The travel industry has changed over the past two years, and one offering is growing in popularity — the extended-stay hotel.
This asset class is an investor darling with high business demand. Blackstone recently partnered with Starwood Capital Group to acquire the Extended Stay America brand and its portfolio last year for roughly $6 billion.
It makes sense, as travelers are going on longer trips to farther away locations, due to many reasons: pandemic protocols in place, higher airline fuel prices and limited airspace in some parts of the world, like Europe, due to the war in Ukraine.
According to travel advising firm Virtuoso, the average length of stay for a hotel booked in January 2022 is 63% longer than in January 2020.
Times Square Rooftop Terrace | Image provided by AKA Hotels
One example is Manhattan art advisor Terri Kahan, who spent the winter living in a long-term stay at a Palm Beach hotel. She opted for the hotel route after bidding on a condo, which she lost to someone else who offered $200,000 over its asking price.
Even still, shopping around for a hotel in Palm Springs led her to learning that most were sold out. She found one hotel that offered a 15% off monthly rate for long-term stays. “In a hotel, everything is at your fingertips,” Kahan told the New York Post. “It’s more expensive, but you don’t have to buy furniture, hire a housekeeper or sign any contracts.”
One pioneer in the business is hotel brand AKA Hotels, which is spearheading the extended stay sector of the hotel industry. They offer furnished residences that feel like home, offering weekly, monthly and longer stay rates.
When you book on the AKA website, looking at rates for early summer at the hotel’s West Hollywood location in Los Angeles, a one-week minimum stay costs roughly $3,200. When guests book online, they can order grocery packages, so your fridge is full as soon as you arrive (they start at $89 and save the trip to the grocery store, or living off takeout meals, where the single-use plastic can quickly pile up).
The hotel also offers pet packages. If you bring your dog, for example, it includes dog biscuits, catered service and more.
An ideal extended-stay hotel has been a savior through the pandemic, serving as self-sufficient services for travelers who had no other choice but to stay bound to their hotel. A perfected extended-stay hotel room has a fully equipped kitchen and living rooms with amenities you would typically have at home.
Image provided by AKA Hotels
Larry Korman is the President of AKA and makes sure his suites are fully equipped with kitchens, prepped for month-long stays for business travelers who sometimes come to stay for an entire season.
“Long-stay hotels are a blend between the traditional hotel stay and a residential experience,” Korman said. “The operating model is unique; expense margins and loan metrics are different, and yield expectation changes.”
The brand recently acquired three hotels with Electra America to introduce AKA’s core residential philosophies and luxury, long-term living. They’re expanding into the traditional hotel category with home-like environments.
“The essence of AKA is to create a sense of calm and to nurture an ambiance that makes our guests feel at home,” Korman explained.
“We resonate with today’s traveler, who is staying longer and seeking a self-sufficient sanctuary where you can prepare a meal in your own kitchen, work from your own living room, and relax in the comfort of your own residence,” he said. “Home has always been about where the heart is and we continue to put our heart into every one of our residences.”
According to Korman, AKA has been a pioneer since the brand started in 2005. But the landscape obviously saw a seismic shift in 2020.
“The pandemic reinforced the desire for the hotel and home hybrid as travelers took fewer but longer trips and preferred luxury long-term lodging options,” he explained.
“This has been especially evident with the rise of the hybrid work model many companies have implemented. Flexibility and comfort have become key priorities and ‘bleisure travel’ is more in demand. With longer stays and trips that mix business and leisure, travelers look for spacious residences they can live in with gourmet kitchens to cook, living rooms to relax and entertain and key amenities like in-residence laundry to make for a comfortable residential stay.”
For the uninitiated, the “bleisure” travel trend is travel for both business and leisure in the same trip. This combination makes sense considering that work-life balance — especially for those of us working from home — continues to be blurred.
“It’s people from all different levels: we thought it might be more entry-level, but we found managerial does it as well, although we did find millennials more likely to partake in ‘bleisure’ than some of their older colleagues,” Jeanne Liu of the Global Business Travel Association recently told the BBC. “It’s opportunistic: it depends if you’re going to a place that you like and that you want to spend time in.”
It’s not only for travelers, but a model ripe for investors. Long-stay hotels are changing how investors approach hotels.
“Right now, the hottest segment for investors in hospitality is extended-stay. Investors are carving out a specific place for long stay hotels like serviced apartments in Europe,” Korman said. “From an investment standpoint, extended-stay residences are becoming its own property type and with that specific underwriting metrics and distinct capital raises, funds dedicated to this rising investment vehicle.”
Especially with travel rebounding, Korman is seeing an increase in the length of stay for both the hotels at AKA. “We’ve always understood the need for an elevated residential experience for longer stays and have refined our offering over time,” he said. And it truly is a growing trend. “Recognizing the opportunity, many big brand hotels have begun to enter the extended stay market, with varying space and service models,” he added.
Image provided by AKA Hotels
As the market becomes more competitive, they will up the ante on amenities and services.
“Travelers today want more experiences and offerings that feel like home, and brands will try to implement the hybrid residential hotel concept that AKA has already perfected,” Korman said.
Next up, AKA Hotel will open a new location in New York City. It’s called Hotel AKA Nomad. It’s located in the hotel formerly known as The Roger New York — which was known for its old-world charm, yet in a bustling trendy area — and will open this August in Midtown.
According to Korman, it’s “sure to be a key destination that marks a coming-of-age to the neighborhood.”
The hotel is working with Italian architect and designer, Piero Lissoni of Lissoni New York, and will have a stylish, minimal design to the classy premises. They will offer amenities, like a fitness center and cinema, while guests can have the utmost privacy staying in their unit to relax.
“The property will be ideal for both daily and weekly stays,” he said. “The hotel’s design features a sense of tranquility and sophisticated design in a neighborhood known for its history and architecture. Hotel AKA NoMad will include a globally inspired, world class wine bar; a café and outdoor cinema for summer screenings.”
Once the hotel opens, we’ll see if the extended-stay development and investment trend extends into 2023.