Low-end extended-stay hotels bear little resemblance to well-known brandslike Residence Inn by Marriott, which pioneered the concept. But themid-price and economy segment (where rooms rent for between $200 and $400 aweek, versus $650 at Residence Inn) accounts for most of the sector'sgrowth.

These hotels cater to business travellers on a budget-consultants, temps,salesmen, and contractors who stay an average of five nights and don't needthe conference facilities, restaurants, and heavy staffing of full-servicehotels.

The economics of this business model are certainly compelling: Becauseconstruction and operating costs are so low, these properties generateoperating margins in excess of 50 per cent, which goes a long way towardexplaining why in just over three years the business has grown from 95hotels, with barely 11,000 rooms, to more than 500, with some 57,000rooms.

According to Coopers & Lybrand, 30 per cent of the hotel rooms in theconstruction pipeline are extended stay, and there have been a half-dozenIPOs of extended-stay companies since 1995.

But it is precisely the chains' no-frills nature that has turned someanalysts against them. For all the sector's explosive growth, its stockshave sputtered-in many cases dropping below their IPO prices. Extended-stayboosters, like Bjorn Hansen of Coopers & Lybrand, believe this will changeas investors educate themselves. ``These stocks are not well understood,''Hansen says.

Investors wonder, `Who would want to stay there? They don't change thesheets.' (Actually, they change them one a week.)

Others argue that investors understand the stocks just fine-and can seethey're headed for a cliff. Chuck Ross, of Tennessee-based Smith TravelResearch, says many consumers prefer either a hotel with more amenities or astraightforward apartment rental: ``If [the hotels] are forced to startadvertising, offering a doughnut in the morning, and making the beds everyday to attract more guests, [the] margins get compressed.''

This debate hasn't kept bottom-feeding franchiser and entrepreneur WayneHuizenga from entering the business. He and George Johnson, anex-Blockbuster exec, have founded Extended Stay America, a chain that hasquickly come to dominate the economy segment. ESA opened its first hotel inAugust 1995 and now runs 234 (under three brand names), with 70 more slatedto open by the end of the year.

Johnson, the CEO, readily admits he's no hotelier: ``What we do well with isthe cookie-cutter approach, rolling something out like Blockbuster.'' Ofcourse, after an incredible growth surge from 19 stores to 3,400 in eightyears, Blockbuster stalled out due to overcapacity. And therein lies theStreet's other worry about extended-stay hotels: How much demand is therefor these things? Even the most conservative scenarios predict the marketcould handle 250,000 rooms, over four times more than are currently open.But if all hotels continue building as planned, supply could hit 300,000rooms by 2000. Occupancy rates in 1998 have averaged 65 per cent, down from69 per cent in 1997, prompting concern about continued growth.''

Simplified nanny tax rules still a mystery

Last year, after discovering that many of United States' rich and powerfulfound it too much trouble to pay Social Security and other taxes on theirhousehold help, Congress moved to ease the reporting requirements andsimplify the paperwork. But one aspect of the new requirements already iscausing a stir: By shifting nanny taxes away from special quarterly formsand onto the employer's personal tax return, Congress sharply raised theante for taxpayers who employ a domestic worker and do not report the fact,writes The Washington Post.

Before, families with domestic workers were required to file a Form 942every quarter if they paid their worker more than $50 every three months.Now that threshold has been raised to $1,000 a year and there is a new form,Schedule H, to be included as part of the employer's Form 1040.

``You are now signing a tax return that says everything has been reported,''said Harvey J. Berger, a tax specialist with the accounting firm GrantThornton here. Since the nanny tax form is now part of the 1040, if youdon't include it, your return is not complete.

``We don't know how that's all going to fall out, but I have someapprehension about it,'' Berger said. ``I think there's going to be somesoul searching'' among families that employ off-the-books workers, he said.Internal Revenue Service officials said that failure to file the old formviolated the law as well, but the new arrangement means the penalties willbe different and possibly more severe, and the whole issue will be harderfor taxpayers and their return preparers to ignore.

And experts say that tying the issue into the full tax returns raises avariety of questions. For example, said Arthur Auerbach, a certified publicaccountant with offices in Vienna, "If you don't answer all the questions onthe 1040 {and its schedules}, theoretically it's incomplete and the statuteof limitations may not run.''

In addition, tax preparers, who are under increasing pressure to verify theinformation they get from taxpayers, are concerned that they might be heldaccountable if a client doesn't tell them about a nanny.

``Tax accountants are going to be probing for more information,'' Bergersaid. ``People's reaction, I'm afraid, is going to be, You never asked methat before.' ''

The changes also will make it harder for employers to say they didn'trealise they had to pay nanny taxes, and easier for IRS agents to raise theissue during an audit, several experts said.

Congress enacted the new system both to make it easier for families to paythe required taxes on their household help, and to reduce the number offorms involved. Until this year, families that paid a domestic worker morethan $50 in any quarter of a year were required to pay Social Security andMedicare taxes. That threshold was so low, it theoretically could haveencompassed teenage babysitters and kids who mow lawns.

In addition, families were required to file quarterly forms reporting on thewages they paid. Under the new law, the threshold is $1,000 a year in wages,and employers are required to report on a single form, known as Schedule H,which is to be attached to their own tax return. The new system is indeedsimpler, many experts said, but they cautioned that there are likely to besome problems as taxpayers get used to it.