Jack DeBoer has been around the block a time or two. Regarded as the “father of extended stay hotels” he has a few successful brands under his belt, namely Residence Inn and Candlewood Suites, so there is little left to prove for the lodging veteran. However, recently a new brand has made its way onto the scene ValuePlace, and it has become one of the fastest growing brands in hotel history. At 172 locations throughout the US, it will hit 175 by the end of 2010, all of it new construction. DeBoer sat down with GlobeSt.com to chat about the ValuePlace model, the economy and the hotel present and future.
GlobeSt.com: What is driving the quick expansion of this particular brand?
DeBoer: The quick answer is: they make money.
GlobeSt.com: Is it brand new construction or any conversions?
DeBoer: We are doing no conversions. We are doing all new constructions.
GlobeSt.com: Conversions seem like the hip thing to do right now because there’s not a lot of new construction money out there.
DeBoer: You’re right. And I’m not so sure that’s good for the brand so I haven’t made that decision. There’s a point where you can do them. But a Value Place is a Value Place is a Value Place and our customers know exactly what they’re going to get because they’re all the same. And so we’ve strictly stuck with new construction.
GlobeSt.com: What’s the defining feature for the Value Place that makes it different from the Residence Inn, the Candlewood Suites, and some of the other extended stay properties?
DeBoer: Well, the big thing is we only sell by the week. We don’t sell by the day. And that changes the operating model and the operating model works well, so we can have the lowest cost, the cleanest and the safest hotel. And that’s really the key, is our low and efficient operating costs. We run very high occupancies in the system and we don’t have a 24-7 desk. We do housekeeping every two weeks, except for special requests. And we run it with four to five people.
GlobeSt.com: At each location?
DeBoer: Yes and two of those four people live on site. So we’re there all the time, but the office is not open 24-7, it’s not even open on Sunday.
GlobeSt.com: Sort of like an in-house landlord.
DeBoer: Yeah, kind of a cross between an apartment and a hotel. And there’s plenty of business out there, so we seem to be pretty happy.
GlobeSt.com: Recently they’ve put out some stats that hotels are the leading sector of distressed assets. And there are conversions coming down the line, but do we need more hotels? Or do they simply need to be run better?
DeBoer: Well, that’s a good question. Obviously there are always exceptions, but I tend to believe that the sector is not over-built, it’s under-demolished.
The mid-price hotel, they’re on every street corner, they’re all run very well, they all have free breakfast, they all have clean rooms, they all have fancy reservation systems, smiling people at the front desk and there isn’t much you can do to do better, it’s pretty much based on the economy. And I happen to think the economy is such, that in 90% of the locations where two years ago you might have considered building a mid-priced hotel: you better keep your money in your pocket.
I happen to be pretty down on the mid-priced b/c it has become a commodity. So many people do it right that it has become a commodity. You will do well when the economy is good and you will not do well when the economy is bad. Because there’s nothing you can do. There you are. You can get better sales people, you can have more smiles at the front desk, you can do a better job on breakfast, you can do all those things, but you may only affect part of 1%.
GlobeSt.com: As far as Vegas, have they gone the way of the SUV? Big when people had money, but do people need these gigantic hotels to stay in Vegas anymore?
DeBoer: Well, Vegas is a unique market. They didn’t need 22,000 new rooms there in the last 20 months. So, there’s a lot of them shut down with the cranes in the air and that’s strictly a market situation in a specific market, but the same thing is happening on the street corners. Look at the stars.
In the last 10 years, from 2000 to 2010, the inventory went from four million rooms to 4.9 million rooms. Did we need 900,000 new rooms? I don’t think so. And now that the economy has turned sour for the last couple years, we certainly don’t need those rooms. So, my bottom line is opportunities in the lodging business, but the market will no longer cover up the dumb things people do. You better be a professional, you better know what you’re doing. Yes, there are development opportunities, but if you’re in it for something other than ego to build something fancy; you better pay attention for the next 10 years.
We’ve destroyed the middle class in this country with our financial engineering. They drive the market, they drive the economy and savings have gone from less than 1% to 7%. And unemployment is with us for a long time, there is no argument that says it isn’t the case. So what is the effect on lodging? Big time. Plus, everybody’s looking for a deal. Your costs are going up, but your top line is coming down.
It’s a very very tough business, where the dumb things we used to do got covered up by the market, is not going to be the future.
GlobeSt.com: Do you think the OTA’s (online travel agencies) are good, in general, for hotels?
DeBoer: Well, they play a role. I don’t understand why the big brands, I mean the powerful brands allowed that to happen. If they wanted to do away with Travelocity and all that kind of thing, as far as it relates to their brands, they could do that.
GlobeSt.com: By opting out?
DeBoer: Go make the best deal you can on Hotels.com and then call the Marriot number and we’ll discount it 5%. Well, there wouldn’t be any more Marriots on Travelocity. I don’t understand how they tolerate it. But they’re a lot smarter than I am.