Marriott Gets OK to Run Hotel Inter-Continental

SAN DIEGO â€”  The San Diego port district Tuesday approved the debt restructuring and change of operators at the Hotel Inter-Continental here, paving the way for Marriott Corp. to become the operator of what soon will be San Diego’s largest hotel.

Open since 1984, the 681-room Inter-Continental will more than double in size in December when a second 683-room tower is completed. Situated on San Diego tidelands, the hotel is next to the San Diego Convention Center, which is under construction and scheduled for completion in the fall of 1989.

Marriott officials who attended the port district meeting refused to say when they expect to formally take control of the hotel. But Michael Cairns, Inter-Continental’s area chief executive for North America, said in an interview that the keys will be handed over at 11:59 tonight if the necessary documents are signed today, as expected.

By taking over operation of the hotel, which is expected to be renamed, Marriott will strengthen its position as a leading West Coast convention hotelier. The chain, based in Bethesda, Md., runs a 1,042-room Convention Center hotel in Anaheim and a 1,012-room hotel at Los Angeles International Airport.

In addition, Marriott is building a 1,500-room complex next to Moscone Center in San Francisco and a 375-room hotel in Century City.

Inter-Continental sources said Douglas Manchester, the San Diego developer who controls the partnerships that own the hotel here, is forcing Inter-Continental out as its operator because the British-based hotel chain refused to make an equity investment in the hotel. Manchester has described the equity investment and debt restructuring as necessary for the hotel to avert bankruptcy.

But Inter-Continental’s Cairns said Tuesday: “We’re a hotel company, not a real estate investment firm.� Although Inter-Continental was not legally bound to vacate the hotel, Cairns said, turning it over to Marriott is “in the best interest of (publicly traded parent firm) Grand Metropolitan’s shareholders.�

Manchester was out of town and unavailable for comment Tuesday.

Marriott is making an $8-million equity investment in the project and loaning $12 million to the developing partnerships, Pacific Gateway Ltd. and Pacific Landmark Ltd., according to documents filed with the port. In return, Marriott will receive a 5% equity position in the project. Marriott will get a 30-year lease plus three 10-year options.

Cairns said Inter-Continental, during its three years of running the hotel, had raised its average occupancy to its current 80%, attained a four-star rating from Mobil travel guides and earned its designation by Meetings and Conventions magazine as one of the nation’s top 50 convention hotels.

The Inter-Continental’s average daily room rate of $116 is, along with Hotel del Coronado’s, tops in San Diego, hotel manager Sandor Stangl said. “We’re not leaving with our tails tucked between our legs, “ Cairns said, adding that the chain hopes to open another “luxury class, waterfront hotel� in San Diego in the future.

But smothered by payments on more than $217 million in debt, the hotel is in deep financial trouble, Manchester has said. The Inter-Continental lost $1.2 million during the first four months of 1987, despite an 82% occupancy rate. The hotel lost $7.6 million in 1986 while operating at 69% occupancy.

According to the debt restructuring agreed to by the hotel’s lenders, the holder of the first mortgage, Home Savings of America, agreed to lower the interest rate on its $207-million loan to 8% from 11%. Second-mortgage holder Beverly Hills Savings & Loan agreed to sell its $10-million note back to Manchester for $4 million cash. Principal and interest payments were not due on the Beverly Hills loan until 1993.

Although Beverly Hills was reluctant to make concessions to Manchester after having suffered a $30-million loss in converting a $40-million equity position to a $10-million note, Beverly Hills had little choice because its note was inadequately secured, an internal Beverly Hills memo said.

A Marriott spokeswoman said the chain has 171 full-service hotels with 76,882 rooms, of which 15 hotels with 8,516 rooms are in California. In addition, Marriott operates 11 Courtyard by Marriott hotels and 13 Residence Inns in California.

Marriott owns the La Jolla Marriott hotel and has granted franchises to Pittsburgh-based Interstate Hotels to build new hotels in Mission Valley and downtown San Diego.

Inter-Continental operates 110 hotels worldwide, of which 23 are in the United States, Cairns said.