An Overview of Hotel Asset Classes

 

Part 2 of 3: Select-Service Hotels

 

The details of how hotels are classed can appear a little fuzzy. Herein we try to make things clearer.

 

By Chris Elder, Project Manager

 

 

Hotel owners, developers, and lenders (not to mention guests) may need some guidance through the sometimes blurred demarcations that separate one hotel asset class from another.  Yet such distinctions are at the heart of any coherent feasibility study or appraisal.  So how are lodging facilities classed and what are the major differences between them? 

 

The segmentation nomenclature for the lodging industry will always be subject to some vagaries and exceptions.  Smith Travel Research (STR), a leader in data collection for the lodging industry, categorizes hotels into six segments known as “chain scales”: Luxury, Upper-upscale, Upscale, Midscale (with food and beverage), Midscale (without food and beverage), and Economy.  These chain scales are based on the actual system-wide-average room rates of the major chains. 

 

This series of articles addresses another industry-wide categorization: asset classes.  Most hotels fit within one of three: limited-service, select-service, and full-service.  

 

Select-Service Hotels

 

Over the course of the past several years, the stratum between limited-service and full-service properties begat a hybrid known as the select-service segment.  Select-service hotels, as the name suggests, offer the fundamentals of limited-service properties together with a selection of the services and amenities characteristic of full-service properties.  Generally, this means certain restaurant and banquet facilities but on a less elaborate scale than one would find at full-service hotels.  On the whole, it’s fair to say that select-service properties have more in common with their limited-service brethren, but specific offerings of select-service properties vary. 

 

Select-service hotels keep operating costs down by offering services and amenities in moderation.  Hence, such properties generally do not feature multiple restaurants, expansive catering services, or an abundance of meeting space.  For example, a select-service hotel’s restaurant is likely to offer a limited menu and generally does not open for all three meals, seven days a week. 

 

In-room amenities, however, can approach or meet the levels found at full-service hotels.  In fact, commercial demand has grown among select-service hotels since 2007, as budgets for business travel tighten.  The select-service segment has continued to increase its competitive advantage by offering the in-room amenities of full-service hotels while keeping prices low in the absence of a full-spectrum product offering.

 

While the term “select-service” may be relatively new to the lodging scene, the concept has been around for many years.  For most people, a Hilton Garden Inn, a Courtyard by Marriott, or a Hyatt Place evokes an image of the quintessential select-service hotel.  But the term also describes individual properties from largely limited-service brands such as Best Western, Days Inn, and Clarion when those properties feature on-site restaurants or a more elaborate array of in-room amenities.

 

Similarly, the line between full-service and the select-service hotels has become increasingly blurred with the release of several new prototypes by full-service brands such as Holiday Inn and Wyndham.  The new prototypes, which include less expansive food and beverage services and feature a smaller overall building footprint, provide for greater operating efficiency for a hotel that is less expensive to build and maintain.

 

Examples of select-service brands include:

 

aloft

Holiday Inn Select

Four Points by Sheraton

Courtyard by Marriott

Hilton Garden Inn

Hotel Indigo

DoubleTree Club

Hyatt Place

Ramada

Wyndham Garden Inn

Clarion

Cambria Suites

 

 

Conclusion

 

Knowing where a hotel property fits into the scheme of things is crucial for owners, operators, and lenders alike.  Our professional standards as appraisers require the staff of U.S. Hotel Appraisals to be keenly aware of how demand segments, market conditions, and competitive supply affect valuations of different property types.  

We hope this brief overview of select-service hotels proves useful.  Look for an explanation of full-service hotels in the final installment of this series, and look here for our survey of the limited-service asset class.

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