Hi guys,

Sorry for the lack of posts from me. It’s been a busy busy time!

I published my book (available in paperback and kindle) and have been doing some content creation on TikTok and Instagram (@idiotsguidetorealestate).

Let’s see how that goes.

I’m staying at a Home2Suites by Hilton here in Florida for a wedding and it got me thinking about the hotel business.

My friend Shane Simpson just bought a hotel and this is why it prompted that discussion.

This week’s newsletter focuses on hotels. Here’s what you can learn:

• Different service levels

• Brand affiliations

• Location

• Property type

• Ownership structures

Let’s dive into it.

Service Level: Amenities and Price Point

Hotels can be classified according to their service level, which directly impacts the amenities offered and the price point for guests.

Luxury, Full Service

At the highest end of the spectrum are luxury, full-service hotels that provide a comprehensive array of amenities and services, such as upscale restaurants, spas, fitness centers, and concierge services.

These establishments cater to affluent travelers and command premium rates, reflecting the elevated level of service and luxury experience they offer.

Think of Four Seasons, Aman, Ritz Carlton, etc. The apartment equivalent would be a brand new construction in a downtown with all the ritsy finishings.

Limited Service

In contrast, limited-service hotels offer a more basic set of amenities and services, typically including complimentary breakfast, Wi-Fi, and limited on-site facilities.

These properties target budget-conscious travelers seeking affordable accommodations without the frills associated with higher-end hotels.

Examples of these are Comfort Inn, Econolodge, La Quinta Inns. Basic, no frills hotels which are nice. Think of these like “B grade apartment buildings”.

Economy/Budget

Lastly, economy or budget hotels represent the most economical option, providing no-frills accommodations at the lowest price point. It’s usually just a room with a bed, TV, and working bathroom.

These hotels offer basic rooms with minimal amenities, catering to travelers prioritizing cost savings over luxury or extensive services. The amenities aren’t anything fancy.

Examples of these are usually Comfort Inn, Hilton, La Quinta Inn. Both of limited service and economy/budget hotels may fly under the same brand but amenities may be purchased for a cost.

Brand Affiliation vs Independent

Brand affiliation plays a significant role in the hotel industry, with a clear distinction between chain/branded hotels and independent properties.

Franchised Hotels

Chain or branded hotels are part of larger hotel companies or franchises, such as Marriott, Hilton, or Hyatt.

These hotels benefit from the brand recognition, centralized marketing efforts, and loyalty programs associated with their parent company.

Advantages

One of the primary advantages of branded hotels is the consistent quality and service standards upheld across their portfolio. Guests can expect a familiar experience, amenities, and level of service when staying at any hotel within the same chain.

Additionally, branded hotels leverage the marketing power and distribution channels of their parent company, potentially attracting a broader customer base and benefiting from economies of scale.

There could also be a premium associated with franchised hotels running a flag or a value add strategy repositioning an independent hotel with a franchised hotel.

Independent Hotels

In contrast, independent hotels are individually owned and operated, without affiliation to a larger chain or franchise. While lacking the brand recognition and support system of their branded counterparts, independent hotels often offer unique experiences tailored to their local surroundings or specific niche markets.

These properties may appeal to travelers seeking a more personalized and distinctive stay, with a strong emphasis on individuality and character. An independent hotel is akin to an apartment building that has turned to furnished rentals that are localized.

Pritesh on Twitter is a great follow if you’re interested in learning more about running an independent hotel.

Advantages

Independent hotels have the flexibility to adapt their offerings and services to cater to specific guest preferences or market demands without being bound by strict brand standards.

However, they also bear the full responsibility for marketing, operations, and maintaining consistent quality, which can be challenging without the resources and expertise of a larger hotel company.

Independent hotels also have the challenge of driving website traffic away from Airbnb/VRBO. This alone can be quite costly to maintain.

Location

Location significantly influences a property's target market, demand patterns, and thus the strategy type.

Those are broken down into 3 types – urban, resort, and airport hotels.

Urban

Urban hotels, situated in major cities or business districts, cater primarily to business travelers and tourists seeking convenient access to commercial centers, cultural attractions, and transportation hubs.

Resort

Resort hotels, on the other hand, are typically located in desirable vacation destinations, such as beachfront areas, mountain retreats, or scenic landscapes. These properties capitalize on the natural surroundings and recreational opportunities, attracting travelers seeking relaxation, adventure, or a getaway experience.

Resort hotels often experience seasonal fluctuations in demand, with peak periods aligning with popular travel seasons. Oftentimes, resort hotels are independently owned.

Airport

Another distinct category is airport hotels, strategically positioned near major airports. These properties serve a mix of business and leisure travelers, offering convenience and proximity for those with early departures, late arrivals, or overnight layovers.

Airport hotels may also cater to airline crew members.

Property Type

There are about 3 different hotel types – full service, limited service, and extended stay.

Full service

Full-service hotels represent the traditional hotel experience. They provide a comprehensive range of amenities and facilities. These properties typically feature on-site restaurants, bars, fitness centers, swimming pools, and event spaces for meetings and conferences.

Full-service hotels aim to create a comfortable and luxurious environment. They offer guests a one-stop destination for accommodation, dining, and leisure activities.

These tend to be the luxury, resort style hotels found in Tier 1 destinations.

Limited Service

Limited-service hotels prioritize affordability and convenience over extensive amenities. These properties offer basic accommodations, such as guest rooms and complimentary breakfast.

Limited-service hotels cater to budget-conscious travelers. These travelers seek clean, comfortable lodging without the added costs of full-service properties. By streamlining their offerings, these hotels can operate with lower overhead costs.

They can pass those savings on to guests in the form of more economical rates. A lot of hotels in the limited-service category are using tech to help guests check-in and operate digitally.

These can be found in Tier 2 & 3 markets or vacation markets that cater to customers who want to sightsee and explore.

Extended Stay

Extended-stay hotels are designed to accommodate guests requiring longer-term accommodations. They often cater to business travelers, relocated employees, or families in transition.

These properties feature apartment-style suites. The suites are equipped with kitchenettes, living areas, and dedicated workspaces. Extended-stay hotels provide a home-like environment. They allow guests to maintain their routines and enjoy the conveniences of residential living during extended stays.

These can be found in all markets and are not confined to any particular niche/sector.

Ownership Type

Occupant Owned

One approach is for the investor or company to fully own the hotel property. In this case, they are responsible for all aspects of operations and management, including staffing, maintenance, marketing, and revenue generation.

Owning the property outright provides full control over decision-making and the potential for higher profits, but also carries the most risk and operational burdens.

Company Leased

Alternatively, investors or companies may choose to lease the hotel property from the owner. Under this arrangement, the lessee pays rent to the property owner and oversees the day-to-day operations of the hotel.

This model allows for operational control without the large upfront capital investment required for outright ownership. However, it also limits the potential upside and exposes the lessee to risks such as fluctuating rental rates or property value changes

Franchised Hotel

A third common operating structure is the franchised hotel model. In this case, an investor or company operates the hotel under a franchise agreement with a larger, established hotel chain.

They pay ongoing fees to the franchisor for the use of the brand name, marketing support, and standardized operating systems. Franchised hotels benefit from the brand recognition and established processes of the parent company, but also have less autonomy and must adhere to strict brand standards.

Brand standards also may include having to change furniture every 3-5 years to avoid looking dated.

Conclusion

I hope you enjoyed this recap of the hotel market. We didn’t even go into how to value a hotel - just overlying basics.

Hotels are more like operating a business versus an apartment. This is quite niche and there’s no one-size fits all.

Fun fact: the hotel/motel business is mostly run by Indians that hail from the state of Gujarat. It started out as a family business and they tend to keep it in the family. Here’s an article that explains the logic behind it.