|By Jack Hagel, The News & Observer,
Raleigh, N.C.McClatchy-Tribune Regional News
Jun. 15, 2007 --RALEIGH -- Winston Hotels, which in August said it would buy two Manhattan hotels for $110 million, is backing out of part of the deal because of construction problems hampering the seller.
The Raleigh real estate investment trust terminated a contract to buy the Tribeca Hilton Garden Inn and agreed to drop a lawsuit against seller McSam Hotel Group in exchange for $16 million.
Winston, which has a stake in 50 hotels across the country, agreed last year to buy the hotels for $55 million each, drawing praise from analysts for adding urban diversification to its mostly suburban portfolio.
But Winston took issue with the quality of construction at the Tribeca hotel, saying it wasn't up to code. That led to a lawsuit and delays. The hotel, which was to be completed in January, is not finished, and it's uncertain when it will be. McSam president Sam Chang did not return a message seeking comment Thursday.
Winston also extended the closing date on the other hotel, the Chelsea Hilton Garden Inn, which is expected to open by October.
The deal is not expected to alter plans by Winston to complete a pending buyout offer.
Winston agreed in April to be acquired by Inland American Real Estate Trust of Oak Brook, Ill., for $15 per share. Inland's offer trumped a $14.10-per-share offer Winston previously had received from Wilbur Acquisition Holding, a New York private equity firm.
Winston set a shareholders meeting for June 21 to vote on the Inland deal. The deal, also subject to regulatory approval, is expected to close by October, Winston said.
A shareholder lawsuit may need to be resolved first. Douglas D. Whitney filed suit in Superior Court in Wake County, claiming that Winston could have held out for a higher offer and that high termination fees prevented the company from seeking one. A hearing on the case is scheduled for Tuesday.
Winston declined to comment on the case Thursday. Whitney's lawyers did not immediately return messages seeking comment.
Winston shares rose 3 cents Thursday to $14.94.
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