2 a.m. takeover challenged

Marriott International Inc. said Monday it will fight "aggressively and vigorously" to retain management of the former Waikiki Edition hotel after the owners replaced Marriott with a new management team at 2 a.m. Sunday.

"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," Arne Sorenson, Marriott’s president and chief operating officer, said in a news release. "This is a deeply unfortunate, regrettable and illegal event."

"We will aggressively and vigorously pursue all remedies against the owner and its partners in this illegal act," Sorenson said.

M Waikiki LLC, the hotel’s owner, ousted Marriott about one week after learning that the hotel was projected to lose $6.4 million from operations this year.

"The owner took control of its quarter-of-a-billion dollar investment in the face of what they believe is Marriott’s gross mismanagement of the property and violation of its contractual and fiduciary obligations," said William Brewer, partner at Bickel & Brewer and lead counsel for M Waikiki.

The owner assumed control of its property at a time that was the least disruptive to guests and employees, Brewer said.

The owners hired Modern Management Services LLC, an affiliate of Aqua Hotels & Resorts, to manage the property and renamed it the Waikiki Modern.

No disruptions to hotel guests or employees were expected, the owners said.

"Our primary focus is ensuring a smooth transition for employees and guests," said Benjamin Rafter, Aqua’s president and chief executive.

"We have … offered employment to dozens of the employees, and virtually all have accepted our offer," Brewer said.

All hotel facilities, including Morimoto Waikiki, the Lobby Bar, the Bar at Sunrise Pool and the nightclub, remain open under new management. Access is still open to the property’s spa, fitness center and retail shop. Average daily room rates will be priced competitively, the new managers said.

The owners ended a 30-year contract with Marriott amid allegations that the hotel company had mismanaged the hotel and failed to develop the Edition brand.

Marriott has demanded that the new management company vacate the hotel and return control to them. Marriott said it would seek damages from the hotel’s owners and its partners, who they allege have damaged the operation and reputation of the hotel and of the Edition brand.

At the time of its opening last September, the 353-room, 18-story hotel received considerable press, in part because it represented Marriott’s first foray into the boutique hotel market and had been featured on the popular TV show "Hawaii Five-0."

Also getting attention was the seemingly unlikely partnership between Marriott, better known for its traditional hotel design and concepts, and the hip "hotel bad boy" Ian Schrager, who had owned and operated Manhattan’s famed celebrity hangout Studio 54 before a stint in prison for tax evasion. Recently, the hotel’s protracted legal battles have been grabbing media attention.

This latest shake-up comes just three months after M Waikiki filed suit in New York against Marriott and Schrager citing "poor occupancy, a brand with virtually no identity and uncontrolled expenses." As part of the suit, which is still pending, M Waikiki had sought permission to terminate its contact without liability.

Marriott has a distorted view of the law and the power that owners possess to protect their rights, property and interests, Brewer said.

"Despite having lost on a similar issue in a federal lawsuit involving another owner, what Marriott fails to appreciate is that it is nothing but an agent for owners, whose interests they are supposed to represent," he said. "As such, they can be terminated at any time when, in the owner’s opinion, they fail to protect the owner’s interests."

M Waikiki bought the property in 2006 for $112 million and spent another $138 million transforming it into the Waikiki Edition. The owners said it has been a low-performing hotel despite all of the fanfare surrounding its launch.

Still, Marriott said that its Waikiki Edition and a second Edition hotel in Istanbul have been well-received and the company has plans to expand the brand to several other cities.

Waikiki Edition was named to the 2011 Hot List of the World’s Best Hotels by Conde Nast Traveler and also made Travel & Leisure’s list of World’s Best New Hotels.

Marriott said it has invested more than $400 million to open two new Edition hotels in destinations like London and Miami Beach in the next two years.

However, after sustained losses, M Waikiki said it has chosen to turn its hotel into a flagship property of Aqua, a longtime operator of Hawaii boutique hotels. Reservations for the hotel can no longer be booked through Marriott.

"We are extremely excited about this new opportunity," said Damian McKinney, principal of M Waikiki LLC, the owner of the hotel. "We believe that Aqua will realize the vision on which this hotel was developed — becoming the leading lifestyle hotel in Hawaii."

• VIDEO: Marriot ousted as managers of Waikiki Edition Hotel