May 30, 2011 / 9:47 AM / 8 years ago

Marriott, Schrager sued by Hawaii hotel owner

NEW YORK/CHICAGO (Reuters) - Marriott International Inc MAR.N has been sued by the owners of a Honolulu hotel operating under the Edition name, saying its failure to promote the brand has kept customers away and caused losses.

Arne Sorenson, President and COO of Marriott International, speaks during the Reuters 2011 Global Fashion and Luxury Summit in New York, May 24, 2011. REUTERS/Mike Segar

The lawsuit, filed Thursday in New York State Supreme Court in Manhattan by M Waikiki LLC, also accuses co-defendant Ian Schrager, Marriott’s partner in creating Edition and a well known developer of “boutique” hotels, of abandoning the project to work on other ventures.

It seeks to end a 30-year management agreement and recover losses and cost overruns tied to the 353-room beachside hotel, which it said overlooks the Pacific Ocean and has a penthouse shown in the opening credits of the TV series “Hawaii Five-O.”

M Waikiki is controlled by eRealty Fund LLC, according to the San Diego-based firm’s website.

“We are surprised and perplexed by this action and will defend it vigorously,” Marriott spokeswoman Stephanie Hampton said in an email. “Edition and specifically the Waikiki Edition have generated tremendous excitement, and both we and Ian Schrager are confident of the hotel’s and Edition’s success.”

Analysts believe Starwood Hotels and Resorts Worldwide Inc HOT.N, through its W line, has fared better than many rivals in developing alternative lines of hotel lodging.

In the Honolulu case, M Waikiki said it paid $112 million to buy the property in 2006 and $138 million on renovations. First built in 1968, the hotel reopened in late 2010.

But according to the complaint, neither Marriott nor Schrager ever made Edition a priority, and indeed only one other hotel, in Istanbul, now carries that name.

M Waikiki said Marriott in August 2009 projected a 62 percent occupancy rate for the hotel.

The reality: an “outrageously low” 29.5 percent in the hotel’s first quarter, contributing to a $6 million operating loss so far, the complaint said.

“We believe empty promises were made in connection with the launch of Edition - and the damage done to our client has been further compounded by Marriott’s inability to effectively manage this property,” says William A. Brewer III, partner at Bickel & Brewer and lead counsel for M Waikiki LLC.

“Based on the breaches of its contractual obligations to our client, we are seeking to remove Marriott from the management of the Hotel.”

The plaintiff also said Schrager has publicly criticized Edition as he focuses on Public, a new hotel brand.

“Some of the largest hotel companies in the world are trying to be hip, and to me, by definition, hip is something alternative,” the complaint quoted him as saying. “It’s time to move on to something else.”

The Wall Street Journal earlier reported the lawsuit.

Shares of Marriott closed Friday up 5 cents at $37.86.

The case is M Waikiki LLC v. Marriott Hotel Services Inc et al, New York State Supreme Court, New York County, No. 651457/2011. (Reporting by Helen Chernikoff in New York and Jonathan Stempel in Chicago; Editing by Phil Berlowitz and Robert MacMillan)

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