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Starwood's Plan to Operate the Struggling Myrtle Beach
 Convention Center Hotel Under its Sheraton Brand Hits Snag
 Over a South Carolina Liability Clause

By Dawn Bryant, The Sun News, Myrtle Beach, S.C.
Knight Ridder/Tribune Business News

Jun. 23, 2005 - An independent management company called Interstate Hotels & Resorts could be the next operator of the struggling hotel at the Myrtle Beach Convention Center after negotiations with Starwood Hotels & Resorts fell apart over an S.C. liability clause.

Interstate, which operates 300 hotels, wants to operate the convention-center hotel as a Sheraton through a franchise with Starwood. Before negotiations failed, Starwood also planned to operate the hotel under its Sheraton brand.

The 402-room hotel has been a Radisson since opening in January 2003, but the chain agreed to part ways with the city earlier this year after ongoing financial clashes.

Interstate, a publicly traded company, has a portfolio of 68,000 rooms that includes 23 Sheratons and six headquarters hotels. In South Carolina, it runs hotels in Columbia, Greenville and Charleston.

"We are very experienced operators of hotels of this size and with this amount of meeting space," said Mark Purcell, Interstate's vice president of acquisitions and development.

The Hotel Board Corp., which oversees the city-financed hotel, told consultants and lawyers Wednesday to work out a deal with Interstate.

Officials aren't estimating when Interstate would take over. The deal also must go through the bond counsel as well as City Council, which has kicked around the idea of getting out of the hotel business after two tough years.

The city had to refinance $48 million in hotel bonds in 2004 after one year of operation and has set aside $580,000 in hospitality-fee revenues in its proposed 2005-06 budget to make up for the hotel's expected shortfalls through July 1, 2006.

That money would have gone into the fund balance or be used for capital projects such as the Children's Museum and bike paths on Kings Highway if it were not needed to help the hotel, city spokesman Mark Kruea said.

A S.C. law dealing with sovereign immunity killed the deal with Starwood after three months of negotiations. The law prevents the city from assuming certain liabilities, and Starwood's corporate policy won't allow the company to take on the responsibility, said Jim Alderman, a Starwood senior vice president.

For example, neither the city nor Starwood would agree to pick up the legal tab if an employee were accused of sexual harassment, said Tom Reifert of Strategic Advisory Group consultants.

But Starwood isn't out of the picture. The company, which will franchise its Sheraton brand for Interstate to use here, plans to put up $1 million -- half through a loan, half as key money -- to help cover the $2 million needed to reimburse Radisson.

Interstate plans to put up the other $1 million as well as lend the Hotel Board the estimated $905,000 it will cost to switch the hotel from a Radisson to a Sheraton.

"Suffice it to say that if we cannot manage this asset, having it managed by one of our largest and finest franchisees is certainly far more than an acceptable outcome," Alderman said via e-mail.

The proposed 10-year contract would be similar to the original one being pursued with Starwood, said Walt Standish, chairman of the Hotel Board Corp. Interstate would receive a $525,000 management fee, to increase by 3 percent each year. Interstate would receive a secondary fee after the hotel generates $18 million in revenue and the hotel bonds are paid each year.

"The deal financially with Interstate is very, very similar to the deal negotiated with Starwood," Standish said.

The hotel's bottom line already is off by nearly $225,000 two months into its budget year, which started April 1. The more off that number is, the more the city will have to put into the project.

The city estimates the hotel will be able to put $1.1 million toward the nearly $2.5 million in this series of bond payments due between July 1 and June 30, 2006, Kruea said. The rest will be covered by hospitality fee revenues and money earmarked for payments in the refinancing, he said.

"We need to make sure we have a strategy to recoup that $225,000," consultant Jeff Sachs said.


--What: An independent hotel-management company

--Based: Arlington, Va.

--Properties: 300 hotels in 40 states, the District of Columbia, Canada, Russia and Portugal

--Rooms: 68,000

--Traded: Publicly traded on the New York Stock Exchange under the symbol IHR


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Copyright (c) 2005, The Sun News, Myrtle Beach, S.C.

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