WSJ: Marriott Loses Trendy Waikiki Hotel as Owner Changes Locks Overnight
In a dramatic move, the owners of the Waikiki Edition in Hawaii said Sunday that in the early morning hours they installed new management and changed the signs and locks on the hotel to reflect a new name, the Modern Honolulu. The changes were made in spite of a contract that allows Marriott to run the hotel as an Edition for 30 years.
The move is the latest escalation in a legal battle that began this spring between M Waikiki LLC, the owner of the stylish but unsuccessful hotel, and Marriott. M Waikiki claimed in a lawsuit filed in May in New York Supreme Court that Marriott had failed to make the flashy new Edition hotel brand a success, resulting in the Waikiki location underperforming relative to its market.
Marriott has filed a motion to dismiss that case.
Regarding Sunday morning's action, Marriott Chief Operating Officer Arne Sorenson said in an emailed statement: "This is a deeply unfortunate, regrettable and illegal event. The owner and its partners raided the hotel literally under cover of night, forcibly taking over the property and threatening our employees with dismissal unless they immediately agreed to a change of management. We will aggressively and vigorously pursue all remedies against the owner and its partners in this illegal act, which was completely and blatantly in violation of Marriott's contractual agreements."
William Brewer, an attorney for the Waikiki Edition owners, said that his clients have the legal right to terminate the contract because Marriott is mismanaging the property and causing them to lose money….
News Release from Aqua Hotels & Resorts, August 28, 2011
STATEMENT FROM THE NEW MANAGEMENT – M Waikiki LLC, a hotel investment group, today announced that it has selected Modern Management Services, LLC, an affiliate of Aqua Hotels & Resorts (“Aqua”) as the new management company of the former Waikiki Edition Hotel (the “hotel”), a luxury property in Honolulu, Hawaii. The 353-room property, renamed The MODERN Honolulu, becomes a flagship property of Aqua, Hawaii’s premier boutique hotel chain. Reservations can be made by visiting the hotel’s new website at www.themodernhonolulu.com or by calling (808) 943-5800.
“We are extremely excited about this new opportunity,” said Damian McKinney, principal of M Waikiki LLC, the owner of the hotel. “We believe that Aqua will realize the vision on which this hotel was developed – becoming the leading lifestyle hotel in Hawaii.”
M Waikiki LLC (the “owner”) announced Modern Management Services as the manager of the property following the termination of Marriott International Inc. (“Marriott”) amid allegations that the hotel has suffered from mismanagement by Marriott which were compounded by Marriott’s failure to develop the Edition brand with which the property was previously affiliated.
Modern Management Services plans to offer employment to current hotel staff members, who will maintain their current rate of pay, original start date and accrued vacation.
“Our primary focus is ensuring a smooth transition for employees and guests,” said Benjamin Rafter, president and CEO of Aqua. “Based on our experience in the local hospitality community, we believe The MODERN Honolulu will become the lifestyle hotel in the Islands.”
The announcement of new management comes more than three months after the owner filed a lawsuit against Marriott and boutique hotelier Ian Schrager. According to allegations in the lawsuit, the property opened as the first Edition hotel in late 2010 and, since that time, has suffered from poor occupancy, a brand with virtually no identity, and Marriott’s unwillingness to control expenses. The complaint asserts, “What defendants represented would be a fully supported new lifestyle hotel brand in the Marriott family of brands has turned out to be a nonexistent hotel chain.”
“The owner believes that Marriott has failed in its management of this resort as well as the delivery of the Edition brand concept,” said William A. Brewer III, partner at Bickel & Brewer and lead counsel for the owner. “As a result, our clients brought in new management in the belief that doing so would better protect their investment.”
According to the lawsuit, when the Edition brand of boutique hotels was publicly announced, Marriott’s President and Chief Operating Officer, Arne Sorenson, stated, “Success will be determined by one thing only: how many of these we can open, and how well they perform.”
The complaint alleges that despite Marriott’s representation in 2007 that it had agreements in place to open nine hotels in major cities worldwide within the year, with up to 100 more coming soon thereafter, there is only one other Edition Hotel, a 77-room Istanbul, Turkey property that just recently opened. The lawsuit says that defendants’ failure to perform their obligations have “resulted in outrageously low occupancy levels and average daily room rates for the Hotel.”
Indeed, according to the owner, during the three-month period of May – July 2011, the hotel sustained staggering operating losses of $1.9 million. Approximately a week ago, an updated 2011 forecast prepared by Marriott increased the projected loss for the remainder of 2011 from $1.2 million to over $1.9 million – resulting in total projected operating losses for the year of almost $6.4 million.
Although Marriott has attempted to deflect responsibility for the hotel’s poor performance, the hotel’s competition has consistently outperformed the property. A recent report from Smith Travel Research indicates the hotel has a RevPAR (revenue per available room) Index of 47 percent year-to-date. Even in July 2011, as the local hospitality market flourished, the hotel had occupancy rates that were almost 20 percent below its competitive set and a RevPAR index of only 54 percent.
The MODERN Honolulu is a unique luxury hotel located on the Island of Oahu, within walking distance of world famous Waikiki Beach, the Hawaii Convention Center, Ala Moana Beach Park and Ala Moana Shopping Center. All hotel facilities, including world-renowned Morimoto Waikiki, the Lobby Bar, the Bar at Sunrise Pool and the nightclub remain open under the hotel’s new management. Hotel guests also have uninterrupted access to the property’s full-service spa, state-of-the-art fitness center and retail shop.
- Visit The MODERN Honolulu at www.themodernhonolulu.com.
- About M Waikiki LLC: M. Waikiki is a Hawaii limited liability company with its principal place of business located in San Diego, California. It is a special purpose entity, having approximately 75 indirect investors, which was formed to acquire the Hotel.
- About Modern Management Services and Aqua Hotels & Resorts: Modern Management Services is an affiliate of Aqua Hotels & Resorts, a full-service management company founded in 2001 by Hawaii hotelier Mike Paulin. Currently representing contemporary hotels and resorts located on Oahu, Maui, Kauai, Molokai and Lanai, Aqua offers full-service resorts, stylish beach boutique hotels.
- Headquartered in Waikiki, Aqua became Hawaii’s first employee-owned hotel company in 2008 when it executed an Employee Stock Ownership Plan. For more information on the company and individual hotels, visit www.aquaresorts.com or call 1-808-943-9291.
- About Bickel & Brewer: Founded in 1984, Bickel & Brewer has earned a reputation as one of the most successful law firms in the United States practicing exclusively in the field of complex commercial litigation and dispute resolution. With offices in New York and Dallas, Bickel & Brewer represents a wide spectrum of industry leaders – from entrepreneurs to Fortune 500 corporations – facing the most challenging of legal issues. Visit Bickel & Brewer at www.bickelbrewer.com.
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FLASHBACK May 31, 2011: Owner of Waikiki Edition Hotel Files Lawsuit Against Marriott and Ian Schrager, Seeks Millions in Damages and Right to Terminate
NEW YORK, May 31, 2011 /PRNewswire/ -- Bickel & Brewer announced today that it has filed a lawsuit against Marriott International Inc. ("Marriott") and boutique hotelier Ian Schrager on behalf of its client, the owner of the Waikiki Edition Hotel (the "Hotel") in Honolulu. The lawsuit claims the Hotel has been a failure due to gross mismanagement and Marriott's inability to successfully launch the Edition brand.
Filed in New York Supreme Court on May 26, 2011, by M Waikiki LLC ("Owner"), the suit seeks tens of millions of dollars in damages and the right to terminate the agreement with Marriott, the operator of the 353-room Hotel. Bickel & Brewer also announced that its client has issued a notice of default against Marriott, claiming that Marriott not only breached the management agreement, but, as Owner's agent, also "…breached its common law duties to Owner, including the duties of care, loyalty, candor, and full disclosure." The notice demands that Marriott cure all defaults within the required 30 days.
"We believe that promises made in connection with the launch of Edition were broken – leaving our client with significant damages which have 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. "Our client is seeking to remove Marriott from the management of the Hotel."
In the complaint filed with the New York court, Owner alleges that, "What Defendants represented would be a fully supported new lifestyle hotel brand in the Marriott family of brands has turned out to be a nonexistent hotel chain." When the Edition brand of boutique hotels was publicly announced, Marriott's President and Chief Operating Officer, Arne Sorenson, stated that its "Success will be determined by one thing only: how many of these we can open, and how well they perform." Despite Marriott's representation in 2007 that it had agreements in place to open nine hotels in major cities worldwide within the year, with up to 100 more coming soon thereafter, there are only two Edition Hotels today – the Owner's Waikiki Hotel and a 77-room Istanbul property that opened just last month. The lawsuit also alleges that defendants' failure to perform their obligations have "resulted in outrageously-low occupancy levels and average daily room rates for the Hotel."
The lawsuit claims that defendants failed to deliver the pre-opening design and development assistance that was promised, and Schrager – despite his contractual obligations to do so – had little involvement in the development of the Hotel project.
The complaint states further, "Since its opening in September 2010, not only has Marriott all but given up on generating sufficient business and revenues for the Hotel, it has refused to manage operating costs in such a way as to ensure any profit to Owner," and that, "Marriott has demonstrated a wholesale inability to understand the fundamentals of the budgeting, planning, revenue-management, and cost control processes." The lawsuit explains the dire financial circumstances facing the property – with dismal occupancy rates and soaring costs. Since its opening, occupancy levels at the hotel have been below 38 percent. During the same time period, the overall occupancy level of the Hotel's competitive set – those properties with whom it directly competes – is 74 percent, according to the lawsuit. The lawsuit says that since its opening, the Waikiki Edition's RevPAR index is 37.3; an index of 100 would reflect that the Waikiki Edition is operating at a level equal to its competitors.
To top it all off, the lawsuit says that, "Schrager abandoned Edition (and Owner) to create his own lifestyle hotel brands, one or more of which is expected to compete directly with Edition Hotels." Schrager announced plans for one of those new brands, PUBLIC Hotels, last week.
"We believe defendants abandoned our clients – and their promise to do all that was necessary to make Edition a viable competitor in the 'lifestyle' hotel marketplace," Brewer says.
Brewer is joined in representing M Waikiki by Bickel & Brewer partners James S. Renard and Michael S. Gardner, and firm consulting director David Matthiesen.
To view a copy of the legal filing, click here.
About M Waikiki LLC:
M Waikiki is a Hawaii limited liability company with its principal place of business located in San Diego, California. It is a special purpose entity, having approximately 75 indirect investors, which was formed to acquire the Hotel.
About Bickel & Brewer:
Bickel & Brewer has earned a reputation as one of the most successful law firms in the United States practicing exclusively in the field of complex commercial litigation and dispute resolution. With offices in New York and Dallas, Bickel & Brewer represents a wide spectrum of industry leaders – from entrepreneurs to Fortune 500 corporations – facing the most challenging of legal issues. Visit Bickel & Brewer at www.bickelbrewer.com.
SOURCE Bickel & Brewer