POSTED: 10:30 a.m., 12/16
WAIKIKI, Hawaii—In the ongoing saga over a beachfront hotel in Waikiki, Hawaii, Marriott International has lobbed a bombshell back at Aqua Hotels & Resorts, claiming in a lawsuit filed this week that the management company persuaded the hotel’s owner into terminating its contract with Marriott.
In the lawsuit filed in the U.S. District Court in Hawaii, Marriott claims M Waikiki was enticed by reduced costs to ditch Marriott’s management and franchise services and instead sign a management agreement with Aqua, which resulted in a loss of at least US$65 million Marriott would have collected over the length of the initial 30-year management contract.
“After learning of the dispute between Marriott and the owner, Aqua saw a multimillion-dollar opportunity,” the lawsuit reads. “… In The Waikiki Edition, Aqua saw the luxury hotel its portfolio lacked. If it could persuade the owner to sign up with Aqua, it could capitalize on the dispute with Marriott and instantly compete in the luxury market without ever having to develop or build a luxury hotel itself.
“Accordingly, Aqua secretly met with the hotel’s owner, enticing the owner with promises of reduced costs. It negotiated a rival management agreement aimed at inducing the owner to breach the long-term deal it had signed with Marriott.”
The lawsuit names as defendants: Aqua Hotels & Resorts, Modern Management Services and W. Christian Oles, who was Marriott's head of security at The Waikiki Edition.
Marriott alleges Oles acted as Aqua’s “inside man” during an overnight takeover on the evening of 27 August. The lawsuit says Aqua planted senior executives as fake guests of the hotel that waited for nightfall to take action.
“And (Aqua) engaged a computer consultant to crack Marriott's passwords and access the hotel's computers once on property. The takeover was planned and executed by Aqua's senior management,” the lawsuit reads.
Marriott claims, on the night of the “takeover,” the Aqua team assembled all the employees at the hotel in the hotel lobby and told them the hotel was under new management and would be called the “Modern Honolulu” moving forward.
“The Aqua security guards escorted Marriott's top managers, with the exception of Christian Oles, off of the property and told them not to return,” the lawsuit reads. “They advised the remaining employees that they would have to sign on with Aqua or face termination.”
POSTED: 5:15 p.m., 9/1
BETHESDA, Maryland—Marriott International has issued a statement regarding the bankruptcy filings by M Waikiki, owners of the former Waikiki Edition.
Marriott in the statement calls the move a "self-defeating step that ultimately involves the destruction of significant value of the owner’s asset."
Ed Ryan, Marriott's executive VP and general counsel, said: “While we are astonished at such a self-destructive course of action, we of course respect the law and the fact that a bankruptcy filing freezes any other legal orders for the time being. It is clear that this was a desperate step by the owner and legal advisors to circumvent the New York court’s order returning the hotel to our rightful management and control. They will obviously stop at nothing in the effort to escape from the contractual obligations they made to us when they signed the management agreement.
“We will vigorously pursue tens of millions of dollars of claims for damages to the brand and our company in bankruptcy court over time. We understand the disappointment that our guests and employees feel about the current status of the Waikiki Edition, and will strive to do all we can to help the transition to new plans.”
Marriott said court filings would counter claims that management of the hotel by the owner and its legal counsel. For example, Marriott said occupancy rates at the Waikiki Edition were 67% in July and were running in excess of 80% in August prior to the change in management.
POSTED: 9 a.m., 9/1
NEW YORK—The ongoing battle over management of the former Waikiki Edition hotel took two 180-degree turns in a single day Wednesday, and it’s clear neither side is prepared to go down without a fight.
After M Waikiki, owners of the property, was ordered early Wednesday afternoon by a New York state judge to reinstall Marriott International as the management company, M Waikiki later that evening said it filed for bankruptcy solely to keep Marriott away.
“In our view, filing for bankruptcy protection is the only prudent option for protecting our investment in this asset,” Damian McKinney, principal of M Waikiki, said in a statement. “We look forward to reorganizing as a new corporate entity, continuing the employment of a new management company, and making this a leading lifestyle hotel for guests and employees.”
M Waikiki claims the Chapter 11 bankruptcy filing allows the owner to continue with the termination of the management agreement with Marriott and allows M Waikiki to continue to employ new management at the property.
Jim Butler, attorney with Jeffer Mangels Butler & Mitchell, said, "Owner discontent seems to erupt when operators continue to deliver disappointing results and ignore owner's requests to drive the top line and manage costs. Then the operators wonder why owners are upset."
Back to the beginning
The whole saga began in May, when M Waikiki filed a lawsuit against Marriott and boutique hotelier Ian Schrager, alleging the hotel had suffered from poor performance since opening its doors as the first Edition property late in 2010. During the three-month period from May to July 2011, the owners reported the hotel saw operating losses of US$1.9 million and total projected operating losses at the hotel this year are forecast at nearly US$6.4 million. The hotel’s revenue-per-available-room index, the owners claim, is 47% year-to-date, and occupancy rates in July are almost 20% below its competitive set, with a RevPAR index of 54%.
Without alerting Marriott, M Waikiki during this past weekend took matters into its own hands by swiftly installing a new management company, Modern Management Services. The hotel was renamed the Modern Honolulu, guests were advised and hundreds of hotel staff members were offered employment, according to M Waikiki. Modern Management Services is an affiliate of Aqua Hotels & Resorts.
Hotel Assets Ad Will Appear Here
“Marriott agreed to operate the hotel as a manager. Under the law, the owner is able to terminate the relationship at any time, for cause or otherwise,” said William A. Brewer III, partner at Bickel & Brewer and lead counsel for M Waikiki, in an emailed statement earlier this week. “We exercised our right to assume control of the property to protect our investment.”
Marriott disagreed. After terming the act a “takeover,” COO Arne Sorenson said Marriott would “aggressively and vigorously pursue all remedies against the owner and its partners in this illegal act.” A lawsuit was filed and acted upon rather quickly, with a New York state judge ruling M Waikiki violated its management contract and ordering the ownership group to return the hotel to Marriott’s control as of 8:30 p.m. Wednesday.
Sorenson responded to the court ruling by issuing a statement saying, “The past few days have been trying, frustrating and confusing for our guests and employees. We’re glad the judge returned the Waikiki Edition to our hands. We are in the process of resuming operations.”
Not so fast. M Waikiki proceeded to file bankruptcy and issued a statement saying it acted within its rights in terminating its contract with Marriott.
“The owner has filed for bankruptcy protection, which will permit it to continue the operation of the hotel under its present management with Modern Management Services,” Brewer said. “New management remains in place.”
M Waikiki also said the court ruling and subsequent reorganization announcement do not affect court claims against Marriott, in which M Waikiki seeks “tens of millions of dollars” in damages.
As far as employees at the property go, Modern Management said it has hired more than 220 staff members. Benjamin Rafter, president and CEO of Aqua Hotels and Resorts, parent company of Modern Management, issued a statement regarding M Waikiki’s bankruptcy filing.
“M Waikiki … has asked us to continue operating the property,” he said. “Our top priority is to continue providing a supportive environment for our team members and a luxury experience for our guests.
“We would like to express our sincere appreciation and extend a special mahalo to the more than 220 associates who joined The Modern team for their dedication and hard work at The Modern Honolulu during this transitional period.”
Rafter called the events “unfortunate” and said employees have been mislead and confused by Marriott. “We will continue to operate The Modern Honolulu at direction of ownership,” he said.
In terms of growth of the Edition brand, Marriott said there is one other Edition property open in Istanbul and five Editions in development.