News for the Hospitality Executive
Value Place - A Hotel / Apartment Fusion
The Value Place Franchise Model is Carving a Distinctive
Niche in the Extended-stay Hotel Market
by Laurel A. Keller, July 2009
Hotel and 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)
In addition to beds with full linen sets, complimentary amenities include the following:
Dresser & nightstand
À la carte amenities available for purchase at Value Place Hotels include:
"Dish Pack" with place settings, pots, pans, and cooking utensils
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
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.
Laurel A. Keller is a Senior Associate with Hotel & Leisure Advisors and holds a Certified Real Estate Appraiser’s License in the state of Ohio. Since 2001, she has performed appraisals, market feasibility studies, operational reviews, and impact studies for a wide variety of hotels, timeshare resorts, golf resorts, ski resorts, indoor and outdoor waterpark resorts, restaurants, and other leisure and hospitality oriented income-producing assets in 28 states. Ms. Keller is a graduate of Purdue University’s Hospitality Management program. She has held management positions in the food and beverage, front office, and sales departments of hotel and country club properties in Ohio and Illinois. She can be reached via telephone at (216) 228-7000 extension 22, via e-mail at firstname.lastname@example.org, or via LinkedIn at www.linkedin.com/in/klaurel.
Laurel A. Keller
|Also See:||Value Place Hotels Appear to be Another Winner by Longtime Wichita Hotel Entrepreneur Jack DeBoer; Value Place Concept an Unusual Combination of Hotel and Apartment House / August 2006|
|Jack DeBoer Honored - Pioneer in Creating Four Hotel Brands, the Free Breakfast / December 2008|