Hotel ties Chapter 11 filing to Marriott

Manhattan establishment claims move was forced by Md. hotel manager


NEW YORK - The owner of a Midtown Manhattan hotel operated by Marriott International filed for Chapter 11 bankruptcy protection yesterday, contending that Marriott's hotel-management practices forced the move.

The owner, 866 3rd Next Generation Hotel, a New York limited liability company, said in an accompanying affidavit that Marriott had engaged in mismanagement and commercial bribery and taken kickbacks while managing the Courtyard New York Manhattan/Midtown East on Third Avenue.

In the affidavit, the owner said its "financial collapse is largely attributable to Marriott International's repeated breaches of its fiduciary duties, mismanagement and malfeasance."

In April, the owner defaulted on a $55 million loan from a German bank, Bayerische Hypo-und Vereinsbank, to develop the hotel, which opened in 1998 with 307 rooms and eight suites and caters to business travelers. The owner is an affiliate of the Witkoff Group, a New York real estate investment firm.

Roger Conner, a Marriott spokesman, said yesterday that Marriott had not seen the filing and could not comment.

But he said the hotel had been "substantially outperforming its competition in the market" in terms of revenue per available room, a crucial industry measure.

The Chapter 11 filing, in U.S. Bankruptcy Court in Manhattan, is the latest sign of increasing tensions between Bethesda-based Marriott and the separate owners of hotels it manages on their behalf.

Marriott has been the defendant in at least five closely watched lawsuits in recent years from owners who contend it engages in mismanagement and fraud, overcharges for supplies and services, unfairly pockets vendor rebates and withholds financial records.

Some lawsuits have been settled or dismissed, but two, from CTF Holdings of Hong Kong and from Strategic Hotel Capital of Chicago, among Marriott's leading customers, appear headed for trial sometime next year.

Marriott has denied all accusations in the lawsuits.

Marriott manages more than 2,500 hotels on behalf of more than 500 owners, handling all operations, from reservations to accounting. It earns management and incentive fees, and makes profits on its procurement of goods and services for some hotels.

In its affidavit, 866 3rd Next Generation Hotel said it had "fallen victim to a scheme designed by Marriott International to facilitate acts of commercial bribery with regard to kickbacks and hidden profits from the purchases from vendors and the management of the hotel."

It cited two Marriott affiliates - Avendra, which buys supplies, and Marriott Design and Construction - as having conducted transactions detrimental to the hotel's financial health.

Marriott, the affidavit said, provided misleading and false projections of the hotel's profitability and inflated the hotel's net profits to receive a higher incentive fee.

"In fact, the hotel was losing money in some periods when it was shown as earning a profit by Marriott International," the affidavit said.

The owner hopes to refinance the hotel through the Swiss bank UBS and convert it into longer-term residential use.

The affidavit also said that 866 3rd Next Generation Hotel was asking a court to permit it to pay Marriott through escrow accounts until it has a clearer picture of its finances and how Marriott uses them.

Separately, Marriott reported yesterday that its third-quarter net income dipped to $92 million, or 37 cents a share, from $103 million, or 41 cents a share, in the quarter last year. The decline came despite an increase in revenue, to $2.1 billion from $1.9 billion a year earlier.

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