An Overview of Hotel Asset Classes Part 1 of 3: Limited-Service Hotels
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An Overview of Hotel Asset Classes Part 1 of 3: Limited-Service Hotels The details of how hotels are classed can appear a little fuzzy. Herein we try to make things clearer. By Chris Elder, Project Manager Various developments in the lodging industry over the past decade have made it increasingly difficult to determine the official class to which a particular lodging facility belongs. Hotel* owners, developers, and lenders (not to mention guests) can be forgiven for needing some guidance through the sometimes blurred demarcations that separate one property definition from another. Yet such distinctions are at the heart of any coherent feasibility study or appraisal. So how are lodging facilities classed and what are the major differences between them? The segmentation nomenclature for the lodging industry will always be subject to some vagaries and exceptions. Smith Travel Research (STR), a leader in data collection for the lodging industry, categorizes the hotel industry into six segments known as “chain scales”: Luxury, Upper-upscale, Upscale, Midscale (with food and beverage), Midscale (without food and beverage), and Economy. These chain scales are based on the actual system-wide-average room rates of the major chains. However, rather than examining the multiple chain scales used to compare operational statistics between different property types, this series of articles addresses another industry-wide categorization: asset classes. In general, all hotels can be broken down into three: limited-service, select-service, and full-service. Part One: Limited-Service Hotels Originally defined as a hotel without restaurant or banquet facilities, the services and amenities offered to guests of limited-service hotels are typically simple. However, these services and amenities have expanded over the past decade, and in today’s market a limited-service hotel’s range of amenities might include a business center, a fitness room, a guest laundry facility, a market pantry, an indoor and/or outdoor pool and whirlpool, and small meeting rooms. “Budget” limited-service hotels offer no-frills rooms at modest prices. More robust limited-service hotels offer many of the same high-quality amenities that guests would expect from full-service hotels, with one significant difference: limited-service hotels lack a dedicated, revenue-producing food and beverage component. Hence, limited-service hotels typically have the lowest operating costs of all three segments because they don't offer catering services or multiple restaurants. Room rates are typically on the lower end of the scale as well, because demand for limited-service properties generally comes from price-sensitive commercial and leisure travelers. The majority of limited-service brands target the price point of $75 per night or less; however, the higher quality of certain brands’ product offering and finish-out can command a premium. Examples of brands belonging to this asset class include: America’s Best Value Element La Quinta SpringHill Suites AmeriHost Inn Fairfield Inn Lexington Collection Staybridge Suites Baymont Inn GuestHouse MainStay Suites Studio 6 Budget Host Hampton Inn Microtel Inn Summerfield Suites Cambria Suites Hawthorn Suites Motel 6 Super 8 Candlewood Suites Holiday Inn Express Park Inn TownePlace Suites Comfort Inn Homewood Suites Red Roof Inn Vagabond Inn Country Inn Key West Inn Residence Inn Value Place Country Hearth Inn Knights Inn Sleep Inn Wingate Inn Finally, we also note that many limited-service brands are designed to cater to extended-stay travelers. These “home-away-from-home” hotels offer rooms with kitchen facilities and a small dining table, and may offer discounted weekly and monthly rates. Conclusion Knowing where a hotel property fits into the scheme of things is crucial for owners, operators, and lenders alike. Our professional standards as appraisers require the staff of U.S. Hotel Appraisals to be keenly aware of how demand segments, market conditions, and competitive supply affect valuations of different property types. We hope this brief overview of limited-service hotels proves useful. Look for similar explanations of select- and full-service properties in future articles. * For our purposes here, both hotel and motel properties are referred to by the term “hotels.” Copyright © 2016 · U.S. Hotel Appraisals http://www.ushotelappraisals.com/services/hotel-asset-classes-limited-service-hotels/ An Overview of Hotel Asset Classes Part 2 of 3: Select-Service Hotels The details of how hotels are classed can appear a little fuzzy. Herein we try to make things clearer. By Chris Elder, Project Manager Hotel owners, developers, and lenders (not to mention guests) may need some guidance through the sometimes blurred demarcations that separate one hotel asset class from another. Yet such distinctions are at the heart of any coherent feasibility study or appraisal. So how are lodging facilities classed and what are the major differences between them? The segmentation nomenclature for the lodging industry will always be subject to some vagaries and exceptions. Smith Travel Research (STR), a leader in data collection for the lodging industry, categorizes hotels into six segments known as “chain scales”: Luxury, Upper-upscale, Upscale, Midscale (with food and beverage), Midscale (without food and beverage), and Economy. These chain scales are based on the actual system-wide-average room rates of the major chains. This series of articles addresses another industry-wide categorization: asset classes. Most hotels fit within one of three: limited-service, select-service, and full-service. Select-Service Hotels Over the course of the past several years, the stratum between limited-service and full-service properties begat a hybrid known as the select-service segment. Select-service hotels, as the name suggests, offer the fundamentals of limited-service properties together with a selection of the services and amenities characteristic of full-service properties. Generally, this means certain restaurant and banquet facilities but on a less elaborate scale than one would find at full-service hotels. On the whole, it’s fair to say that select-service properties have more in common with their limited-service brethren, but specific offerings of select-service properties vary. Select-service hotels keep operating costs down by offering services and amenities in moderation. Hence, such properties generally do not feature multiple restaurants, expansive catering services, or an abundance of meeting space. For example, a select-service hotel’s restaurant is likely to offer a limited menu and generally does not open for all three meals, seven days a week. In-room amenities, however, can approach or meet the levels found at full-service hotels. In fact, commercial demand has grown among select-service hotels since 2007, as budgets for business travel tighten. The select-service segment has continued to increase its competitive advantage by offering the in-room amenities of full-service hotels while keeping prices low in the absence of a full-spectrum product offering. While the term “select-service” may be relatively new to the lodging scene, the concept has been around for many years. For most people, a Hilton Garden Inn, a Courtyard by Marriott, or a Hyatt Place evokes an image of the quintessential select-service hotel. But the term also describes individual properties from largely limited-service brands such as Best Western, Days Inn, and Clarion when those properties feature on-site restaurants or a more elaborate array of in-room amenities. Similarly, the line between full-service and the select-service hotels has become increasingly blurred with the release of several new prototypes by full-service brands such as Holiday Inn and Wyndham. The new prototypes, which include less expansive food and beverage services and feature a smaller overall building footprint, provide for greater operating efficiency for a hotel that is less expensive to build and maintain. Examples of select-service brands include: aloft Holiday Inn Select Four Points by Sheraton Courtyard by Marriott Hilton Garden Inn Hotel Indigo DoubleTree Club Hyatt Place Ramada Wyndham Garden Inn Clarion Cambria Suites Conclusion Knowing where a hotel property fits into the scheme of things is crucial for owners, operators, and lenders alike. Our professional standards as appraisers require the staff of U.S. Hotel Appraisals to be keenly aware of how demand segments, market conditions, and competitive supply affect valuations of different property types. We hope this brief overview of select-service hotels proves useful. Look for an explanation of full- service hotels in the final installment of this series, and look here for our survey of the limited-service asset class. http://www.ushotelappraisals.com/services/select-service-hotels/ Hotel Asset Classes Part 3 of 3: Full-Service Hotels Hoteliers and lenders depend on appraisers to decode the most intimate variables that affect a property’s value, but it also helps to focus on the big picture: What type of hotel do you want to run? By Chris Elder, Senior Project Manager In two previous articles, we looked at the fundamentals of hotels in the limited-service and select- service asset classes. This article covers the basics of full-service hotels. The most distinguishing feature of a full-service hotel is the abundant provision of food and beverage services suitable for both guests and groups. Full-service hotels, unlike hotels in other segments, typically