Signaling the start of a messy divorce in what thus far has been one of the most profitable marriages in the hotel and real estate business, the owners of Hyatt Hotels on Monday sued Donald Trump for $100 million, alleging that he has deliberately blocked renovations of their jointly owned New York Grand Hyatt hotel in order to get concessions to alleviate his financial problems.
Because Trump has refused to put up his half of the cost of a proposed $37-million renovation of the building, the suit alleges, the Grand Hyatt has deteriorated physically, lost its competitive position in relation to other first-class hotels in Manhattan and been downgraded by a leading tourist rating service.
Trump responded to the lawsuit Monday with a blast of his own.
“Hyatt is merely trying to cover up their total incompetence in the running of the Grand Hyatt,” he said in an interview. “Never before in my career have I witnessed such gross mismanagement. It’s unbelievable.”
The lawsuit against Trump and two of his banks was filed in federal court in Manhattan by Refco Properties, Trump’s 50% partner in the Grand Hyatt. Refco is a holding of the Pritzker family of Chicago, the owners of Hyatt Hotels.
It also charges that Trump threatened to disparage Hyatt’s management of the Grand and other hotels if the company did not award him the concessions he sought--including cash payments, the plaintiffs allege.
In addition, the suit says Trump secretly ceded his interest in the Grand Hyatt to Bankers Trust Co. and Chemical Bank, two of his leading creditors.
That move, an apparent violation of his partnership agreement with Hyatt, left Hyatt in the uneasy position of having two sets of partners: Trump, who had a veto over management plans but no financial interest in the outcome, and the banks, which had a financial interest but no vote.
The lawsuit marks what could be a definitive split between Trump and his first major partners in New York real estate, the highly respected Pritzkers. The building at the core of the dispute was a landmark in the real estate renaissance of Manhattan in the 1970s--and, not coincidentally, the foundation of Trump’s own rise as New York’s designer-label developer.
Trump bought the Commodore Hotel, then a derelict property in the heart of a virtual slum neighborhood, in 1978. In partnership with Hyatt, he sheathed it in chrome and green glass, extracted a 40-year, $60-million tax-abatement agreement from New York City and reopened it in 1981 as the Grand Hyatt. New York’s economic recovery coincided with its renovation, making Trump look like a genius and inspiring one critic to cavil that “Donald Trump’s best ally has been the business cycle.”
He followed that project with such high-profile developments as Trump Tower and Trump Plaza in Manhattan and three casino-hotels in Atlantic City.
During the 1990s recession, however, Trump was forced to seek bankruptcy protection for the casinos and the Plaza Hotel in New York; creditors seized half-interests in those properties in return for restructuring their punishing debt loads.
Spokesmen for the Pritzkers said Monday that the family now fears the Grand Hyatt may become a victim of Trump’s continuing difficulties with his bankers.
“We think the hotel is a pawn in a bigger struggle between Trump and his banks,” said Howard Schiffman, a Washington-based lawyer for Refco. “That’s what’s made the hotel stalemate. We’ve come to the point in time where the hotel is losing its competitive edge.”
What brought matters to a boil, both sides say, was Hyatt’s conclusion in 1990 that the hotel needed at least $24 million in renovations to remain competitive. The partnership agreement required Trump to put up half the money, the Pritzkers contend. They say he was initially in favor of the renovations but in November, 1990, changed his mind, saying he was “no longer in a financial position” to put up the money.
For his part, Trump contends the Hyatt demand was specifically designed to force him out of the partnership.
“When I was in my deepest problems, they came to me and said, ‘We want to renovate the hotel,’ instead of holding off a little,” Trump said Monday.