Marc Resorts A Phoenix-based hotel management firm has completed its purchase of Marc Resorts Hawaii from bankrupt time-share operator Sunterra Corp., and has its eyes on expansion.
sale completed
Heller-White Hotel Management
agrees to pay $1.1 million, and
has isle expansion plansBy Tim Ruel
truel@starbulletin.com
The purchase, closed yesterday, calls for Heller-White Hotel Management LLC to buy Marc's stock for $500,000 up front, plus an additional $375,000 during the next three years. Heller-White will also pay Sunterra 25 percent of Marc's pre-tax income for 15 years, starting in 2004, with the guarantee that Sunterra will receive at least $225,000 between 2006 and 2009. Heller-White is obligated to cover any shortfall.
It's complicated, but the upshot is that Sunterra is getting a minimum of $1.1 million over several years, and will receive much more if Marc lives up to Heller-White's expansion blueprint.
Marc currently manages 15 properties in Hawaii, and Heller-White plans to buy properties here to secure more contracts, said Mitch Heller, co-managing member of Heller-White.
The firm is seeking hotels -- potentially two or three this year -- that have their own restaurants, meeting space and retail, offering more services than Marc's current resorts. In 1987, Heller-White temporarily owned the Ilikai Hotel and secured a four-year management contract at the property before selling it to a unit of the Industrial Bank of Japan, for a major gain.
"My estimate is that this is at least a $3 million transaction, and it could be a lot more," said Matt Delaney, president of Marc Resorts. "The philosophy behind this acquisition is to enable Marc Resorts to grow in the current competitive market that it's in, so if the plan works ... then this long-term consideration can have a very high value placed on it."
Five years ago, Marc Resorts founder Michael V. Paulin sold the company to Orlando, Fla.-based Sunterra for $6 million in Sunterra stock. Sunterra filed for Chapter 11 reorganization bankruptcy in May 2000.
At the time Paulin sold the firm, Marc was operating 22 resorts in Hawaii, seven more than it does today. Before he sold the firm, Paulin had entered management contracts that had guaranteed the hotel owners a gross operating profit -- but for amounts that were simply too high when tourism had bad years in 1998 and 2001, according to Delaney.
"These contracts lost money from day one for the company," Delaney said.
He terminated two contracts earlier this year because they were losing money, and he renegotiated another in May, helping to pave the way for the sale to Heller-White, Delaney said.
Paulin has a different view on why Marc had tough times. "I think it's a matter of experience," he said. Sunterra wasn't ready to deal with a downturn in tourism, particularly the post-Sept. 11 travel period, Paulin said. He points out that his new firm, Aqua Hotels & Resorts, has increased profits at the former Waikiki Marc on Kuhio Avenue since taking over management of the property from Marc at the beginning of this year. The property is now called the Aqua Bamboo.
Delaney pointed out that it wouldn't take much to improve hotel profits above the first six months of last year, which suffered from the U.S. recession.
Paulin and Marc have other differences. He left the company in October 2000, and sued Marc in February of this year for not paying his bonus. But the company shouldn't pay a bonus when it lost money, Delaney said. Marc is countersuing Paulin for violation of a noncompete clause, Delaney said.
Heller-White, founded in 1979, has operated and/or controlled more than 50 hotel properties across the United States, the firm said.