June 18, 2009 - Developer Miller Global Properties & JW Marriott San Antonio Hill Country Resort and Spa, San Antonio TX
Resort developer sues Marriott over cost overruns
alleging that the hotel company gave fraudulent budget estimates to real estate developer Miller Global Properties LLC for a new resort in San Antonio, Texas.
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Marriott sued for $200M
The owner of the JW Marriott San Antonio Hill Country Resort & Spa that's under construction on the far North Side has sued Marriott International Inc. for $200 million in damages.
Denver-based Miller Global Properties LLC claims it partnered with Marriott based on bogus budget estimates and incomplete project plans. The claims are made in a lawsuit filed in Denver on Wednesday.
Miller Global signed on to finance and eventually to own the 1,002-room resort, with Marriott acting as the designer and eventual manager of the property.
Miller Global alleges Marriott caused the project's cost to balloon up $90 million from $467 million, a budget that already had grown from $415 million.
Marriott says it still has not been officially served the lawsuit, “however, based on what we've seen, we completely disagree with the allegations and believe the suit has no merit whatsoever,” spokesman Tom Marder said.
Miller Global says it has covered the extra cost without help from Marriott.
“Marriott allegedly caused the project costs to spiral out of control, increasing our clients' financial burdens and destroying much of the upside of this great resort for its owners,” said William A. Brewer III, partner at Bickel & Brewer and lead counsel for Miller Global. “It is obviously going to be a far less profitable venture for them.”
The budget overruns and lawsuit haven't halted construction, and the hotel still is expected to open in early 2010, Brewer said.
Miller Global also claims Marriott continues to make changes to the plans, which continues to increase the cost.
“It is inconceivable Marriott could have missed the mark by such a wide margin,” Jim Miller, president of Miller Global, said in a statement. “It seems apparent to us that Marriott was not only aware this project would be grossly over budget, but that the company had no intention of honoring its agreement to share in the financial burden of its mismanagement of the development plans and budget.”
Beyond the massive hotel, the resort also includes a $13 million water park, seven restaurants and lounge areas, a 26,000-square-foot spa, 140,000 square feet of conference space and two PGA Tournament Players Club golf courses.
The resort, first referred to as PGA Village, has been the subject of much debate in Bexar County.
Marriott announced in 2001 it would be part of a larger development including PGA golf facilities in far northern Bexar County. The development faced environmental scrutiny — it will be a heavy water user and is over the Edwards Aquifer recharge zone.
And there were lengthy discussions over tax incentives and the creation of a special tax district.
Marriott announced in August 2005 that it planned to build a 1,000-room resort.
According to the lawsuit, Miller Global and Marriott agreed on a construction budget of $415 million in April 2006. The two then agreed in September 2006 that Marriott would control the resort's design, and thus the budget.
Changes by Marriott in October 2006 caused the price to jump from $415 million to $450 million, according to the lawsuit. That same month, Miller Global told Marriott that any cost over $441 million would be “unacceptable.”
But Miller Global budged, and in April 2007 told Marriott that “any budget above $467 million is totally unacceptable and will result in Miller Global/Principal opting out of the project,” the lawsuit said.
In June 2007, Marriott informed Miller Global that the projected costs had reached $481 million, but Marriott later claimed in July 2007 that it had reduced costs and the project would not exceed $467 million.
Miller Global acquired the property and title on July 31, 2007. It took out $318.5 million in loans for the project with the understanding that it would cost $467 million to build.
The resort officially broke ground in October 2007.
In September 2008, Miller Global says it discovered that the total project cost was $90 million over the $467 million final budget. A lawyer for Miller Global said the overruns were caused by incomplete plans and changes to the specifications by Marriott.
Miller Global's lawyer said executives met with Marriott in October 2008 to discuss the extra cost, but when Miller Global did not receive financial help or budget cuts from Marriott, it was forced to pursue additional financing in March 2009.
Miller Global insists that construction will continue on pace, and that future guests will not be affected by the legal activity.
“We still think it will be a great project,” Brewer said.