May 5, 2010 -- Hotelier Matthew Newton caters to the domestically displaced. And that has helped him, and other like-minded innkeepers, weather economic upheaval.

Four of the five properties owned by Carrollton-based Magnolia Lodging LLC, where Newton is president, are extended-stay hotels. That's a rapidly growing hotel segment based on the proposition that, even during a recession, kitchen pipes burst and workers start new jobs.

In the key measures of hotel occupancy and revenue per available room, local extended-stay hotels fared better than the market as a whole in 2009, according to Smith Travel Research.

Cautiously optimistic that the worst of the recession is over, Newton and other operators must now wean recession-weary consumers from the discounted rates they've enjoyed, even as the supply of extended-stay hotels expands.

"The rates have dropped to a level where the hotel is not very profitable, and that's across the industry," said Newton, 41. "We're doing OK, but the profits have been dramatically hit."

The extended-stay category -- featuring apartment-like hotel rooms with kitchens and full-size appliances -- has been around since at least 1975, when the first Residence Inn opened in Wichita, Kan.

Marriott International Inc. bought the brand in 1987. With more than 600 locations, it remains one of largest chains in the nearly $6 billion extended-stay market.

Occupancy rates at extended-stay hotels in Dallas-Fort Worth fell 0.4 percent in 2008 to 69.9 percent, and dropped to 62 percent last year, down 11.4 percent, according to Smith Travel Research. By comparison, D-FW occupancy rates industrywide fell by 3.1 percent to 59.9 percent in 2008 and shed an additional 13.2 percent in 2009 to end the year at 52 percent occupancy.

Because extended-stay hotels tend to be smaller than full-service hotels and don't have banquet facilities, revenue is typically less. Last year, 147 full-service hotels in Dallas-Fort Worth averaged more than $5 million in room revenue alone, according to Smith Travel Research. That compared with an average of $1.6 million for 122 extended-stay hotels, which tend to charge less per room than full-service hotels.

Thanks largely to the sluggish economy, local rates at extended-stay hotels dropped 6.6 percent to $62.51 on average last year, and by 7.4 percent to $86.85 industrywide, according to Smith Travel Research.

Larger rooms and smaller prices have drawn more first timers to extended-stay hotels.

"Whereas the business traveler might not have been traveling as much ... the leisure travelers were capitalizing on that value," said Jeff Flaherty, spokesman for Marriott, which also operates TownePlace, an extended-stay chain.

One recent afternoon, Newton showed off a Homewood Suites by Hilton in Allen that Magnolia built and opened in February.

It's the fourth extended-stay hotel opened by Magnolia -- a family-owned business launched in 1997 as an offshoot of a hotel management business owned by artist and art collector Jay Shinn. He's chief executive and Newton's uncle. The other investors are Newton's parents, Sarah and Wayne Newton.

Sarah Newton is Shinn's sister. Wayne is "great at building hotels," Newton said, but is no singer and no relation to the Las Vegas entertainer.

Breakfast daily and dinner Monday through Thursday are included in room rates that can go for $99 a night for a studio to $199 a night for a two-bedroom, two-bath room suite.

At least half the guests that fill the Allen hotel's 114 rooms stay more than five nights, Newton said. They come for training, nearby construction jobs or to be near a hospitalized relative.

Some, like Colorado resident Cyndy Zemlak, are in transition.

Zemlak, her husband, Kyle, and their two daughters are moving from Denver to North Texas, where Kyle has found work in the oil business. She was in town recently to check on the progress of the family's under-construction home in Frisco, which is to be completed in August.

"I've been here almost two weeks now," said Zemlak, 45, pausing between bites of steamed vegetables and garlic and herb Tilapia in the hotel dining room of the Allen hotel. With two teenagers to feed and no desire to cook, she said she appreciated the meal service included in the room price.

"If the house isn't finished, we'll come here. They have breakfast, dinner and maid service."

The growing appeal of extended-stay hotels is attracting new franchised outlets in existing brands and new brands.

Homewood has 15 locations in North Texas -- its largest market. Three more are slated to open by the end of next year.

Hilton plans to open one of its lower-priced Home2 extended-stay hotels in fall 2011.

Starwood Hotels and Resorts Worldwide Inc. launched its Element line in 2008. And Candlewood Suites, an extended-stay chain that's part of InterContinental Hotels Group PLC, will open a hotel in Weatherford in June.

Even with the recession's stranglehold on financing, the supply of extended-stay rooms in Dallas-Fort Worth increased by nearly 6 percent in 2008 and 3 percent last year, according to Smith Travel Research.

Local growth was slower than the national pace, but the increase was still significant, said Jan Freitag, vice president of Smith Travel.

The narrower drop in extended-stay occupancy rates during the recession, compared with the market as a whole, "is certainly a good thing that should allow you to increase your rates faster as the economy comes back," he said.

Newton said he thinks rates won't head north until next year, but he said if hotels are to survive, they'll have to edge up.

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