http://www.businessweek.com/articles/2012-02-16/a-hyatt-heir-who-thinks-small-is-beautiful

Hospitality

A Hyatt Heir Who Thinks Small Is Beautiful


John Pritzker collects black-and-white photographs -- and boutique hotels

Photograph by David Paul Morris/Bloomberg

John Pritzker collects black-and-white photographs -- and boutique hotels

Jay Pritzker, the late billionaire founder of the Hyatt Hotels (H) chain, made a fortune catering to business travelers—who generally values practical over posh. Hyatts are comfortable, conveniently located, and affordable. One thing they are not is memorable.

John Pritzker, Jay’s 58-year-old son, has spent the past couple of years assembling a collection of 43 boutique hotels, each with a distinct personality. The 125-room Hotel Tomo in San Francisco’s Japantown has an animé theme, complete with whimsical wall murals and a player’s suite for avid video gamers, while the tiny Petite Auberge, located in the city’s downtown, resembles a French country inn. At the newly refurbished Carmel Valley Ranch, guests can take part in a scavenger hunt, while visitors to Silicon Valley’s Hotel Avante will find an “Executive Toy Box” in their room that holds an Etch A Sketch, a Rubik’s Cube, and a Slinky.

“Hyatt lost its appeal because it was too big a machine,” says Pritzker. “It’s easy to systematize economies of scale, but you slowly lose who you are.” His apprenticeship in the business began at age 15 when he was asked to paint the boiler room of the Hyatt at O’Hare airport and ended almost two decades later, in 1988, when he left the family company. “I like walking into a smaller hotel where the desk clerk recognizes me,” says Pritzker, whose San Francisco office is decorated with black-and-white photographs by such artists as Man Ray alongside clay figures made by his sons and a Jerry Garcia bobblehead. (Pritzker says he’s a Deadhead.)

Pritzker expects his closely held Commune Hotels and Resorts to reach $1 billion in revenue within five years, up from approximately $380 million last year. To hit that target, he’s relying on acquisitions, as well as mergers with other hoteliers. Pritzker, Commune’s chairman, acquired a majority stake in Joie de Vivre Hospitality, a chain of 31 boutique hotels, in 2010 for an undisclosed price. In October he finalized a joint venture with Thompson Hotels, which operates 13 high-end properties, five of them in New York, that cater to well-heeled tourists and creative types.

The deal also added the Pomeranc brothers—Jason, Michael, and Lawrence—to the mix. The three founded the Thompson chain in 2001 and had been looking for ways to expand. “What ultimately tipped the scale is the fact that John is first and foremost a good man and somebody who has his values in the right place,” says Jason Pomeranc, who is in daily contact with Pritzker, whether to talk business or banter about shared interests such as art and food. Pritzker describes the relationship as “really comfortable. They are family, just like us.”

Pritzker knows firsthand the benefits—and pitfalls—of working with relatives. His father’s death in 1999 set in motion a wrenching decade-long process of divvying up the fortune that left family members estranged. At various points in his life, Jay Pritzker held interests in Conwood chewing tobacco, Braniff International Airways, Levitz Furniture, and Ticketmaster (LYV), as well as casinos in Las Vegas and Atlantic City. A 2001 settlement awarded John and 10 siblings and cousins at least $1.35 billion apiece, according to court documents. The clan retains a controlling stake in Hyatt. Pritzker says he is back in regular contact with most of his relatives today: “It’s going to take some time to heal all that, but we’re going to get there.”

The settlement has provided Pritzker, who owns a Gulfstream jet that he occasionally leases out to Silicon Valley chieftains including Facebook’s Mark Zuckerberg, the means to fund his dreams of expansion. One of his latest projects was the reopening of Carmel Valley Ranch, a 400-acre-plus golf and spa resort in California. He acquired the property from Blackstone Group (BX) in 2009 for $20 million and then sank $35 million into upgrades. Guests can tour the new organic vegetable garden or don beekeeper regalia to visit the apiary.

Pritzker “is not a prisoner of the Hyatt world but has great knowledge of it,” says Donn Davis, a partner in investment firm Revolution. A unit of Revolution in 2004 acquired The Odyssey Club, a private residence club, from Pritzker and Tom Gottlieb, who met at a Wisconsin camp when they were both 11. The two in 1996 started Mandara Spa, a chain offering spa services at hotels. “It’s a great business,” says Pritzker. “All you need to do is to get clients in the hotel door, then they hand you their wallets for five days.” The partners sold the company in 2001.

Pritzker says he has $150 million earmarked for future hotel acquisitions and is willing to work with partners to get large deals done. Stiff competition in the boutique hotel sector may limit his ambitions, however. Marriott International (MAR) has partnered with Ian Schrager, who is credited with pioneering the boutique hotel concept, and plans to have six properties on three continents by 2015. Richard Branson’s Virgin Group plans to spend as much as $500 million on high-end hotels over three years. “Cities like New York, D.C., San Francisco, and Boston are very crowded with boutique hotels. That makes it hard to compete,” says Patrick Scholes, an analyst at FBR Capital Markets (FBRC). “Combine that with the fact that profit margins tend to be lower at these usually full-service boutique hotels, and you face a significant risk.”

In Pritzker’s own eyes his biggest hurdle is expanding his company without sacrificing the personal touch and individuality of each of his hotels. “Our challenge is: How do we grow and behave and serve in the manner with which we started these businesses?”

The bottom line: John Pritzker, the billionaire heir to the Hyatt fortune, expects his boutique hotel business to reach $1 billion in revenue by 2017.

Brandt is a reporter for Bloomberg News in Los Angeles.

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