Waikiki Edition switches management, brand overnight

The former Waikiki Edition hotel in Hawaii changed management and rebranded overnight amid a legal dispute between the property owner and Marriott International.

At around 2:30 a.m. on Sunday, the hotel’s owner, M Waikiki LLC, a subsidiary of the San Diego real estate fund eRealty Fund, installed the hotel’s new management, bringing new signs for the 353-room hotel now called The Modern Honolulu. The new management company is Modern Management Services, an affiliate of Aqua Hotels & Resorts. Aqua already manages several lifestyle hotels on Oahu.

Marriott International, Bethesda, Maryland, decried the decision, calling it an illegal termination of the 30-year management contract for the hotel, which opened in 2007 as the first of Marriott’s new lifestyle hotel brand Edition, conceived with the help of Ian Schrager.

“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 agreement with the owner,” said Marriott COO Arne Sorenson.

M Waikiki countered that the move was legal and that Marriott mischaracterized the circumstances of the late-night switch.

“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. We exercised our right to assume control of the property to protect our investment. The owner took control of its quarter-of-a-billion dollar investment in the face of what it believes is Marriott’s gross mismanagement of the property and violation of its contractual and fiduciary obligations,” said William Brewer, a partner at the Bickel & Brewer law firm representing M Waikiki. “The owner took over control at a time that was the least disruptive to guests and employees. This was a peaceable transition.”

The lawsuit filed earlier by M Waikiki claims that Marriott and Schrager failed to deliver the pre-opening design and development assistance that was promised. Marriott and Schrager have dismissed the lawsuit as baseless.

Whether the new management company will be able to turn around the property’s fortunes remains to be seen given the still lackluster Hawaiian market and the hotel’s lack of on-property beach access.

M Waikiki said the property has lost a total of US$8.4 million since opening with little signs of change, as during the three-month period of May-July 2011, the hotel sustained operating losses of US$1.9 million. Approximately a week ago, an updated 2011 forecast by the owners projected operating losses for the year of almost US$6.4 million. Meanwhile, occupancy in the fourth quarter of 2010 was only 30%, below a Marriott projection of 62% made a year earlier.

“Aqua has been successful at repositioning properties in the past,” said Joseph Toy, president and CEO at the Hawaiian hospitality consulting firm Hospitality Advisors. “I think the trick is whether they will be able to get the rate the property was designed for, the US$350 rate area. It’s still a tough market.”

In the meantime, Marriott isn’t letting the troubles of the first Edition stop the growth of the brand.

“Both our Waikiki and Istanbul Edition hotels opened to rave reviews from media and guests. Marriott has invested more than US$400 million to open fabulous Edition hotels in two preeminent gateway destinations, London and Miami Beach, which will wow guests when they open over the next year or two,” Sorenson said.

The first Edition-branded hotel is now The Modern Honolulu. Photo used courtesy of Waikiki Edition
The first Edition-branded hotel is now The Modern Honolulu. Photo used courtesy of Waikiki Edition