May 30, 2003 - With a weekend deadline bearing down and its $15 million deposit on the line, a national hotel chain and its local partners yesterday reached an agreement that should allow Boston's new convention center hotel to go ahead, according to people involved with the negotiations. 

Over the past several days, top executives for Starwood Hotels & Resorts Worldwide Inc. and its local partners -- developers Stephen Karp, Joseph Fallon, and Joe O'Donnell -- have been in intense negotiations, trying to complete a deal before the Sunday deadline imposed by the Massachusetts Convention Center Authority. 

Yesterday afternoon, the parties arrived at an agreement that will require the local partners to put in considerably more money and assume additional guarantees to get the project done, the people involved said. 

The hotel is considered critical to the success of the $800 million convention center, which already faces a radically changed environment for conventions nationwide since the Legislature approved the project in 1997. A weak economy, the post-Sept. 11 shock to the travel business, and the SARS scare have all converged to crush financing for hotel construction and leave bookings for the new convention center far below expectations. 

The deal is not yet final, however. Starwood and its local partners will now have to bring their agreement to the convention center authority. Starwood is expected to be looking for additional time to finalize lease terms and negotiate with its contractor. But people close to the developers and the authority called yesterday's agreement a "key" to moving forward. An announcement is expected early next week. 

Plans call for an 800-room hotel, followed by another 300 rooms, depending on market conditions. The hotel, originally planned as a Sheraton, will carry the more upscale Westin name, those participating in the talks said. 

None of the parties -- Starwood, the local partners or the convention center authority -- would comment yesterday. 

Starwood, chosen by the convention center authority over several competitors, has been facing problems. This month, Standard & Poor's Rating Service cut the company's debt rating to junk status, saying that even the hotelier's plan to sell $1 billion in assets wasn't enough to help its credit rating, given the travel downturn. Starwood, based in White Plains, N.Y., owns the Westin and Sheraton hotel chains, among others. 

Starwood stock, selling as high as $40 a year ago, closed yesterday at $28.19, down 56 cents. 

Last year, with the convention center hotel proposal foundering, Starwood brought Karp, Fallon, and O'Donnell into the Boston deal, largely sidelining its earlier local partner, Charles Hotel owner Richard Friedman. 

Because of the 2001 terrorist attacks and the continuing soft economy, the convention center authority had already extended twice Starwood's deadline to commit to the project. But with the latest deadline just days away, Karp and Fallon spent hours talking with Starwood chief executive Barry Sternlicht face-to-face in Massachusetts and later by phone from Phoenix, according to those involved in the negotiations. If Starwood had chosen to walk away, it would have lost its $15 million deposit, and the convention center authority would have had to rebid the deal. 

Generally, the agreement will require the local partners to assume greater financial responsibility, although how much could not be determined. The deal also spells out which party will see investment returns first and the liabilities of both sides. Both sides understand they will have to largely finance the project themselves. 

"The parties are more used to doing business with other people's money. Now they are going to be doing business with their own," said one executive familiar with the process. The recent stock market rally and glimmers of encouragement in the economy were important to making the project work, said those familiar with the talks. 

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