Latest / Family Business Stories with Fexingo: Succession, Legacy, and Multi-Generational Companies / How the Pritzker Family Built a Hyatt Hotel Empire
Transcript
- Lucas: So, Jay Pritzker buys a hotel near LAX in 1957. Not because he wanted to get into the hotel business, but because he liked the name. The motel was called Hyatt House, and he thought it sounded friendly. Luna: He bought the whole property just for the name? Lucas: Pretty much. The story goes he was waiting for a flight, saw the motel, and within a few weeks he'd purchased it from the original owner, Hyatt von Dehn. That single property became the seed of what's now Hyatt Hotels — 1,300 properties worldwide, an iconic global brand. Luna: And the Pritzker family — Jay's father, his brothers, eventually his children and cousins — they managed to hold on to control for decades, through an incredibly complex trust structure. Lucas: Exactly. This is a family that made its first fortune in Chicago real estate and industrial manufacturing — the Marmon Group, which they owned. But Hyatt became the crown jewel. And the way they kept it in the family while dealing with estate taxes and founder egos is a textbook case in succession planning. It's also a cautionary tale about what happens when the IRS comes knocking. Luna: Let's start at the beginning. Jay Pritzker was already a successful businessman when he bought that first Hyatt. What was the family's background? Lucas: His father, Nicholas Pritzker, emigrated from Ukraine to Chicago in the 1880s. He started a law firm, then moved into real estate and small businesses. By the time Jay and his brother Donald took over in the 1950s, the family had a portfolio of industrial companies under the Marmon umbrella. But Jay saw something in the hotel business that the rest of the family didn't. He believed that post-war air travel would create demand for quality roadside hotels. Luna: And he was right. The first Hyatt House was a hit. Within a few years, they were expanding — building more properties, then acquiring other hotel chains. Lucas: By the 1970s, Hyatt had gone public, but the Pritzker family still controlled the voting stock through a dual-class structure. Jay's vision was to keep the company growing while minimizing estate taxes. So in the 1980s, he and his brother Donald created a series of trusts that would hold the family's assets — including Hyatt shares — and pass them to the next generation without triggering huge tax bills. Luna: That's where it gets complicated. The trusts were designed to last for a hundred years, right? They could buy and sell assets, pay out income to beneficiaries, but keep the underlying wealth intact. Lucas: Yes. They used something called a 'generation-skipping trust' — which is exactly what it sounds like. The trust is structured so that assets go to grandchildren or later generations, bypassing the children's estate for tax purposes. For a family with billions in assets, this can save hundreds of millions in estate tax. But it comes with trade-offs. The beneficiaries — the children and grandchildren — don't own the assets directly. They're entitled to income, but they can't control the business. Luna: And that created tension. Jay had 11 children and nieces and nephews. Some wanted liquidity, some wanted control, some wanted to sell. Lucas: Right. In 2006, Jay died. His son Thomas — Tom Pritzker, who had been running Hyatt — took over as chairman. But within a few years, the family started fighting over the trusts. Some family members felt they weren't getting enough income. Others wanted to sell Hyatt and cash out. And then the IRS got involved. Luna: The famous 2011 tax dispute. The IRS said the family owed something like $220 million in back taxes on carried interest. Lucas: That's right. The family had structured some of the trusts with a provision that allowed them to treat investment profits as carried interest — the same kind of compensation that private equity managers use, which is taxed at a lower capital gains rate rather than ordinary income. The IRS argued that the Pritzkers were using this structure improperly, and the family ended up settling for a reported $220 million. Luna: So the tax bill forced them to reorganize. In 2012, they took Hyatt private again, then in 2013 they spun off most of the hotel properties into a real estate investment trust, or REIT. That effectively separated the operating company from the real estate. Lucas: It was a massive restructuring. The family kept control of the operating company — Hyatt Hotels Corporation — which manages the brands and runs the hotels. But the actual buildings, the real estate, went into a REIT called Park Hotels & Resorts, which is publicly traded. The family's ownership in that REIT is much smaller. So they traded direct control of the hard assets for liquidity. Luna: And that's a key lesson. The trust structure preserved the family's control for two generations, but eventually the tax code caught up. And the family had to choose between fighting the IRS and restructuring. Lucas: They chose restructuring. And it worked. Hyatt today is a $15 billion market cap company, still controlled by the Pritzker family through supervoting shares. Tom Pritzker is still chairman. But the family's wealth is more diversified now, and the trust structure has been simplified. Luna: Let's talk about the next generation. Tom Pritzker is in his 70s. Who takes over after him? Lucas: That's an open question. Tom has three children, but none of them are in senior management at Hyatt. The family has a tradition of not forcing the next generation into the business. Jay's own children — Tom's siblings — many of them went into other fields. Penny Pritzker, for example, became US Secretary of Commerce under Obama. Another cousin, J.B. Pritzker, is the governor of Illinois. Luna: So the family has a lot of talent, but not necessarily all focused on Hyatt. That's often the challenge in multi-generational businesses: the founder's passion isn't automatically inherited. Lucas: Exactly. And that's why the trust structure is so important. It allows the family to retain control even if the day-to-day management is handed to professional executives. Hyatt's CEO is Mark Hoplamazian, who is not a family member. But the board is chaired by Tom Pritzker, and the family still holds the majority of voting power. Luna: It's a model that a lot of families try to replicate. But the Pritzker story shows that even the best-laid plans can get tangled up with the IRS. Lucas: Well, speaking of things that can get tangled — if you found this episode useful, if it gave you a concrete idea about how to think about succession or trust structures, that's exactly why we make this show. Family Business Stories stays ad-free because of listener support. So if today moved your work forward in a small way, you can keep that going at buymeacoffee dot com slash fexingo. No pressure, just an option to keep the show independent. Luna: Yeah, we really appreciate everyone who chips in. It makes a difference. Lucas: Alright, back to the Pritzkers. One more thing I think is worth noting: the family also had to navigate the 2008 financial crisis. Hyatt had a lot of debt at the time, and the recession hit hotel occupancy hard. But because the family controlled the company, they were able to make long-term decisions without worrying about quarterly earnings pressure. Luna: That's a big advantage of family control. They can ride out downturns. Lucas: Yes. And they did. They invested in renovations and new properties during the downturn, and when the recovery came, Hyatt came out stronger. That's a pattern you see in many family businesses: the ability to think in decades, not quarters. Luna: So what's the next chapter for the Pritzkers? Any big moves on the horizon? Lucas: Well, in 2024, Hyatt announced a major acquisition of a luxury resort brand, though I won't name it here because the details are still unfolding. They're clearly betting on the high-end traveler. And the family seems committed to keeping the company independent. But with Tom Pritzker aging and the third generation getting older, the question of succession will eventually come back. Luna: It always does. That's the nature of a family business. Lucas: Right. And the lesson from the Pritzkers is that you can plan all you want, but the tax code will change, family dynamics will shift, and you have to be adaptable. The trusts gave them stability for decades, but they also created complexity that eventually had to be unwound. Luna: And the key takeaway for our listeners: if you're building a multi-generational business, think about the trust structure early. And talk to your family about what they want — because not everyone will want to run the company. Lucas: That's the truth. The Pritzkers managed to keep Hyatt in the family for over 60 years. That's rare. And it took a combination of smart legal thinking, financial discipline, and a willingness to adapt. For any family trying to do the same, their story is worth studying. Luna: Thanks, Lucas. Next time, we'll look at a family that did it even longer — the Barilla pasta dynasty. Lucas: Looking forward to it. Until then.