With thousands of construction workers and contractors needing long-term housing, the world’s largest hotel franchisor is launching a new brand for the booming boots-and-hardhat market.
Geoff Ballotti is staring at a map on his office wall and likes what he sees. Nearly two dozen dots sprinkled across the United States represent future semiconductor factories. Outside of the microchip sector, few executives would seek out such a stodgy map from the Semiconductor Industry Association, let alone hang it on a wall. But for the CEO of Wyndham Hotels & Resorts (2022 revenue: $1.56 billion), each dot on that map represents a giant, flashing-light opportunity.
Ballotti quickly rattles off examples of locations where new chip factories are slated to appear. Intel is building two plants in Chandler, Arizona, at around $30 billion a pop. In Texas, plants have been announced by Texas Instruments in Sherman ($30 billion) and by Samsung in Taylor ($25 billion). In Indiana, they are coming to cities like West Lafayette and Odon. “And new factories have been announced in North Carolina, South Carolina, Kansas and Utah,” he says.
Those factories won’t just materialize out of thin air, Ballotti points out. Each will spawn a massive, years-long construction site with huge teams of contract workers needing a temporary place to stay. Later, as those factories staff up, new employees will need temporary housing while they look for more permanent homes.
For more than a year now, Ballotti has trumpeted his plan to turn those infrastructure workers into Wyndham guests. “We've been listening to Geoff talk about this for a handful of quarters now,” says Brandt Montour, senior gaming, lodging and leisure analyst at Barclays.
“This is pretty unique to Wyndham, and they’ve been the most vocal about it,” agrees Michael Bellisario, senior hotel research analyst and director at Robert W. Baird & Co. “At least publicly, the way it’s been communicated to analysts and investors.”
Following the passage of the $1.2-trillion bipartisan Infrastructure Law in January 2022 and the $280-billion CHIPS and Sciences Act last August, perhaps no hospitality company is better positioned to capitalize on President Joe Biden’s economic agenda than Wyndham. “We are the company that has been providing lodging for infrastructure workers forever,” Ballotti says. “It’s been a competitive advantage of ours forever.”
In other words, Wyndham’s target corporate customer is not the traditional business traveler in a suit and tie. “It's that guy whose office is really the front seat of his vehicle,” Ballotti says. “I mean, these are folks who wear construction boots and hardhats.”
“There’s another at least eight years of demand in that market,” says Wyndham CEO Geoff Ballotti, “that is going to benefit from workers who are staying weeks, if not months at a time.”
Yet make no mistake—serving those blue-collar business travelers is extremely lucrative. “They often stay for months,” Ballotti says, noting that the company expects that the average worker will need a room for between 24 and 34 days, roughly 15 times longer than the typical leisure traveler.
As the world’s largest hotel franchising company, Wyndham doesn’t own or manage properties. “They are asset light. Hotel franchisees—developers, local owner operators, private equity funds that are in the real estate business or the hotel operating business—they grow Wyndham's brands on their behalf,” explains Bellisario. Currently, revenues from infrastructure-related corporate accounts make up about 20% of the company’s U.S. gross room revenues.
To lock in current and future customers of this booming market, Wyndham’s sales team has been dispatched to aggressively forge new corporate relationships. “We're attending events and conventions and conferences that we've never attended before,” Ballotti says. “I mean, we're sending salespeople to the American Society of Concrete Contractors’ annual shows, and we might not have in the past. We're calling on the companies who are doing the inspection work for these projects. We're calling directly on the Bechtels of the world, but also the local contractors, the subcontractors, the transportation and materials people who bring the supplies to those projects.”
The strategy appears to be working. “For seven consecutive quarters now, our general infrastructure spending has continued to accelerate, which is why we're so excited,” Ballotti says, noting that Wyndham’s post-pandemic numbers are up significantly from 2019. “That’s really the way to look at it, because 2019 was the best year that the industry had ever experienced. And our fourth quarter in 2022 was 20% ahead of where it was in the fourth quarter of 2019. And each quarter, it gets stronger.”
The Parsippany, New Jersey-based hotel operator now has nearly 9,100 hotels and 842,500 rooms in 95 countries, spanning 24 brands, which run the gamut from economy chains like Days Inn and Super 8 to mid-range brands like Ramada and La Quinta to upscale hotels like the eponymous Wyndham. But until last year, Wyndham’s vast collection included just one brand, the mid-range Hawthorne Suites, in the white-hot extended-stay category. Based on feedback from franchisees, Ballotti knew he needed another extended-stay offering, but at an economy price point.
Enter Echo Suites by Wyndham, which launched in March 2022. The new-build properties tick all the boxes for the infrastructure-worker market, providing single- and two-queen studio suites equipped with kitchens at an affordable rate (about $70-$80/night, depending on the market), along with public areas that include a fitness center and 24/7 guest laundry. In barely a year, the company has inked 200 new 124-room Echo Suites hotels into the development pipeline, making it the hotel industry’s fastest-growing new brand in 2022.
Unearthing New Customers: Wyndham CEO Geoff Ballotti (in red tie) at the groundbreaking for an Echo Suites hotel in Plano, Texas.
Wyndham“The extended-stay market overall is a bit underserved, especially in the economy segment,” says Montour. “I think Wyndham is the first to say, ‘Okay, let's take a fresh take at this, let's build something exactly for this market. New construction only.’ And the fact that they've got 200 hotels in their pipeline for this brand proves how much developer interest there is.”
Adding a new brand to the Wyndham portfolio makes sense on several levels, says Bellisario. “Brand loyalty increases because I, as a consumer, have more choices, locations and brands to choose from. And developers and owners like Wyndham more because there’s more contribution coming from the loyalty program. So it's sort of this flywheel effect,” he says. “We always say bigger is better and more dots on the map is really what they’re targeting. The motivation is growth.” That the properties are all new construction is another big plus. “In the hotel business, new and shiny always beats old, dull and stinky.”
Yet the appeal of Echo Suites goes beyond just being a fresh face. “They got a bunch of hotel developers from the extended-stay segment to, from top to bottom, decide on every single granular detail of the design to make it more profitable and operate more smoothly,” says Montour, noting that the precision even extended to making sure the space between stones on each hotel’s facade is too narrow for guests to put cigarette butts between them. “I think that was pretty unprecedented,” he says of the developers’ input.
Wyndham’s sheer scale in the economy segment is also key, Montour adds, since the large construction companies snagging infrastructure contracts only want to work with large hospitality brands. “They don't want to do deals with a brand that only has 20 or 30 hotels,” he says. “They want to do a deal with brands that are everywhere.”
There is a palpable sense at Wyndham that these are go times. As soon as a new chip factory is announced, the company shifts into gear. “We're working with multi-unit developers, some of the nation's most successful extended-stay developers, to allocate where we know they will, in terms of their commitment, break ground, open soon and operate well,” Ballotti says. “Franchisees are better capitalized than they've ever been. They're looking to build more.”
In a recent note to Barclays’ investors, Montour wrote that several developers have signed on to build 20 to 30 Echo Suites hotels (at between $11.5 million and $15.4 million apiece, not including the land acquisition), “and a segment of these developers are sitting on large amounts of cash from recent portfolio sales and don’t need financing.”
The first Echo Suites by Wyndham properties broke ground in late 2022 and will be opening later this year. “Then there’s another at least eight, probably nine, ten, eleven, twelve years of demand in that market that is going to benefit from workers who are staying weeks, if not months at a time,” says Ballotti.
Looking ahead, Ballotti is quick to point out that the majority of infrastructure business is still to come. “Whether you're talking transport or rail or water or power or internet, most of these big projects are really in the early planning phases,” he says, noting that only a fraction of the Infrastructure Law’s $1.2 trillion budget has been awarded to date.
“The next round of funding, which will happen late in 2023, will supercharge that growth and will continue as the next eight years play out,” Ballotti says, referring to the hotel industry cycle. “We think we're in the first or second year of that cycle, which really for us began in 2021. Our small business owners actually had a better ‘21 than they did in ’19.”
Compounding this success is the fact that the hospitality sector overall is enjoying a boom, with travel demand and room rates surpassing pre-pandemic highs. “The leisure segment came back faster than everybody expected,” says Ballotti, “but what really helped us was on the business side, this type of everyday blue-collar worker who never stopped traveling.”
