LOS ANGELES — Extended-stay hotels are not a new thing, but Noble Investment Group founder and CEO Mit Shah says it's still a segment rife with opportunity for long-term investors.
In an interview during the Americas Lodging Investment Summit, Shah said there's a persistent gap for hotel guests seeking monthslong stays but a higher degree of safety and reliability than offered on short-term rental platforms such as Airbnb.
Noble Investment Group has made several investments in that segment in recent history, including the January purchase of a portfolio of 14 WoodSpring Suites hotels.
"What we've been doing with our investments in extended stay in this last portfolio is very consistent with a number of portfolios that we've been buying," Shah said. "It actually was a very interesting portfolio. ... But our business model for that was to acquire existing assets that had strong in-place income streams. So eight-plus percent on leverage yields, but then flip the operating model such that two-thirds of that revenue base were customers that were staying 30-plus nights."
Longer hotel stays clearly equate to larger profits, Shah said.
"Your housekeeping costs go down. Your role in terms of the customers get much more stickier and much more durable, and that allows you to drive a very high margin, even though your ultimate rate on those 30-plus nights might go down, the profitability actually increases and expands," he said.
Shah described this approach to prioritizing month-plus stays over things like weeklong stays as "extended stay 2.0" or "branded long-term accommodations." In addition to having a streamlined operating model, these hotels will need to make a shift in how potential guests find you, he added.
"They're not booking through [online travel agency] channels," he said. "So a lot of it is direct."
The hotel brand companies have been recently making investments in this space as well, with both Marriott International and Hilton launching apartment-focused brands that cater to monthslong stays better than even traditional extended-stay and studios brands, Shah said.
"They prioritize the value of being a part of their loyalty programs, and they want them to curate these kinds of not only experiences in terms of travel, but in how they live and how they stay," he said.
For the rest of the interview with Noble's Mit Shah, watch the video or listen to the podcast above.