|By Allison Schaefers, The Honolulu
Star-AdvertiserMcClatchy-Tribune Regional News
Jan. 22, 2012--Bankrupt M Waikiki LLC, owner of the Modern Honolulu, filed a proposed reorganization plan late Friday that provides full repayment to local hotel creditors.
William Brewer, lead counsel for M Waikiki, said Saturday that performance of the Modern Honolulu has turned around during bankruptcy and that he expects the reorganization plan to be confirmed within 60 days, clearing a path for recovery.
"That's not a record, but that's very fast," Brewer said. "It's an expression of the confidence that the debtor has in the course that they are on and in their decision to protect and preserve this asset."
The plan calls for a bank repayment of about $115 million, Brewer said. In addition, M Waikiki will pay about $1.5 million in uncontested claims from unsecured creditors, largely vendors who supplied goods and services. However, the plan contests a claim for about $70 million submitted by hotel chain Marriott regarding alleged damages related to M Waikiki's abrupt dismissal of its management contract.
"The only unliquidated amount by an unsecured creditor that is being contested that is significant is the claim by Marriott which will be seriously contested. On their own numbers, it's silly," Brewer said.
M Waikiki is anxiously awaiting the bankruptcy judge's estimate of Marriott's claim, he said.
"If the judge were to simply estimate the claim as 0 that would mean the plan is more easily accomplished; however, it provides for repayment should the judge decide that it has some validity," Brewer said.
M Waikiki filed for bankruptcy on Aug. 31 amid a continuing court battle over who should manage the 353-room luxury hotel. The fight drew national attention on Aug. 28 when M Waikiki ousted Marriott's management team in a late-night raid on the then-Waikiki Edition. At the time, M Waikiki installed Modern Management Service LLC, an affiliate of Aqua Hotels & Resorts, as its new management team and renamed the hotel The Modern Honolulu.
The hostile takeover came just three months after M Waikiki had filed a lawsuit against Marriott and Ian Schrager in the Supreme Court of New York seeking undisclosed monetary damages, court costs, restitution and a declaration giving it impunity to terminate a 30-year management agreement with Marriott without liability. M Waikiki has since requested the case be transferred to Honolulu.
Meanwhile, Marriott filed a counterclaim to protect the first hotel under the Edition brand that it had worked to develop with Schrager, a celebrated designer. The hotel giant's efforts to project its interests in Waikiki and its first foray into the boutique hotel market triggered what could be describe as one of the wildest days in Hawaii hotel industry history. The morning of Aug. 31, a New York judge ordered M Waikiki to reinstate Marriott as its management company. The Marriott team and employees were gathered outside the hotel waiting to go back to work that afternoon when they learned of the bankruptcy filing, which effectively barred their return.
"(Hotel owners) had more than a quarter of a billion dollars on the line and were losing hundreds of thousands of dollars a month with no end in site," Brewer said. "It was an extraordinary circumstance that the owner faced. When Marriott proved unwilling to make cuts, they made a change to save the asset, and save it they have."
M Waikiki said in court documents that its hotel, while under Marriott management, incurred large cost overruns and net operating losses of $6 million. But Modern Management Services has turned The Modern Honolulu into a viable asset, Brewer said.
"The hotel is running very significant levels of occupancy today and the guests seem highly motivated to return and the expenses have been brought dramatically under control," he said.
Marriott did not return calls or emails seeking reaction to M Waikiki's reorganization plan or the owners' objection to its claim. However, Marriott has said in the past that it would "vigorously defend" its right to manage the hotel, which M Waikiki bought for $112 million in 2006.
Marriott filed its own suit in December against Aqua, alleging that the hotelier's takeover stole a management agreement from it worth more than $65 million.
Meanwhile, Marriott and Schrager are expanding their Edition brand beyond its sole Istanbul hotel and previously publicized projects in Miami and London. They announced Thursday plans to build an Edition hotel in New York and said projects were under construction in Bangkok and Abu Dhabi, and that contracts have been signed for hotels in Los Angeles and Gurgaon, India.
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