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Andaz brand stakes its claim
January 14 2010

Hyatt’s newest offering expands its footprint to include New York and San Diego. Management’s goal is to have properties in the top 15 markets as soon as possible.

NEW YORK—Hyatt Hotels Corporation wants to have its new Andaz brand located in the top 15 markets sooner than later and plans to use a mix of new construction, conversions and adaptive reuse to enlarge its footprint.

Steve Haggerty

Steve Haggerty, global head for real estate and development for Chicago-based Hyatt, said during the celebration of the opening of the Andaz Wall Street in New York earlier this week that the company plans to have multiple properties in some of the top markets.

“If we want the brand to be relevant, it needs to be in top 15 (metropolitan statistical areas) in North America, and in other parts of the world it’s the same goal,” Haggerty said. “The density of the brand does depend on individual markets. In a market like New York, you can have five or six Andaz properties spread out and not hurt the product.”

When it officially opens on Monday, 18 January, the Andaz Wall Street will join the Andaz Liverpool Street in London and the Andaz West Hollywood in California in the brand’s collection. Earlier this week, Hyatt announced that on 1 February the Andaz San Diego will debut. In addition, the Andaz Fifth Avenue in New York is scheduled to open in the first half of 2010.

David Tarr, senior vice president of real estate and development, said the Andaz product works particularly well in urban settings, but the brand eventually also will be well represented in resort locations because of its focus on service.

David Tarr

While there certainly are a number of variables that can affect development costs, a typical Andaz property will cost between US$300,000 and US$400,000 per key to build, the executives said. Tarr said the price tag will vary based on the costs to build other four-star properties in a particular market.

Hyatt owns the Andaz Liverpool Street, the Andaz West Hollywood and the Andaz Fifth Avenue; the Wall Street property is owned by The Hakimian Organization; and the Andaz San Diego is owned by Kelly Capital.

  “We’ve had some early adopters with sophisticated third-party capital,” Haggerty said. “With a core like this we’re in a better position to talk with third-party capital to see if this will work in their market.

“With the first two being opened with Hyatt’s capital, we were able to work on the service model, which is what the brand is all about.”

A unique perspective

Tarr said the Hyatt ownership of the first two properties gives the company a unique view of the brand through the eyes of an owner instead of just a franchisor or licensor.

A king guestroom at the Andaz Wall Street

“From a development point of view, having distribution is important,” Haggerty said. “If an opportunity arises, we would consider using more of our own capital to build the Andaz brand.”

“Recognizing the scarcity of capital, we’d look at the market and the partner,” he said. “We have the flexibility to do a variety of deal structures.”

The company has no specific target for the number of Andaz properties.

“We own close to 100 hotels globally, and we don’t look at the ownership of hotels as something we need to get into or get out of it,” Haggerty said. “We’re not chasing our shadow, and we’re not fussed about spinning big numbers out there. If the brand works, it will speak for itself.”

“It’s not as though we don’t have skin in the game,” said John Wallis, global head of marketing and brand strategy for Hyatt. “We own London, Fifth Avenue and West Hollywood. Developers know we are highly focused on the brand.”

Tarr said the opportunity to convert the Ivy, a hotel with historic roots that was renamed and reopened as a boutique property two years ago, into the Andaz San Diego represented a perfect fit.

“It was an opportunity to team up with a group that has what we thought was a hotel that matched up really well,” he said. “We’re looking to buttress a great reputation the hotel had in the market with the things that we as a large hotel global company can bring.”

Haggerty said the two biggest challenges for the brand include the obvious tight financing market as well as continuing to redefine the hotel industry’s service model.

“Getting the service model right is a large component of Andaz,” Haggerty said. “We’re selling the customer experience. You can’t just put that in a power point and declare victory. You have to live and breathe it.”

Conversions will rule

While company executives are looking at new construction and adaptive reuse to build its portfolio (for example, the Andaz Wall Street is a former office building), they recognize the primary growth vehicle will be conversions of other hotels—particularly in the U.S.

“In this environment with so many independent and boutique hotels built in the last 36 months, a lot of them opened into a difficult environment,” Tarr said. “Owners can now see the underpinnings of what Andaz can bring without hurting the individual benefits of their property.”

Tarr added that most of the development conversations the company is having are with owners and lenders who have a realistic view of what it’s going to take to convert a hotel during a tough economic cycle.

“When we generate a pro forma, there’s a high level of engagement across our organization,” Haggerty said, adding that every department reviews and approves the pro forma so the developer finds no surprises when the contract is finalized.

There is potential competition from within the company for developers because it also has the Hyatt brand to consider for growth opportunity.

“There’s no definitive answer to whether a project should be Andaz branded or Hyatt branded,” Haggerty said. “There are sites that could be both. A lot depends on dialogue and what the owner wants. There’s no specific Andaz owner as distinct from a Hyatt Regency owner or a Hyatt Grand owner.”

Haggerty said that Hyatt’s recent transition to a public company (it is traded on the New York Stock Exchange under the symbol “H”) hasn’t affected the launch of Andaz.

“We were behaving as a public company prior to going public, so there’s no difference,” he said. “It was the right thing to do, and it drove our strategy.”

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