Hyatt Will Partner With Kiraku To Develop Ryokans, Small Hotels Built Around Hot Springs

Hyatt Hotels Corp. and Japanese operator Kiraku have signed a 50% -50% joint venture to develop ryokan-style hotels in Japan.

The brand, Atona, will target domestic Japanese travelers and international spa aficionados with high-end, modern design, Japanese hospitality enhanced by local culture, art and experiences.

The center of a ryokan is an onsen, or hot-spring bath, which is immensely popular among the Japanese.

Hyatt operates more than 1,150 hotels around the world, while Kiraku, which also has interests in sake brewing, hospitality management and real-estate ownership, owns and operates a collection of small, luxury villas under the brand names Nazuna and Kiraku.

Kou Sundberg, president and CEO of Kiraku, said the joint venture with Hyatt will allow upcoming Atona assets to “tick all the boxes.” Kiraku was founded in July 2013 in Palo Alto, California, as an investment consultancy.

Sundberg said the partnership with Hyatt started with a casual conversation. Kiraku does “asset management on behalf of investment funds, and there was an ongoing conversation with Hyatt that maybe a ryokan / onsen brand will work,” he said.

Japan will lift all COVID-19 restrictions starting Oct. 11, one of the last developed nations to do so. Before only tour groups were admitted, but now visitors will no longer need to book a visit through a major travel agency, possess or visa or be subject to a cap on arrivals.

Since the deal was announced, bookings have increased for October and November, Sundberg said.

According to statistics company Statista, in 2019 almost 32 million international visitors came to Japan, while in 2021 that number was 250,000.

Sundberg said Kiraku brings to the partnership expertise in due diligence, management consultancy, capitalization and development financing, while Hyatt’s loyalty, food-and-beverage prowess and international reach will result in increased marketing and bookings.

Most of Kiraku’s employees are Japanese but US-educated.

“I have been impressed with Hyatt’s properties in Japan, such as the Park Hyatt Kyoto,” Sundberg said, adding that Hyatt’s trusted guest experience will make Atona properties more accessible to international travelers who might not yet have experienced staying at a ryokan.

“The ryokan sector is an incredibly difficult niche for an international chain to go into,” he said.

Japanese menus, bed choices and a language barrier could be challenges for some international guests, he added.

“But with Hyatt, we believe that this Atona brand could attract guests who want to try Japanese ryokans and cultural experiences,” he said.

Sundberg, who spent several years working for New York City-based Fortress Investment Group, said Atona will focus on Japanese destinations that make sense to international travelers who are staying at a Japanese Hyatt or are brand-loyal to them.

New Atona hotels – which will likely have between 30 and 50 rooms, each with a hot-spring bath – will be in hot-springs locations and preferably reached by fast-speed train.

“I like a temperature of between 60 to 65 degrees Celsius [140 to 150 degrees Fahrenheit] when [the water] comes out of the ground. In private rooms, the temperature will be around 40 degrees Celsius. We can also use that for heating utility water and in spa treatments. I would like to have each room have a private bath with hot-springs water, ”he said.

Kou Sundberg is president and CEO of Kiraku. (Kiraku)

Hyatt will bring international standards to the Atona brand and help to expand food and beverage options, Sundberg said. He added it is very typical in ryokans that guests can only book a room if they also book at least two meals per day.

Atona assets will be a mix of new construction and conversions.

“Good conversions are hard to come by. Another difficulty in Japan is to quantify occupancy and [average daily rate], at least outside of Tokyo. Underwriting assets is harder. Essentially, we do our own analysis, ”Sundberg said.

He said Atona will be different from the company’s existing Nazuna and Kiraku brands, which have more of a turnaround strategy for historical buildings.

“Nazuna turns around vacant homes, and [eponymously named] Kiraku does that for villas. It is more of a distress strategy. We collaborate with municipalities, ”he said.

“With Nazuna, the smallest has five rooms, the largest 23 rooms. We preserve assets, and our strategy is a solution. I have always admired [the United Kingdom’s] National Trust, which preserves the heritage of many buildings there. In Japan, we have an issue not knowing how to preserve our old buildings. The only way that is done is to convert them into museums. “

Some of these properties Kiraku does not own, rather acting as agent to turn them around to eventual owners.

“The main pain point of these properties is that they are ‘mom-and-pop’ endeavors. Back of house is limited and on-site, and the operating profit is maybe 5% to 10%, slow yielding. That is nice, and I like to stay in them when visiting relatives, but operations are not optimized, ”Sundberg said.

The main buyers of such assets tend to be Southeast Asian and Japanese family offices, he said.

“We help with financing, due diligence. These are 80- to 100-year-old properties, so we have to see if the property purchase price is right, ”he said.

Japan is the focus of the new brand, but Sundberg said a dream would be to open one anywhere there are hot-spring waters.

Sam Sakamura, Hyatt’s vice president for Japan and Micronesia, said in a news release accompanying the Atona announcement that the joint venture will “build on the unique, personalized experience of traditional Japanese ryokans, which have been loved by locals for centuries, and make them accessible to inbound travelers, many of whom have never experienced staying in a ryokan before. “

Hoshino Resorts is another Japanese hotel firm that specializes in ryokan and onsen properties. It has plans to expand outside of Japan.

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