Residence Inn by Marriott from Maryland-based Marriott International Inc.Â
Residence Inn has locations in Burbank, Glendale, Santa Clarita, Camarillo and Oxnard.
High margins
Extended stay hotels are high priority for the Chatham REIT. Craven noted that 60 percent of the company’s room stays are generated by extended stay brands, primarily Marriott or Hilton.
“We’ve always believed that the best long-term returns in terms of income as well as appreciation of real estate value have been driven by the extended stay asset class,” Craven said. “Our attraction to that asset class is it participates meaningfully on the top side. The margins are fantastic. We’re very efficient at operating them because we have a longer stay of the guests and you can typically drive operating margins of 40 to 60 percent.”
The extended stay structure makes the most economic sense for Chatham.
“As a REIT, we are required to distribute essentially all of our taxable income so we don’t have to pay income taxes as a corporation,” Craven said. “Our goal is to provide an investment vehicle that will drive meaningful cash flow that we can distribute to our shareholders.”