Besieged Marriott on NYC’s East Side Misappropriated $12M, Suit Alleges

By: Hadassa Kalatizadeh

The Marriott East Side misappropriated $12 million from maintenance and repair reserves to boost its woeful balance sheets, alleges a lawsuit filed by the building’s owner. As per Crain’s NY, in the lawsuit filed Thursday, the landlord, who owns the building at 525 Lexington Avenue that houses the Manhattan hotel, wants the money back and is seeking an additional $42 million for the fund seizure, which it claims breached their agreement.

The case, which was filed in state Supreme Court in Manhattan, concerns the 35-story hotel owned in a joint venture between Ashkenazy Acquisition Corp. and German Investment fund, Deka Immobilien. The tenant, Marriot, permanently shuttered in March and subsequently asked the tenants for over $30 million to pay off various expenses related to its closure in “a nationwide strategy to pressure, and seize funds from, owners of the hotels it operates,” the owner says in the complaint. Marriot allegedly terminated its agreement to operate the hotel and demanded $25 million to cover the costs of closing, including severance, pensions and unemployment compensation, as per the lawsuit. Marriot also demanded $9 million to operate the closed hotel, cover operating losses from January and February and other expenses relating to mold and flood damage. The complaint alleges, however, that the company’s balance sheets for that period at the property show no loss.

Still, Marriott allegedly proceeded to take $12 million from an escrow account, the property owner claims. The complaint says that the money has not been used for any of those expenses but that the hotel said it would hold on to it to pay off the owner’s claims against it. The complaint says the whole escrow account was “nothing more than a naked cash grab,” as per the suit. “In my opinion, based on what’s happening in the market, Marriott is engaging in this conduct because they are in dire need of cash,” said Todd Soloway, who represents the building owner.

As reported by Crain’s NY, the Marriot hospitality chain has been struggling. Close to 700 employees are slated to be laid off at its corporate headquarters in Maryland later this month. The company lost close to a third of its value since late February, and then the pandemic hit dealing a heavy blow to the tourism industry as a whole. As per Bloomberg, Service Properties Trust is canceling contracts with 122 Marriott hotels and wants to sell more than twelve of them for $153 million.