For the most part, the major global hotel chains just have management contracts for their hotels, and in reality the properties are owned by outside investment companies. Hyatt gets a percent of the revenue for marketing and managing the hotel, and for the most part the agreements work out pretty well.
However, understandably sometimes these relationships sour. This can be for a variety of reasons. For example, with Marriott’s takeover of Starwood, we’ve seen a fair number of hotels leave the portfolio, since the competitive landscape changes a bit when you’re part of the world’s largest hotel group.
In this post I wanted to look at an interesting lawsuit that was recently filed by the owners of a hotel against Hyatt.
The Hyatt Regency Jersey City lawsuit
The real estate developer behind the Hyatt Regency Jersey City has filed a lawsuit against Hyatt, and I find this to be an interesting one. This lawsuit involves two main components:
- A Hyatt House was built very close to the Hyatt Regency, which the Hyatt Regency claims is causing a $1.3 million annual operating loss
- Hyatt allowed Hyatt Regency employees to unionize without consulting the hotel’s owners, which they claim has led to $58 million in damages
Let’s look at these points in a bit more detail, though if you want to read the full lawsuit for yourself, see here.
The Hyatt Regency’s Hyatt House issue
It’s normal for hotels to have some sort of a proximity clause, where the same management company won’t open a competing hotel within a certain area.
Hyatt had approached the Hyatt Regency owners in regards to the opening of a nearby Hyatt House, alleging that they wouldn’t be a competitor, since Hyatt House is a limited service and extended stay brand. The Hyatt Regency’s owners agreed to this.
Well, the hotel opened in December 2017 under 300 feet away, and the Hyatt Regency’s owners allege this has caused the hotel a $1.3 million operating loss. Their argument is that:
- The Hyatt House has 258 rooms, making it the largest Hyatt House in the country
- The Hyatt House offers a food and beverage program comparable to a full service hotel, and has a destination rooftop lounge and bar
Bar at the Hyatt House Jersey City
So the Hyatt Regency’s owners are basically suggesting this is a Hyatt House in name only.
What I’m not clear on is:
- Did the Hyatt Regency’s owners ask all these questions regarding the size of the hotel, the amenities, etc.? This seems like something you’d ask if a hotel is opening less than 300 feet away.
- Did the Hyatt Regency’s owners get anything for agreeing to let the other hotel open, because otherwise I don’t see what’s in it for them?
To me it’s naive to think that a hotel opening less than 300 feet away wouldn’t impact business.
Even if it’s theoretically targeted at a different demographic of the market, the reality is that many people are loyal to particular hotel brands, and if they’re searching for hotels in the area, the may be willing to book a Hyatt House rather than a Hyatt Regency if the price is right.
The Hyatt House Jersey City lobby
The Hyatt Regency’s union issue
Union issues are an ongoing struggle in the hotel industry.
The Hyatt Regency’s owners claim that their management agreement with Hyatt requires Hyatt to get their approval before entering into any collective bargaining agreements, and that this hasn’t been done:
- The Hyatt Regency Jersey City opened in 2002 without any sort of collective bargaining agreement
- In September 2014, Hyatt unilaterally subjected the hotel to the Greater Regional Industry-Wide Agreement with the New York Hotel and Motel Trades Council
- When doing this, Hyatt didn’t obtain the hotel owner’s consent, as they were required to
- In December 2017, Hyatt renewed the hotel’s commitment to this, effective as of April 1, 2018
- This has greatly increased the operating costs of the hotel, and the claim is that the hotel has suffered damages in excess of $58 million as a result of this
It’s not entirely clear to me if the hotel could have done anything to prevent this, or if the owner’s issue is simply that Hyatt didn’t properly consult them on this (even if it wouldn’t have impacted the result).
Bottom line
I find this to be an interesting lawsuit, and am curious to see how it plays out. While the hotel is claiming more significant damages from the union issues, I’m more curious how the Hyatt House issue plays out.
It seems crazy to me that the hotel’s owners didn’t think a hotel opening a few hundred feet away would impact their business.
I’ll be monitoring this and am curious how it plays out, though who knows, an agreement will likely be reached behind closed doors.
Destination is an expression often used in (retail) marketing. People go there not just bc of a basic need (get food as a hotel guest) but rather they want to check the place out based on their wish to experience sth special to adress more hedonistic “needs” and therfore give you extra value (nice view, feeling special)
I have spent the majority of my hundreds of nights at "extended stay" brands Hyatt House, Residence Inn, and Homewood Suites and I know for a fact that the vast majority of guests are there on short-term stays. How did Hyatt Regency agree to (buying into) any impression that Hyatt House would be almost exclusively extended stay guests and not take away business from the beginning?
I've always considered Hyatt House as long-term apartments, but the newer Hyatt House properties are more like an upscale Hyatt Place -- both Jersey City and the DC Wharf. They are both better than most domestic Regencies, which is great, but somewhat confusing from a brand perspective.
@Alex do you have proof for what you just said? That sounds like BS to me.
Pure anecdote, but working with a large amount of consultants has given me the impression that they all get excited when they get to book a full-service hotel Marriott or Sheraton over a Courtyard/etc.
I'll admit, my first thought was that the owners of the Hyatt Regency should be embarrassed about the state of their hotel if a limited service Hyatt House was cutting into their business, but after seeing the pictures of the Hyatt House I am a little more sympathetic. I have seen a couple budget hotels like Hilton Doubletrees and Hyatt Places where they look like luxury properties and have wondered how they make that work...
...I'll admit, my first thought was that the owners of the Hyatt Regency should be embarrassed about the state of their hotel if a limited service Hyatt House was cutting into their business, but after seeing the pictures of the Hyatt House I am a little more sympathetic. I have seen a couple budget hotels like Hilton Doubletrees and Hyatt Places where they look like luxury properties and have wondered how they make that work...
This particular Hyatt House has some beautiful public areas. It seems more like a Hyatt Regency in it's status (especially that lobby! It looks like a 1920's art deco bank). The proper Hyatt Regency would be hard pressed to compete against that without having to go to Grand/Park Hyatt levels of decor. The Hyatt Regency is currently fresh enough for a standard Hyatt Regency and looks nice, but not in comparison to the genre-bending Hyatt House. This seems like a bizarre subversion by Hyatt.
That being said, I'm not sure how the Hyatt Regency can win against Hyatt unless they have proof that Hyatt told them there would not be any competition or any pressure on their profits from the Hyatt House (and I doubt anyone from Hyatt was foolish enough to give that assurance in the first place). Like Ben said, it seems like naïveté from the owners.
@JL100 thank you for contributing absolutely nothing relevant to this topic...
Consumers don't see that much distinction between the lower-end full service brands like Hyatt Regency, Sheraton and the upper-end limited service brands. Often the limited service properties are newer, nicer at a much better price point.
The hotel industry has cannibalized itself with false segmentation that doesn't hold in the real world.
If I were the hotel owner, I would be absolutely livid about having the Hyatt House next door. OTOH, legally I don't think there is a case. In the law there is a rule that you can only sue about something afterwards that you complained about before: If the HR agreed to the HH, w/o objecting to the size, food, bar etc. then those are not going to be acceptable legal grounds in court.
The...
If I were the hotel owner, I would be absolutely livid about having the Hyatt House next door. OTOH, legally I don't think there is a case. In the law there is a rule that you can only sue about something afterwards that you complained about before: If the HR agreed to the HH, w/o objecting to the size, food, bar etc. then those are not going to be acceptable legal grounds in court.
The union issue is an interesting one. As you note, if the hotel owners had been properly notified, would it have made a difference? That may not matter. If Hyatt was contractually required to inform the owners ahead of time and did not, the owners have a heckuva lawsuit. Especially since Hyatt gets its management fee anyway, so Hyatt knew it could bring in the union to the detriment of the owner's bottom line, not Hyatt's bottom line.
IMHO, this makes Hyatt look like an untrustworthy partner.
Oh, and to settle the debate, Taco Bell sucks.
@Tom: I take your point. I too get bothered by words like "artisanal", "bespoke", "curated" and "home-made" which are over-used in marketing. But seriously, this is a really impressive space, especially considering what is usually on offer by limited service hotels. It's in a very pretty building with some seriously excellent views of downtown Manhattan. I'm not a hyatt booster and I wouldn't have used the term without thought. I live in the neighbourhood and...
@Tom: I take your point. I too get bothered by words like "artisanal", "bespoke", "curated" and "home-made" which are over-used in marketing. But seriously, this is a really impressive space, especially considering what is usually on offer by limited service hotels. It's in a very pretty building with some seriously excellent views of downtown Manhattan. I'm not a hyatt booster and I wouldn't have used the term without thought. I live in the neighbourhood and I wouldn't set foot in the restaurants on offer in the local Doubletree, Westin, Hyatt Regency or Courtyard by Marriott. I have however, gone out of my way to go to the Hyatt House's rooftop.
"destination rooftop bar/restaurant/lounge"
Putting the word "destination" in front of a joint to make it sound better is right up there with putting the word "designer" in front of a clothing item.
Every location is a destination and every item of clothing was designed by someone :)
But selling $20 cocktails and $100 sweaters is a hard sell.
Taco Bell certainly has its place.
I have no opinion on the legal issues, but I gotta say that the Hyatt House in Jersey City looks like a particularly nice property for a limited service hotel. It's in a heritage building, has that destination rooftop bar/restaurant/lounge and is brand new. I would argue that it's leapfrogged to be the nicest hotel in JC, beating out the Westin and Hyatt Regency.
I never understood why everyone makes Taco Bell bathroom jokes, do people really have such a sensitive stomach? I don't think I've ever gotten an upset stomach from Taco Bell or any Mexican restaurant, and I pretty much use a whole sauce packet every bite. Some people can't handle barely spicy foods I guess?
You can "walk to Taco Bell", but you'll be running to the bathroom soon after
"the ability to get food relatively late." too lazy to walk to the taco bell?
Having stayed at Hyatt Regency JC and the newest Hyatt House JC, I can difinitively say that the Hyatt House is much nicer overall.
The JC Hyatt House has nicer rooms, fresher overall feel throughout and a nice bar overlooking the Hudson with views of Manhattan. Yes- the regency does have some full service elements that are nice such as room service and an expanded restaurant menu- but I do understand there gripe here....
Having stayed at Hyatt Regency JC and the newest Hyatt House JC, I can difinitively say that the Hyatt House is much nicer overall.
The JC Hyatt House has nicer rooms, fresher overall feel throughout and a nice bar overlooking the Hudson with views of Manhattan. Yes- the regency does have some full service elements that are nice such as room service and an expanded restaurant menu- but I do understand there gripe here.
From a guest perspective, it’s much easier to choose this Hyatt House given an equal location and superior physical property- and typically lower rates.
Hyatt House will likely cause a net operating loss of $1.3 million for the Hyatt Regency, the lawsuit alleges.
If he’s loosing $1.3 million in this economy he has bigger problems than the Hyatt House.
I have stayed at Hyatt Place more than Hyatt House, but I really like them and they are a good substitute for Hyatts. All of them even have small bars and the ability to get food relatively late.
Lucky, just to be clear they are not claiming that the opening of the Hyatt House cost them $1.3 million in lost revenue, they are claiming that the Hyatt House is causing the Regency to be operatiing at a loss, which was $1.3 million last year according to this lawsuit.
In other word’s they are claiming the whole reason the Regency is losing money is because of the Hyatt House opening next door so...
Lucky, just to be clear they are not claiming that the opening of the Hyatt House cost them $1.3 million in lost revenue, they are claiming that the Hyatt House is causing the Regency to be operatiing at a loss, which was $1.3 million last year according to this lawsuit.
In other word’s they are claiming the whole reason the Regency is losing money is because of the Hyatt House opening next door so this would be a much larger overall loss in revenue than $1.3 million, that is just the amount of money they were in the red last year - an operating loss.