By Amy Bostock
Apartment-style hotels offer investors a unique blend of stability and flexibility, while appealing to a diverse range of guests. Also known as “ApartHotels” or serviced apartments, the segment’s light staffing model offers cost savings and operational efficiencies. “What makes [these properties] special is that you get that home-away-from-home feeling, but with a brand,” says Sky McLean, CEO & founder of Basecamp Resorts, whose Basecamp Suites Revelstoke offers apartment-style accommodations in B.C. “When you have that setting, you can appeal to every demographic.”
The serviced-apartment model offers larger units than traditional extended-stay hotels, providing customers more space, a full kitchen (dishwasher, stove, refrigerator), laundry and living space, while also having access to luxuries synonymous with hotel chains, such as health-and-wellness centres.
According to Duncan Chiu, senior director, Lodging Development – Western Canada at Marriott, the furnished-apartments concept has gained traction. “From our perspective, we’ve seen a pretty significant increase in leisure travel in general, and also extended families all travelling together at the same time. So, the furnished apartments meet that need for more space, the ability to park themselves for a longer period of time and a larger, residential-style apartment versus a traditional hotel room,” he says, agreeing that the product is not limited to just one market or one specific type of traveller.
LivSmart Studios by Hilton marks that hotel company’s entrance into the ApartHotel segment. According to Isaac Lake, brand leader for LivSmart Studios by Hilton, it was created because Hilton “saw the strength of our own extended-stay brands during the pandemic. We still saw staycations happening, insurance claims, project work and a strong travelling workforce. That inspired us to partner with owners to create LivSmart Studios, which gives us a new offering
at a different price point for similar stay occasions.””
Corporate and business tenants often prefer serviced apartments over hotels, so investing in locations with a strong business presence can lead to consistent demand for the product. In addition to leisure and business travellers, Lake says other demand drivers for this type of product include hospitals, military bases and major projects such as infrastructure builds. “For example, we know there’s currently a big investment in building bridges, roads and other infrastructure-related projects,” explains Lake. “So, you’ll see those [apartment-style] hotels start to pop out of the ground ahead of major projects.”
In fact, the first LivSmart Studios property broke ground in Kokomo, Indiana, following an announcement about a Samsung plant and a Chrysler Fiat plant opening in the area.
Apartment-style hotels such as Apartments by Marriott Bonvoy, which is positioned in the premium and luxury tiers, are also catching the interest of developers and investors, thanks in part to the lean operating model. These properties will have no F&B offerings, no meeting space and limited housekeeping, allowing operating and labour costs to be cut significantly. But, says Chiu, all Apartments by Marriott Bonvoy will have a host when you walk in the front door “so if there’s anything the guest needs, they still have someone to talk to, and someone to help them with any sort of issues that might arise.”
Lake says there are a lot of reasons why Hilton’s new brand, and the segment in general, makes sense for investors.
“I would start with a really competitive cost to build,” he says. “We had [LivSmart Studios] priced by an independent general contractor that builds all the Hilton brands across U.S. and Canada, and they came in between $116,00 and $120,000 a key, which is very competitive against anybody in our competitive set. Additionally, you’ve got very limited housekeeping, which reduces your need for labour and limited check-ins on a daily basis, because you may have, on average, 10 to 12 check ins versus the more transient hotel. So, all of that combined leads to a very aggressive Gross Operating Profit (GOP) margin. So, owners operating in this space are doing very well.”
Chiu adds that apartment-style hotels also open up the market to non-hotel investors looking to get their feet wet in the hospitality space. “We’re not just targeting hotel developers and hotel developers aren’t the only [investors] who are interested.”
Lake says Hilton is also seeing new investors approaching them from non-traditional hotel backgrounds. “They may operate multi-family units or properties of that nature such as traditional apartments, but they’re seeing the resiliency of the [hotel] sector, the profitability in this space, and they’re wanting to dip their toes into the hotel space with this type of blended product,” says Lake. “It’s an apartment-style hotel product, with significantly longer lengths of stay, so they’re starting to realize the profitability of the segment and expressing a ton of interest.”
And according to U.K.-based property-investment company RPA Group, because this asset class is in the hospitality sector rather than the mainstream property market, serviced apartments can offer stability during economic downtowns or an under-performing market as business and leisure travellers will still require accommodation.
“At the end of the day, it’s a really lean and low-cost operating model,” says Chiu. “But the way the [Marriott] product is positioned allows developers to maximize average rate potential giving you greater profitability and flow to the bottom line, which is really great for developers.”
