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Hyatt?s Driskill buy signals new direction

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April 10, 2013

Hyatt?s Driskill buy signals new direction

REPORT FROM THE U.S.?Hyatt Hotels Corporation?s recent purchase of the iconic Driskill Hotel in Austin, Texas, signifies a new direction for the company and is another example of the increasing popularity of independent hotels backed by the power of a brand.

Hyatt bought the 189-room Driskill in mid-March for $85 million in an all-cash transaction from an investment fund managed by Lowe Enterprises Investors. The hotel, which had 13 previous owners since it opened in 1886, will undergo a two-year, $8-million renovation.

However, it will not be rebranded under one of Hyatt?s six brands. Instead, it will remain the Driskill and Hyatt will ?run the Hyatt family thread through the branding of the hotel,? said David Tarr, senior VP of North America real estate and development for Hyatt.

In addition, Tarr said Hyatt will look in the near future to align with additional independent, iconic hotels and keep the original name but add Hyatt?s core functionality, such as sales and marketing, and technology.

[quote]?This is new for us,? Tarr said. ?What drove our interest in (the Driskill) was organic, but it also prompted our thinking about long-term opportunities. There are many hotels like this throughout North America, and there could be an opportunity to affiliate with a brand all on their own.?[/quote]

Continuing a trend
The trend of independent hotels?particularly historic hotels or ones with a localized feel?partnering up with a brand has intensified over the past few years. Choice Hotels International?s Ascend Collection and Marriott International?s Autograph Collection are two prime examples: Ascend has grown to 72 hotels since its launch in 2008 and Autograph has grown to 45 hotels since its launch in 2010.

?It is a growing trend; there are more and more hotels not content with being in just two places?branded or independent,? said Chekitan Dev, associate professor at Cornell University?s School of Hotel Administration and an expert on branding. ?Owners are thinking, ?We need a little bit of help but don?t want to be chained. We want to have our own character but want to plug into systems.? I think this is definitely going to continue.?

Steve Hennis, director of STR Analytics, sister company of HotelNewsNow.com, said the launch of these so-called ?soft brands? or ?quasi-brands? was a result of the success of representation groups like Preferred Hotel Group, Leading Hotels of the World and, to some degree, the Luxury Collection. Marriott, Hennis said, realized they needed to get into that mix somehow.

?They didn?t know how to put their brand name on an asset that was very unique,? he said. ?It was really, ?How do we get into that space?? If you put the name ?Marriott? on a lot of these assets, it would do more to hurt the asset than help it.?

The same rings true for Hyatt, and its future relationship with the Driskill, Tarr said.

?It will always be the Driskill?that?s etched in stone. To not honor that heritage would be a real mistake,? he said. ?We are studying how we want to bring it into the Hyatt family. That?s something we?ll do cautiously with study.?

Tarr was hesitant to say Hyatt is rolling out its own version of Marriott?s Autograph Collection. ?You won?t hear us refer to it as that,? he said. However, the company will continue to pursue additional opportunities to purchase independent hotels that ?touch what we consider to be the pillars of our brand,? he said.

Hyatt will be very selective about what hotels it adds and will identify hotels with partner owners as well as with its own balance sheet.

?I?m not sure the nomenclature we?ll use,? he said. ?But once we get two, people will want to call it a collection.?

Opportunity to locate iconic, non-branded hotels abounds outside the U.S., particularly in Europe, Tarr said. Hyatt announced in February that it had signed management agreements with Constellation Hotels Holding to operate four French hotels: Hotel Martinez in Cannes; the Palais de la Mediterran?e in Nice; and the Hotel du Louvre and Concorde La Fayette in Paris. However, those four hotels will be rebranded under the Grand Hyatt, Hyatt Regency and Andaz brands.

Independent deal market
STR Analytics? Hennis said opportunities to acquire those types of properties in the U.S. are few and far between.

?Looking at something like the Driskill, that?s not necessarily a trophy asset but a unique, jewel-type property,? he said. ?There are maybe only one or two of them in each destination. So (buyers) will be kind of limited by that.?

Another limitation for owners to acquire this type of properties is the fact that they are traditionally part of an owners? core portfolio and don?t hit the market too often.

?Some of them may have the same owner for 20, 30, 40 years,? Hennis said. ?If they?re looking to acquire specifically historic, unique assets, there aren?t a ton of opportunities. They come on the market once every couple of years.?

A third challenge is that because these iconic properties are almost a brand unto themselves, they achieve more of a premium trading value, Hennis said.

?In general, when you have hotels like that, the Driskill operates at a premium rate not garnered by condition or size of rooms but just because it?s the Driskill,? he said. ?However, it usually has slightly lower occupancy because of that. Just saying the name adds more to it than anything.?

Quasi-brands
Cornell?s Dev refered to Autograph and Ascend as examples of ?quasi-brands? because that definition projects a halfway point between independent and branded. These hotels have ?the faceplate of an independent but the engine of a brand,? he said.

They register well with younger travelers, he said, because younger generations are ?looking for unusual, different experiences.?

As travelers become experts in the category, ?they become rule makers rather than rule takers,? Dev said. ?They?re more comfortable negotiating with independents. They want these different, unique, local flavor hotels.

?And when you think about all these (online travel agencies) and ratings and review sites, now the impact of independent, third-party sites has a higher impact than the propaganda from the brands,? he continued. ?Now there?s the ability for quasi-hotels to be able to get the word out in a way they couldn?t do in the past.?

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