The News: Marriott Takes on Landmark Resort

With hotel fundamentals in a nosedive due to the recession, many hotel companies’ finances are coming under stress. But Marriott International Inc. recently put its strong balance sheet to work on a deal that seems to have a lot of upside for the hotel giant.Marriott is setting out to save one of America’s signature resorts, having agreed to acquire The Greenbrier, a 721-room resort in White Sulphur Springs, W.V., that has hosted 26 U.S. presidents on its grounds but is currently in Chapter 11 bankruptcy.Pending bankruptcy court approval, Marriott is striving to secure a long-term management agreement at the resort, as the hotel company prefers not to own real estate, according to David Loeb, managing director & a senior real estate research analyst at Robert W. Baird & Co. The 231-year-old resort, owned by railroad company CSX (a legacy of the times when some railroads owned hotels along their routes) has three golf courses, indoor and outdoor tennis courts and a 40,000-square-foot spa. The agreement stipulates that CSX will pay Marriott $50 million to operate the hotel over the next two years. Depending on the hotel’s performance, Marriott can acquire the hotel for a price ranging from $60 million to $130 million at any time during the next seven years, with the timing of the payment at Marriott’s discretion–which means it may have no capital outlay in that time period. But if it were to purchase the property, Marriott would be unlikely to own it for long–if ever—and the deal is structured such that it could transfer the hotel to a third party. Loeb listed two publicly traded hospitality REITs–Sunstone Hotel Investors Inc. and DiamondRock Hospitality Co., both of which own many Marriott-branded hotels–as strong candidates, although he said private money could also enter the bidding.Marriott brings two major strengths to the table, according to Loeb. First is its marketing might, which means that the Greenbrier will likely soon carry a JW Marriott or Ritz-Carlton flag. It also tends to have good working relationships with hotel unions, beneficial given that nine unions represent 909 of the 1,201 hourly employees at the resort and in 2008 labor costs comprised 70 percent of revenues, versus the 35 percent usual at most five-star resorts.At the same time, the hotel company will be challenged by the resort’s distance from the nearest big city, Washington, D.C., which is about a four-and-a-half hour drive away (although Amtrak offers a direct railroad alternative). In addition, while the resort is steeped in history and tradition, “it really needs to attract a younger crowd,” Loeb said.