Apple’s all-suite approach: Blanket urban markets
 
Apple’s all-suite approach: Blanket urban markets
28 JUNE 2018 9:12 AM

Apple Hospitality REIT’s Liz Perkins and Hilton’s Adrian Kurre talked about the change in mindset that’s leading to more all-suite hotels in urban central business districts.

NEW YORK—Like many hotel owners, Apple Hospitality REIT’s core focus is having the right hotels in the right locations at the right times in its portfolio. The Richmond, Virginia-based company has taken it a step further by focusing on key segments in which to apply that threefold philosophy.

An essential part of that plan is all-suite hotels, as 107 of the 242 assets in Apple’s portfolio fall into that category, according to the company. A total of 18% (44 hotels) of its overall portfolio fly flags from Hilton—34 Homewood Suites hotels, eight Home2 Suites properties and two Embassy Suites, according to Liz Perkins, Apple’s SVP of corporate strategy and reporting. It also has 63 all-suite hotels that are branded in the Marriott International family.

The extended-stay models of Homewood and Home2 are especially attractive, she said during an interview at the recent NYU International Hospitality Industry Investment Conference.

Liz Perkins,
Apple Hospitality REIT

“The offering to the guest is the biggest appeal,” Perkins said. “The size of the room, the differentiation of having a kitchen … and as the ownership group being able to have a longer length of stay lowers our operating cost and drives higher margins.

“We don’t necessarily have a target for how many all-suite brands in this type of market type by this date,” she added. “We’re opportunistic, and we look at that opportunity to rise, but the value proposition and the return on the investment particularly for Home2 and Homewood Suites with a longer length of stay, and the higher margin business is very attractive to us.”

Apple’s growing interest of owning these types of hotels in urban central business districts isn’t an accident, according to the executive.

“It’s all about the specific market and their urban location,” Perkins said. “We are working together closely to try to figure out if can we deliver a hotel with brand integrity in these locations, if there’s return (on investment) for us in the long (term) … it’s not a hard sell as long as the demographic trends continue toward urbanization. If demand is present and there’s product available, a brand flag is available, then we’ll continue to want to purchase and build.”

Smaller rooms are OK in urban markets
Adrian Kurre, Hilton’s global head of the Homewood Suites and Home2 Suites brands, said during the same interview that the branding behemoth has adjusted its thinking about the all-suite product in urban environments in large part because of the demand from owners such as Apple.

Apple Hospitality REIT is a big fan of all-suite hotels such as this Homewood Suites property that is dual-branded with Hilton Garden Inn in Oklahoma City, Oklahoma. (Photo: Apple Hospitality REIT)

“We have over the years then come to adapt the urban hotels to help us, so the rooms are a little bit smaller than what they might be in a suburban hotel because (of) land and how you fit the footprint and trying to make it the most optimal return on the owner investment by listening to the owners and figuring out what can you do in this process to make it better,” Kurre said. “It is different than what you would expect from a suburban adaptation of what we do. … Space is what we deliver to the guest, but what we learned is that space is relative to the market that you are in.”

Hilton and other hotel brand companies have no choice but to become flexible for all-suite brands if they want to add urban markets to their portfolios, according to Perkins.

“The prototypes for those assets … you wouldn’t be able to use urban locations if you weren’t flexible and weren’t looking at (what) the key elements are that make the brand and how (you) work within the space you have in these locations,” she said.

Perkins said companies such as Hilton had to ask themselves whether they could accept giving up a great site and the opportunity to serve loyal customers just because they wanted to stick to a prototype’s rigid square-footage requirements that don’t make sense—and aren’t expected—in an urban location.

“The biggest hurdle in urban markets was the square footage, the inflexibility that the brands showed working with ownership groups,” she said.

Apple’s direct input on Hilton’s owner advisory council helps the brand company better understand the flexibility that’s needed, Kurre said.

Perkins cited Apple’s Home2 Suites property in a converted 1917 office building in Atlanta that opened last year as an example of the different line of thinking in urban areas.

“We did an adaptive reuse, and the rooms are smaller than a typical Home2, but you get all the elements that you need to still give the guest the amenities that the Home2 brand brings,” she said. “You still have your key brand differentiators, but it’s based a little bit differently. We think that those assets have a propensity to be relevant longer; they are unique in some fashion which gives them a leg up on competition.”

Adrian Kurre, Hilton

Kurre said the Atlanta property has its required outdoor space on its rooftop, which is rare for the brand.

“We’re at that point of our life where Home2 doesn’t have to always be prototypical for adaptation—you just can’t make them the same and we’ve learned that over time,” he said.

The big challenge for Hilton is deciding whether an adaptive reuse or a new-build property is the better option, according to Kurre. High costs for labor, construction and permitting—among other things—are challenges that all-suite developers have to overcome in urban settings.

“You’ve really got to be very careful from ownership’s (perspective) to make sure you fit the right product to get the right return on that investment, because it’s just simply that everything is more expensive,” Kurre said.

Perkins said expenses are higher than ever, including labor costs, material costs and land costs—but the land costs are the differentiator in urban markets.

Even with smaller room sizes, housekeeping costs in urban markets aren’t lower than they are in other types of markets, the executives said.

“You still have the elements, you still have the kitchen and bathrooms, and so there’s still all steps to go through,” Perkins said.

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