How empty spaces created brand opportunity for Hyatt

ATLANTA — Dan Hansen said a simple search on Hyatt.com can show you the development opportunities for its new Hyatt Select brand — just find the areas on the map where Hyatt doesn’t have locations.

“You can see it from search,” said Hansen, head of Americas development for Hyatt. “They type in cities where we have nothing we can track that… We track all that so we know where our guests are traveling and where we don’t have distribution.”

Dan Hansen

Hotel Investment Today spoke to Hansen at the Hunter hotel conference in Atlanta earlier this month about why Hyatt created the new brand, giving owners with aging hotels flexibility to stay within the company’s system and what owners are telling him.

Hansen said the conversion-friendly Hyatt Select is a good compliment to its new extended-stay offering (whereas its new extended-stay brand Hyatt Studio will be about 80% new build, Hyatt Select will be around 80% conversions). He also thinks Hyatt Select can be real force globally, too.

“We’ve thought about this for several years: how do we grow this distribution?” he said. “In Latin America, there’s really not the extended-stay demand like there is in the United States. So, Hyatt Studios isn’t quite the right fit, but this will be a perfect fit.”

Hansen also mentioned China as a burgeoning opportunity for Hyatt Select. 

“You walk outside of a hotel in China and there’s like 100 restaurants,” he said. “You don’t really need a kitchen. So, why would you do that? This fills a need not just in the United States, but globally.”

While Hansen said Hyatt doesn’t ever look at a brand and think, “We need to have 1,000 of them”, that opportunity exists for these new brands. He mentioned Mobile, Alabama, where Hyatt recently opened its first location for Hyatt Studios, as a good example. 

“[They] will probably be our fastest-growing brands,” he said. “But you should expect those to grow, like most other select-service brands, into the hundreds and hopefully in thousands.”

Place for hotels to go

Last year, Hyatt had to lower its net room guidance downward for several reasons, one was because the company had to kick a higher-than-normal number of hotels out of its system.

The Hyatt Select brand now gives owners of hotels (say, an aging Hyatt Place property) a place to go to remain in Hyatt’s system. Hansen, who was previously president and CEO of Austin-based Summit Hotel Properties, said he has lived this scenario.

“I was on the other side, on the ownership side, on some of those hotels. They worked great, but you might be in a market where a major demand generator, a corporation, might have moved, and that next exit became the spot,” he said. “It doesn’t mean that people won’t stay there, but it’s harder to justify a full renovation for a Hyatt Place, which is probably $5 million, and the operating model, because of the expansive free breakfast and all the staffing. It gets really hard to justify that if you can’t get over $100 [a night].”

Hyatt Select will give the company and owners more flexibility in the coming years, Hansen said.

Now we can provide owners an option to have a nice property and still make money. Because if they can’t grow their reserves and they can’t reinvest in the property, it’s all tied together. It gives you a chance to keep those owners.

Dan Hansen

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“Now we can provide owners an option to have a nice property and still make money,” he said. “Because if they can’t grow their reserves and they can’t reinvest in the property, it’s all tied together. It gives you a chance to keep those owners. These are still good locations. It’s just harder to get the rate there because maybe there’s less demand there.”

Hyatt has a legacy of always wanting to play at the highest end of any segments they participate in, Hansen said.

“Because of the shift in some of these locations, we were finding ourselves in a position where we weren’t being able to deliver on that just for economics,” he said. “We’ve got a number of individuals from our existing portfolio with older Hyatt Places that are going to take advantage of this conversion opportunity.”

Because Hyatt Places are defined as upscale, these hotels would technically be moving down the brand, but Hansen said in this scenario, that wouldn’t be the driving decision for the owner. 

“I would tell you, from a profitability standpoint, it would go up. An owner shouldn’t care what the chain scale is,” he said. “I always looked at it like it’s the bottom line for an owner because if I can’t get good bottom-line returns, I can’t reinvest in my property. If I can’t reinvest in the property, my guest service scores suffer and guests stop coming. Then, the only way to get them is to lower your rate… It’s really about making sure we can maintain the quality of brands in the segments that we have.”

What owners are saying

Hansen said the addition of Hyatt Select solves several problems for Hyatt and its owners, especially ones who have transient guests who aren’t looking for an extended-stay hotel.  

“This allows us to meet the needs of locations that don’t have the extended-stay demand, but also react quicker because of the ability to do some conversions that we wouldn’t able to do from a new build [standpoint],” Hansen added.

While Hyatt hasn’t announced any new signings yet for the new brand, Hansen said that could be coming in the next few months.

We’ve got a number that are very close. Part of it is getting on site and evaluating not just the quality of the furniture and the fixtures, but if it’s coming from another brand, what is their IT? It’s more complicated than just putting up a sign or putting in new couches.

Dan Hansen

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“We’ve got a number that are very close. Part of it is getting on site and evaluating not just the quality of the furniture and the fixtures, but if it’s coming from another brand, what is their IT?” he said. “It’s more complicated than just putting up a sign or putting in new couches.”

Since there are approximately 300 U.S. markets where Hyatt has no representation, it isn’t hard to recognize the number of markets that could be available for the Hyatt Select brand. Hansen said that instead of focusing on pure numbers, the real success will be in the quality of the project post-conversion.

“Similar to Hyatt Studios, for the first 25 that are open and operating, if they’re operating at the level as we expect them to, that’ll be the real validation,” he said.

Hansen said it’s probably a three-year run for Hyatt Select to get 25 open, and it could take between 12 to 18 months to get a location open. He said that deciding on the markets and locations will be as much about demand generators as location, especially as the full return-to-work trend continues to grow in the U.S.

“The going back to work phenomenon has started to create a lot of demand in and around big corporate headquarters,” he said. “We’ve just started to see the beginning of that… there’s a demand driver that could make some of these markets that maybe didn’t look as viable during COVID more viable as people get back to work.”