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Spencer Levy
By some measures, the U.S. hotel industry lost tens of thousands of rooms, or even more, in the wake of the pandemic. And while some assets and brands experienced a quicker comeback than others, stories of growth in the hotel business have been rare. On this episode, we check into one such story.
Greg Juceam
Extended stay hotels in general are different from other types of hotels. But what I would tell you in trying to keep it short and sweet, there are four things that really make us different.
Spencer Levy
That's Greg Juceam, President and CEO of Extended Stay America, a leading name in the world of, well, extended stay hotels, a niche that has experienced a period of strong growth while straddling the line between pure hotel and residential rental. Greg will share the keys to how and why that is, and unlock the whole story of this prominent brand. Coming up, our guest joins me at the CBRE office in Oak Brook, Illinois, outside of Chicago, for a stopover in the world of extended stay hotels. A conversation with takeaway for travelers, operators, investors, and more. I'm Spencer Levy, and that's right now on The Weekly Take.
Spencer Levy
Welcome to The Weekly Take. And this week we are delighted to be with Greg Juceam, the president and CEO of extended stay America. Greg, thanks for coming out.
Greg Juceam
Happy to be here. Thanks for having me.
Spencer Levy
Great to have you, Greg. And Greg, for our listeners, tell them what does Extended Stay America do?
Greg Juceam
It's our 30th year, so we're delighted to be celebrating with everybody, including our staff, all of our constituents, our investors, our franchisees. So the timing of this is terrific. And the company, for those that aren't aware, has been a pioneer and leader in the extended stay lodging segment in the United States now, as I mentioned, for 30 years. For your listeners, extended stay hotels are hotels that are purpose-built for guests that are staying for weeks and months on end. And so even at the lowest end, the economy end of the segment, those are hotels that have rooms that have built in kitchens, purpose-built. Nothing is removable. Full refrigerators. And in the common space, the public space, a place for the guests to self-serve, do their washing and drying so they're comfortable for an extended stay period of time. So Extended Stay America was the original affordable extended stay company. It now has over 700 locations in 45 states. All domestic. Nothing outside of the U.S.. And has been doing this for a long period of time, serving 22 million guests a year.
Spencer Levy
Wow. So 22 million guests, 700 locations. Where are some of these locations? And tell us a little bit more about these different segments.
Greg Juceam
To begin with, we have three brands. Everything that we do is based around extended stay. We don't have any hotels that are focused on a single night guest, transient guest. We don't do groups, meaning, you know, groups with convention space and food and beverage and those kinds of things. So the hotels are primarily all across the country. And as I mentioned, almost every state in the U.S. And we, for the most part, serve secondary and tertiary markets. You're not going to see too many extended stays in Manhattan, for example, or in downtown San Francisco. But we're in almost every other location. And in most markets, we have 5, 6, 7, 8 hotels.
Spencer Levy
A lot of people shy away from secondary markets, especially in hotels, because they're afraid about exit liquidity. What do you do to get your investors comfortable with these secondary markets?
Greg Juceam
Yeah, actually, we're probably running in the opposite direction that you're mentioning. We created a brand just two years ago called Extended Stay America Select Suites, which is a pure economy brand. Think lowest price, longest average length of guest that you can think of, because there's a need for it. There is plenty of business, not just the business segment of our mix, but people looking for temporary housing in places that does not yet have an infrastructure in order to do that. And so we actually created this brand not just to build it ourselves. We started it with an acquisition of 111 hotels that we used to seed the brand, but our franchisees are liking it as well, because America is just expanding outwardly. And you could take any big city right now and the central business districts… some of them are hot and some of them are not. And people are looking to go further and further out. Texas just seems to be expanding in every single way. And before you build a group oriented hotel that does conventions or you build some kind of fancy hotel, I mean, there's demand for business and for residential type accommodations before that. And if you build it with low costs, where the brand that the investor picks is affordable and there's a low cost operating model, and then you can therefore pass along low prices to guests who need to stay for weeks or months, you can make an incredibly viable business. And so we saw an opportunity to do that. We actually have grown that brand from 1 to 220 hotels in just two years, and I think the trajectory… it’s got huge potential.
Spencer Levy
And those 220 hotels, those are mostly existing hotels that you're rebranding, putting work into rather than ground up. Is that correct?
Greg Juceam
That's right. We have our first newbuild that's actually opening in Wildwood, Florida, in early 2025.
Spencer Levy
Tell us about how extended stay is the same or different from what we conventionally think of as a hotel?
Greg Juceam
Yeah, I think it's an important question and we could probably take your entire podcast talking about how we're different and how extended stay hotels in general are different from other types of hotels. But what I would tell you in trying to keep it short and sweet, there are four things that really make us different. The first is that we were the first. So, Extended Stay America has the words extended stay in our name. It was probably the first and most important business decision that we ever made. We have 90% awareness, which is 10% higher than our next closest competitor and about 20% more awareness than the industry overall. So that's the first thing. The second thing is we have scale. There are other companies that do what we do, but having over 700 locations in all of the different states makes a difference. I should mention we have three entities. People know us commercially as Extended Stay America, but really what we are are three different businesses that are all affiliated with one another. First, we have a brand. That's what most everybody knows as Extended Stay America. We have a real estate investment trust, which owns nearly 600 hotels all around the country. We're actually the largest real estate investment trust in the hotel space in North America. Very few people know that. And we also have a third entity, which is our management company entity, which manages hotels for both the REIT and for other owners. And so for those of us that do all three of these entities and lead these businesses every day, the day goes by pretty quickly.
Spencer Levy
So let me ask what may be the trillion dollar question. There have been periods of time, and I go all the way back to when Starwood, I think, did the ITT deal. And what they had there was, I think it was called a paired-share REIT. It was one of the last entities where you were able to have under the same roof both the ownership and management of REITs. But that was the last of its kind. And since then, most people have separated the two functions into the ownership and into the management. Now you may have them in separate legal entities, but you have them under the same umbrella. What's your thinking about having them under the same umbrella, where I think it's fair to say that most in the industry have separated the two?
Greg Juceam
Yeah, definitely separate legally and in functional reality, as well. Most hotel brands these days no longer offer any real estate. They don't own real estate. It's amazing how many people in America think, just for example, that Hilton and Marriott own and operate all of their hotels, when in reality, they own almost nothing these days. And so we're a little bit of a different animal in that we are not asset light in that way. And then having a management entity enables us to stay close to what's happening on the ground. So when our franchise owners come to us with opportunities to solve and they want us to be understanding of the issues that they're facing, well we face that in our management entity. And so we keep those groups separate. And each has separate expertise between the real estate team, the management team, and the branding team. But having skin in the game and all of those three areas is something that's atypical these days and a competitive advantage for us.
Spencer Levy
But that disconnect between ownership and management sometimes works against the consumer. If you have a problem and you see Marriott on the door, the owner may have different interests. So is that one way to serve the consumer better?
Greg Juceam
To serve the consumer better and the franchisee better, right? So, for example, if we're going to create a brand standard, maybe it's something that the consumer wants. We're going to investigate that first. We're probably going to take a run at that in our managed portfolio first and see if the solution is a good solution for the guest. See if it's affordable for them. We want to keep the costs and rents for them very reasonable. So just because they have a suggestion doesn't mean it's a great idea. We’ve got to keep the costs down so they can afford to stay with us. So we'll take a run at that often. We do lots of pilots in our managed portfolio. If something works out on the management side or it's good for that real estate investment, then it's probably good for the franchisees, as well. And so almost everything that we roll out as a brand standard, we've tested it. Otherwise, we're creating brand standards that we ourselves have to do hundreds of times over, and it doesn't work for anybody.
Spencer Levy
What are the benefits and the burdens of having a franchisee model versus an ownership model, which is primarily what Extended Stay America does?
Greg Juceam
Right. So franchising for us is only about eight years old. Everybody was sort of putting their toe in the water back in the day. It was about three years ago when our company was privatized and I came on board that we made a decision at a board level that franchising is something that we're committed to for real scale for the long run. And so we've been building that business over time. Today we have about 125 franchise hotels in a system that's over 700 hotels. So it's only about 20% of our business today. But I think it can become 50% of our business within a few short years from now.
Spencer Levy
So one of the things that have always been attractive about the big brands is the reservation system. How important is that as an element of being a franchisee?
Greg Juceam
It could be the most important thing that a franchisee is looking for. I mean, really, why are they hiring us? Not because we're nice people, even though I think we are. They're looking for a return on their investment and they have lots of choices. There are hundreds of hotel brands in North America today from which they can choose. And even in the extended stay space, there's plenty of options for them. And so what they're really looking for is a commercial system that will drive results for them. And for the extended stay hotels in particular, and this is really, really important, they're not just looking for rooms delivered to them in any old way. They're looking for rooms to be delivered to them for people that are staying for weeks and months. So one of the things that's different and special about Extended Stay America is that more than 70% of our guests are staying for a week or longer. So seven consecutive nights or more. And close to 50% of them are staying for a month or more. And so that is industry leading stuff that is super important for their investment returns, and is part of the reason why they choose Extended Stay America over the other competitors that they could choose from.
Spencer Levy
Let's walk through... I hope this is not too nitty gritty, but I'm just fascinated by the guest who stays for 2 nights versus 200 nights. How does the pricing model work in terms of your room rate?
Greg Juceam
So generally speaking, the longer you stay, the more you save. Our commercial messages are all about that. So we're looking for people to come and stay really for a minimum of a week. You pay in advance. You get a discount. If you stay a month, you get a further discount. We recognize if somebody is going to stay for many months, they're not going to be able to pay all of it in advance. So as they decide to extend their stay, whether it's with us or others that do what we do, they come down to the desk, they get their key renewed, they pay for the extension, and off they go. And so, generally speaking, the longer you stay, the lower the price. This is really, really important because for the ownership model and the investment model, no matter who the owner of the property is, you really need guests to stay for a long period of time in order to have the most efficient operating model. And there are extended stay hotels in the world today that the average guest stays for only a night or two. That's not really an extended stay hotel. Just because you have the physical product and have a kitchen… If you're selling your room for one night or two nights, it's not truly an extended stay hotel. So I think the defining characteristic isn't the physical product, but it's the mix of business and the average length of stay of all of the guests.
Spencer Levy
With technology changing, I remember 20 years ago when I first started looking at the extended product, they used to say, we have free HBO and things like that.
Greg Juceam
Color television! How about that?
Spencer Levy
Color television! Whatever it was… But how much has the product today changed over the last 20 years? How much do you see it changing, from a physical standpoint?
Greg Juceam
Yeah, I think it depends where you are in the spectrum, right? If you are at a luxury property or an upscale property, you tend to want to be in the forefront of the technology, and you speak about that particular brand or others that do what they do. They're very quick to jump in with new technology. You can think back in the day where they had… I'm looking at your computer here. They had keyboards in the rooms.
Spencer Levy
Yes, I remember that.
Greg Juceam
Some were very quick to adopt Alexa or Siri or some things like that. Those companies need to do that because the guests are paying big rates and they're always looking for the nearest thing. They're looking for rooms where the curtains will come down by electronics. But that technology comes and goes very, very quickly. And you just think about the alarm clocks that used to fit into the iPod and those are obsolete.
Spencer Levy
Now, in terms of the physical design of these facilities, are they all basically the same design? How many rooms is in each one of these? How does the design change depending upon the site?
Greg Juceam
So for us, we have three different brands. They're all affordable, extended stay brands. One of them is a pure economy brand called ESA Select Suites. One of them is in the midscale segment, which is at the higher end of midscale called Premier Suites. And then we have one in between that sort of straddles economy and midscale. They're each about a $20 price point difference on average per night. And you build prototypes for each of these brands that are slightly different so that there's a cost benefit for the builder and for the franchisee and hotel operator in the end. And so there is a prototype. They're related because they're all extended stay hotels, but they're slightly different in terms of the product, the quality of the finishes, and the services and the amenities that they're billed for. So at the higher end, we'll have a fitness center, for an example. At the lower end, in economy, we don't need to do that.
Spencer Levy
How fast can you go from shovel in the ground to a guest sitting in a room?
Greg Juceam
Yeah. Full process, from the moment that somebody conceives of it to the time that a guest is sitting in a room can be about three years. Usually it's about 18 months from the time that the shovel is in the ground till the property's open. Now, that can vary. We've worked with some municipalities that are incredibly slow, and that's been painful. We opened a hotel ourselves, let's just say, on the West Coast recently that took way too long to open. But right now we're opening one on the East Coast, and it's taking less time to open. So it's dependent on the municipality, often, but it can be built very, very quickly, and especially depends on how experienced the developer is, because if they've done one, they can move it along pretty quickly.
Spencer Levy
And are most of these two stories?
Greg Juceam
Most of our hotels are either 2 or 3 stories.
Spencer Levy
Let me ask you a question about just the nitty gritty site selection. What does Extended Stay America look at? Its key metrics? And if you're able to throw out a few numbers, we'd love to hear it.
Greg Juceam
You can start with is there enough today? Is there enough demand for a hotel in general to exist? And you can do that… in our industry, CoStar is sort of… they have something called the Smith Travel Report that you can order that will give you a sense of the health of a hotel market, both in terms of the occupancy that they operate at and the rates that they sell. For us, that's table stakes. But what we're really interested in is not general occupancy and rate. We're interested in the actual makeup of that occupancy and rate. For an extended stay hotel to thrive, there has to be long stay demand from guests staying weeks or months. And so you can dig in. There's a variety of different metrics that you can purchase. We do some. For example, there's a group called Kalibri Labs. They actually have demand, not just on the extended stay health of a hotel or of a market, but who the clients are. And are those clients growing or shrinking in terms of their use of that market? And so we can order those kinds of reports to get a sense of the current health of a market and who the types of businesses are that are in there, and whether it's getting better or getting worse. And then from there, you have to look at what are the demand drivers in the market because you have to forecast out into the future. And so what you're really looking for is multiple demand drivers of long stay guests. And it can be any combination of these things. It could be a town that is growing or a place where a lot of construction is being done or infrastructure projects. It could be a military base or a government installation. It could be a university where a lot of people tend to stay. You get camps in the summertime and people stay for weeks or months on end. You're looking at places that have retail, malls that stores turnover, and they need to do new store openings. Hospitals. In fact, one of the things we're most proud of at Extended Stay America: we’re the official hotel partner of the American Cancer Society. We've literally done hundreds of thousands of discounted or free rooms with the American Cancer Society because there are people that are staying for weeks and months that are there to visit people who are in the hospital, that might be living out in the rural area, and they need to stay in a hotel while they're being treated or their families do. And so any combination of those types of demand drivers that will continue the strong occupancy for extended stay guests in that market for us would indicate a viable site.
Spencer Levy
Then just getting very nitty gritty, from the macro to the micro, given how many of your guests drive, which sounds like almost all of them, proximity to a major highway, interstate… proximity to other retail restaurants or other things?
Greg Juceam
Yeah, the way we talk about it is you want to be near everything, but you don't need to be next to anything. Take Oak Brook, where we are right now, where we actually have several hotels. There's a mall that's here. There's plenty of office space here. There's a residential component. There are highways that intersect over here. So you want to be near those things and you find the site that is visible, but doesn't have to be right on the highway or right next to the mall, and you're going to be just fine.
Spencer Levy
Competitors. Given that you have a product type that people are staying in for weeks or months at an end, your competitors are hotels. Your competitor may be staying on somebody's couch in their house. Your competitor may be an RV. Who are your competitors and how do you deal with the competitive landscape?
Greg Juceam
I think you're right in pointing out that it's a very, very broad list of possibilities. Anywhere that somebody could stay for a long period of time where there's a bed in the shower, you can say that. I think if you had to pick one, I would say hotel competitors are our closest competitor. And really at that point, what you're looking at is who has affordable extended stay hotel brands. Today, the big global brand conglomerates have 15, 20, 30 hotel brands under their umbrellas. And so you're looking at those that have approximate competitors that might have 2 or 3 or 4 different extended stay hotel brands. But none of those folks are singularly focused on the extended stay affordable segment. They're considering those hotels. They're looking at group hotels. They're looking at transient hotels. They're global companies that have interests all across the industry, whereas we're the one of any scale who just does extended stay all day, every day.
Spencer Levy
So there are some significant megatrends out there that will impact your business positively, maybe negatively. But the one that I think would be most positive is a lot of reshoring of manufacturing is coming back to the United States right now. I don't think this is a fad. I think this is a deglobalization glide path and we're seeing a lot of it, in fact, most of it, happening in secondary and tertiary markets. Is that a megatrend you look at? And if not, what are some of the megatrends you look at for ESA that you think will help plan your business for the next decade?
Greg Juceam
Yeah, absolutely. Manufacturing coming back is a bread and butter thing for us. In fact, up to 40% of our business mix are B2B customers, whether it's corporate or government, people that are staying on projects. And often that has something to do with an office relocating. But there are many other ways in which extended stay hotels, including ESA, fill their occupancy in terms of demand generators. So starting to think about things like hospitals. A lot of news has been made since Covid about traveling nurses, of course, but that, you know… hospitals need temporary workforce in order to thrive in an era where there's not enough workforce. Think about things like construction. The infrastructure package where cities within America are redoing long term things like bridges and tunnels and highways. That's a big demand driver for extended stay. There are cities like Austin and Atlanta that keep expanding outwardly and maybe used to be 15 miles wide, but now are 150 miles wide in terms of the radius. And new cities are being constructed. Another huge opportunity for extended stay. So there's a variety of different paths around manufacturing, infrastructure, temporary workforce. All of these things are a big driver for extended stay.
Spencer Levy
What about a vacation traveler? It seems like a pretty good alternative to VRBO or Airbnb.
Greg Juceam
Sure, we can talk about that. We do some of that business. It's not our primary market segment. It's probably third on our list. We do about 20% leisure travelers. So if the Levys are going up to watch the U.S. Tennis Open and need a place in Queens, we've got a hotel for you at LaGuardia that probably does a lot of 2 night business if people are there for the weekend or what have you. But it's not our primary business segment. But it is absolutely…what we try to do first is fill the hotels with guests that are staying for weeks or months. But if there's inventory left over and for whatever reason, somebody needs to stay for a day or 4 days, we can do that, too, in some markets.
Spencer Levy
But typically you don't focus on markets that would be traditionally considered vacation markets.
Greg Juceam
We have plenty of those. We've got 60 hotels in Florida. We've got 80 in California. Some of these are absolutely in vacation markets, but that's not our primary focus. I do want to come back just briefly to your Airbnb, VRBO comment, because they are obviously big players in terms of them selling a lot of rooms and experiences across the globe. And they're not really focused on our primary segment, which is the long stay guest. They are more bread and butter with the leisure guests. But we are a great alternative to those companies, or any home sharing company, because part of our marketing mantra is that we want to create a place that feels like home. But the other piece of what we do is it's very frictionless to check in to an extended stay hotel. You don't have to meet with any host. You don't have to pay excess administrative fees or cleaning fees. You don't have to worry about is the building commercially safe because we're a regulated entity. There are people around in case of an emergency, whether it's staff or other guests. There's lots of benefits of being in a place that has a kitchen, has commercial washing and drying facilities, if you're there for a few nights and you don't want to go through all the extra hoops that you need to jump through for home sharing.
Spencer Levy
Well one of the challenges we have right now is the capital markets are very difficult. They're getting better. Interest rates are coming down. So how do you see the capital markets today impacting your ability to grow? How is it an advantage to you given how big you are? How are you dealing with it?
Greg Juceam
Well, first for our REIT, you know, the REIT having close to 600 hotels at a time where it's difficult to build hotels, there's some advantage to being a large player and having scale as we do today. So if new supply is muted, obviously the demand is there, we're going to be doing just fine in our business. But we would love the capital markets to be better, not just for our own capital market structure, but for the franchising engine, too. We see a huge opportunity for extended stay hotels, whether it's ours or other brands. The spotlight is on extended stay. People want to build and develop in the extended stay market and they need the capital markets to behave. Most of the franchisees in the hotel space are not dealing with the big, large global and national banks. They're dealing with regional and local banks. And when those aren't lending, which is the case today, or they're lagging the national banks, it's harder for them to do those developments. So we want to build new hotels and get younger, too. So we do need capital markets for us and for the industry at large to continue to innovate, to build new products, and for us to continue to show our relevance and our dominance in the space.
Spencer Levy
Capital markets is one thing, but then there's the demand side. And just give us a little bit of a snapshot of how you are performing today and how that has changed pre and post Covid.
Greg Juceam
Yeah. So I think one of the things that's really interesting about extended stay hotels, and nobody was really talking about extended stay hotels five years ago. There's a bit of a cottage industry of extended stay investors who've been around for a couple of decades and management companies. It's been its own best kept secret. But what happened is Covid really changed the landscape for this. The hotel industry, it was awful. It was devastating for those of us that have grown up and love this space broadly, not just for our own companies, but for the industry as a whole. Big hotels had to close. Actually, at one moment, the economy segment of the hotel industry had a higher revenue per available room than the luxury. That's never happened before. And it didn't feel good, even if you were in the economy space, and that was sort of an interesting data point. It was really tough for us.
Spencer Levy
How long did that last?
Greg Juceam
It lasted… well we’re still recovering, but it lasted about two and a half or three years. Ultimately, the bigger hotels opened back up. The leisure boom happened, right? We began to feel lonely and we wanted to get out. And that led the recovery back. And even here in 2024, the group business is back to peak levels. We haven't yet seen the full recovery of individual business travel. It’s still running 20% or so behind, but I think over time it will continue to grow. But Extended Stay America at that period of Covid… there was a front page article in the New York Times. This is before I came to the company… because no hotels were closed, no employees were laid off for whatever business demand had gone away for a moment. And the reason for that is because there was a lot of other demand for the hotels. People that were there for temporary reasons. There was great uncertainty in the world, and at that point of uncertainty, people don't sign two year leases to rent an apartment. They don't buy a home or rent a condo or buy a condo. And so people were worried and they were making temporary decisions. And for a large part, we're a rental business, and the company does well, frankly, when people aren't able to make long term decisions for whatever reason. And so that really brought a spotlight to the extended stay industry, and is the reason why there are 8 or 9 new extended stay brands being announced today because lenders and fiduciaries began to see that the downside to this business model is fairly limited. Hotels were cash flowing even in the most devastating period of our entire hotel industry. And so I think that has really helped us to maintain high occupancy. We had a record index, RevPAR index, which is our market share metric during that time, and the hotels have run consistently high occupancies since that time. We typically run about 8 or 9 occupancy points higher than the broader industry, and about 15% higher than our competitive sets in each of our local markets.
Spencer Levy
Well, I think there's another reason, and it's labor. And if you go up the chain from the lower-end segments to the luxury segments, it's more and more labor. But in the extended stay, you don't have as much labor as you would at a full service hotel, probably materially less.
Greg Juceam
It's interesting because I grew up… personally, I grew up in larger hotels. 4 or 500, 600 room hotels. We had on staff, you have 250 or 400 people, largely because food and beverage and banquets require a lot of staff full time and part time. And it's hard. I feel for the HR folks and the recruiters on those teams because there isn't a day that goes by where there aren't 20 or 30 openings for them to fill. And at an extended stay hotel, depending on which brand for us, you have between 6 and 10 full time equivalents. So life is a lot simpler.
Spencer Levy
And that’s for how many rooms, on average?
Greg Juceam
On average, about 120 rooms.
Spencer Levy
Okay.
Greg Juceam
And so obviously, the more rooms you have, the more housekeepers you need and vice versa, but between 6 and 10. So life can be a lot simpler. But that's predicated on you being a great manager. If you have, let's just say, let's just talk about 8 full time equivalents, and you have a great general manager and you're treating people well and you're paying people fairly and they're bought into the mission and you have very limited turnover. Life is so much better at a smaller hotel than it is at a bigger hotel. But the downside to that does need to be mentioned. If you're not doing those things and if you're not treating folks well or paying them fairly, and let's just say you have 8 full time equivalents and there's 4 openings, that's going to be a problem for you to operate that hotel. And so it really forces you to to be a great employer and to really run that model effectively. And it also forces you in the extended stay model to make sure that you have a long average length of stay. Because if you go astray and all of a sudden you're taking a lot of guests that are staying 1 and 2 nights, and you only have 4 of your 8 positions full, there's no way for you to keep up with all the laundry and desk activities that you need in order to run that hotel successfully. And so a well-run, extended stay model, for example… a front desk agent, there's only 5 or 6 check-ins a day. So it enables them to do other things. They can do laundry. They can do administrative tasks. They can clean the lobby. They can get to know the guests better. So when it's done right, it can be an incredibly effective model. And I think that's part of the reason why you're seeing very few large hotels being built today and you're seeing more hotel developers focus on economy and midscale hotels, kind of 100 to 150 rooms, where the labor model is much more easy to manage.
Spencer Levy
And staying on the services that you provide and how it changes. Covid is obviously a once in a lifetime, let's hope, event. How do you see services changing over the next decade to maintain your competitive edge in the extended stay space?
Greg Juceam
For us, it's always driven by the guests' demand and what they're not only wanting, but what they're willing to pay for. So we always start with not forgetting who we are. If we are not affordable for the guest, if we start putting in bells and whistles because we think it sounds like a wonderful idea, we are potentially going to risk one of the biggest segments that we have, which are people that are paying with their own money for some sort of temporary accommodation. And so we always start with why do we need it? And if we think it's a great idea, then we're going to pilot it and we'll do it in the hotels for our management team. We'll do it in the hotel that they manage, and we'll get all sorts of sentiment from the guests. We'll try to figure out if there's a return on it. We'll figure out if there's a bump in guest sentiment from it or not. And from there we’ll determine whether we need to push it further and make it a brand-wide standard or not.
Spencer Levy
Given the fact that you're catering to a business community, how many people use these as temporary offices?
Greg Juceam
Yeah, that's the thing. You know, digital nomad, that's the marketing term. I didn't know that when I came to Extended Stay America. They started talking about digital nomads, and I had to ask a whole bunch of questions that made me look pretty dumb. But I now recognize what it is and I see it in our hotels. We have people that are no longer tethered to an office. I had a guest reach out to me the other day who's a college professor, and she teaches her classes from her room at Extended Stay America. And she's been doing it now for months.
Spencer Levy
So she goes market to market, but teaches from…
Greg Juceam
It’s virtual.
Spencer Levy
Wow. Wow.
Greg Juceam
It's all virtual. And she's doing it from her hotel room. So it matters, you know, having great Wi-Fi and having a place where she can be productive matters for her. And you see that. It also skews to a younger demographic. We have people that want to check out a new market. They might go surfing for a month in California, let's just say, and they're working out of our hotels. We have small businesses that start in our hotels. We had a record label that was started with a couple of guys staying in a hotel that now has expanded, and they wanted to thank us for being the place where they got their start. So those kinds of things are real. And it's the other part of our demand that isn't the business demand. They are people that, for whatever reason, needed a place to hang their hat for a few weeks or a few months, and they've called Extended Stay America their home.
Spencer Levy
In terms of infrastructure that Extended Stay looks at it and says, this an opportunity, is planes the number one driver or tell me about trains or other forms of infrastructure?
Greg Juceam
No. Actually, this might surprise you or your listeners, but most every guest we have drives in. And they either drive in their own car or if they're with a group like a construction crew, for example, they'll often rent the van and they'll get to the work site together, you know, to and from. And so it does change the dynamic of what we offer in the hotels and in terms of how we think about servicing our guests. If you're driving and particularly, you don't necessarily need to…. so for you, Oak Brook here, your office, you're probably staying at a hotel or stayed at a hotel last night that's super close to here, probably within a quarter of a mile, maybe even walking distance. There are few, I know. That's not typically what happens at an extended stay hotel. Since the guest is driving and most often they're paying on their dime or their corporation is price sensitive, they just need to be within 3 or 4 miles. And so often they'll come in the car. And because of that, we don't need amenities in hotels. Like I laugh… there are a few new extended stay hotel brands that have been announced that are putting a gift shop in the lobby where you can get, say, like an $8 Amstel light or you can get a Coca-Cola for $4. It makes no sense, right? Because the guests, the minute they get there, one of the first questions they’ll ask is where's the nearest Walmart or Target or CVS or Walgreens? And they're going to get in their car and they're going to go buy all the food and load it all up. And they're going to pay $8 for a 12 pack of beer. They're not going to pay $8 for a single beer. So these types of things that add costs and add complexity to the operation when the guest is going to drive makes no sense to me.
Spencer Levy
Well, I’ve got to talk to your guests, because I once paid $18 for a beer at Dodger Stadium. So there are places where beer is even more expensive than you might get in the lobby of a hotel.
Greg Juceam
Well, wait until you see the beer prices at Citi Field after the Juan Soto deal, right?
Spencer Levy
So I'll tell you what. You know, that's going to be a lot of suds to pay for what, 780 million? I forget the exact number, but boy, Juan, we're rooting for you as a lifelong Mets, Jets guy. Two of us, Greg and I, both grew up, one from Long Island, one from Westchester. We're rooting for you. And to the ownership of the Mets, please don't raise the beer prices that much.
Greg Juceam
Yeah, we're both gluttons for punishment, but we begin every season with hope, don't we?
Spencer Levy
Yes, we do. Yes, we do. The best sports moment of my life, I was very fortunate, was at Game 6 in the ‘86 series. I was there sitting behind the visitors dugout. I can still watch the tape of the game today. And when there's a righty batter up I can catch glimpses of my father on the tape of the game.
Greg Juceam
That's amazing.
Spencer Levy
Okay. A couple more real estate questions and we'll call it a day, because we could talk baseball all day long. So, Greg, let's talk a little bit about ESA. Its growth story. Tell us a little bit about that.
Greg Juceam
Sure. So we have been growing in a variety of different ways over the years. First is, we were building hotels ourselves. We actually are one of the few brands that built our own product and operate our own product through our various entities. So we built 15 hotels in the last three years. And so that's one way we've grown. We've also grown through acquisition. We acquired a portfolio of 111 hotels and changed the brand to Extended Stay America. We actually see that our Economy Select brand through that acquisition. But the primary way we're growing these days is through our franchising engine. We want the company to get bigger. We see the benefit of scale. We have, despite our size, plenty of dots on the map where there's enough demand to have a very viable and successful hotel where we still need to get into those markets. And we have, through our growing franchise division, a lot of folks who've done 1 hotel with us and now want to do 2. Or 2 and want to do 3 or 4. And so we're growing through our existing franchise partners. And most of that is coming through newbuild hotels. So we opened a dozen hotels under our Premier Suites brand this year. Beautiful hotels. They’re at the higher end of the Midscale segment. And we have a pipeline of more than 50 hotels that are due to open over the next two and a half years. These aren't deals that have just been signed that are going to open whenever. There are literally shovels in ground or in various stages of completion. And so we're going to get younger at ESA through new builds. We're going to grow and add scale through new builds. And at the same time, we've taken a look at some of our older hotels that really weren't necessarily doing the best by our guests. Maybe the market has shifted or maybe the buildings are less competitive. And we've actually taken a couple of dozen hotels that our REIT had owned and sold them out of the hotel industry, either out of our brand or altogether out of the industry. And so through that, we're improving the overall quality of our portfolio and still expect to grow from here over the next several years.
Spencer Levy
Well on behalf of The Weekly Take, fellow Cornell-ian Greg Juceam, President and CEO of Extended Stay America, ESA. Greg, great job. Thanks for coming out today.
Greg Juceam
Thanks for having me.
Spencer Levy
For more, please visit our website, CBRE.com/TheWeeklyTake. We're currently at work on episodes covering other interesting niches across commercial real estate, including a return to our Shaping Tomorrow’s Cities series with visits to San Francisco and Chicago. We'll also give you access to the exclusive arena of ultra-high-net-worth investors and family offices, a source of capital that's gaining importance in today's marketplace. So, stay tuned. Meanwhile, we hope you'll share this episode, as well as subscribe, rate, and review us wherever you listen. Thanks for joining us. I'm Spencer Levy. Be smart. Be safe. Be well.
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