ST. LOUIS (CN) – Sheraton Operating Corp. grossly mismanaged an historic downtown hotel, costing a development company $16 million, Breckenridge Edison Development claims in City Court.
Breckenridge Edison claims that Sheraton loaned Donald Breckenridge several million dollars in the late 1990s to convert the historic Edison Brothers Warehouse into the Sheraton Hotel & Suites.
Sheraton operated the hotel since it opened in 2001, but Breckenridge claims the hotel giant leveraged its position as a lender to extract money from Breckenridge after Donald Breckenridge died in 2005.
“Over the following years, Sheraton largely ignored or paid only passing attention to its continuing obligations to the hotel, leading to gross mismanagement of the property and significant financial losses: all the while Sheraton took out several million dollars in the form of loan payments and management fees,” the complaint states.
“The litany of malfeasance by Sheraton includes hiring unqualified personnel and transferring to the hotel failing personnel from other Sheraton hotels, failing to maintain the property, grossly misreporting financial reporting financial results and forecasts and putting its own interests as agent above those of Breckenridge to benefit itself in its separate capacity as mezzanine lender.”
Breckenridge claims Sheraton has never met its profit goals and has been running an average of $1.1 million behind its forecast annually. Breckenridge says it considered selling the hotel in 2007 due to the poor performance.
When Sheraton learned this, it submitted artificially inflated profit forecasts to persuade Breckenridge to keep the hotel, the complaint states.
Due to Sheraton’s poor performance, Donald Breckenridge’s widow, Diane, was forced to fund substantial operating losses and Breckenridge was forced to refinance or face foreclosure, the company says. Sheraton exploited the situation by withholding prompt consent for refinancing and demanding concessions, according to the complaint.
“Sheraton also improperly leveraged its position as lender to coerce Breckenridge into making costly and unnecessary renovations to the hotel,” the complaint states. “For example, just one year after Breckenridge invested approximately $200,000 to renovate the hotel’s lobby, Sheraton insisted that Breckenridge sped another $150,000 to implement a new ‘brand standard’ design that did not match the newly-renovated lobby. When Breckenridge objected … Sheraton responded that a failure to redo the lobby would constitute a default under the management contract which, in turn, would trigger a default under the mezzanine loan.”
Breckenridge seeks actual and punitive damages, alleging breach of contract and breach of fiduciary duty, and declaratory judgment that it has the right to terminate its management contract with Sheraton. Breckenridge is represented by David Stoeberl with Carmody MacDonald.