By KELLEY SHANNON
Associated Press Writer
February 22, 2000
SAN ANTONIO (AP) -- Don Burklew of King George, Va., considers himself a conservative investor.
So when Burklew saw the opportunity to buy into a limited partnership offered by Marriott, the well-known and long-established
hotel and hospitality giant, he jumped at the chance.
With an initial outlay of $100,000 in 1987 and a projected payoff of almost $300,000 at the end of 2001, when he
would be 62, Burklew viewed the investment as a significant portion of his retirement plan.
But those gains haven't materialized, and now Burklew and hundreds of other investors in the Courtyard by Marriott
II Limited Partnership are suing over what they claim was a bad business deal loaded with false promises.
Among other claims, they say the hotel property was overpriced and that Marriott charged excessive management fees
and knowingly presented inflated profit projections to investors.
While investors have received some return on their money, they say it is far below expectations and is unlikely
to be anywhere close to the original projections when the partnership ends next year. They are seeking a damage
award that could reach $1.2 billion.
``To say that I'm disappointed is an understatement,'' said Burklew. ``A good-sized percentage of my planned retirement
has been stolen from me.''
A pretrial hearing in the class-action fraud lawsuit against Host Marriott Corp. [NYSE:HMT - news], Marriott International
Inc. and other defendants associated with the limited partnership is scheduled Thursday in San Antonio, with jury
selection expected the following week. Both side are still trying to reach a settlement.
The Marriott defendants deny any wrongdoing and say the Courtyard by Marriott II Limited Partnership was intended
for wealthy, sophisticated investors aware of the potential hazards of big real estate ventures.
``It's a very high-risk investment,'' said Tom Cunningham, a lawyer for Host Marriott. He referred further questions
to Marriott officials.
Profits for the limited partners were not as large as anticipated because of a decline in the real estate market
in the late 1980s, Marriott officials contend. The Persian Gulf War and an economic recession on the travel industry
in the early 1990s also hurt.
``But far from turning its back on investors during this time, which was quite troubled, Marriott took steps to
ensure that investors would receive adequate returns and not lose their properties,'' said Tom Marder, a spokesman
for Marriott International.
Attorneys for the investors claim the Marriott Corp. -- which since has split into two companies -- used limited
partnerships and its Courtyard hotels as a ``growth vehicle'' while shifting its emphasis from hotel ownership
to management.
Limited partnerships were prevalent in the real estate world during the liquidity of the 1980s.
Courtyard by Marriott II Limited Partnership was sold to investors in 1987. The limited partnership purchased 70
Courtyard By Marriott hotels for $643 million.
In most cases it bought only the hotels and not the land beneath them, which Marriott or its subsidiaries retained
and leased to the limited partnership.
The investor plaintiffs contend the hotel purchase amount was ``grossly overpriced'' in what Marriott knew was
an overbuilt hotel market and that what was supposed to be an independent appraisal of the properties' value was
conducted by a company with ties to Marriott.
Disgruntled investors also claim Marriott, through a subsidiary, charged an unreasonable management fee for the
hotels of 6 percent of gross revenues, compared with an industry norm of 3 percent.
``Marriott knew that this deal was a dog from Day One,'' said Jim Moriarty of Houston, one of the plaintiffs' lawyers.
``In fact, their own numbers showed that this deal was going to be a disaster for the investors.''
Despite lower-than-expected profits, investors still have received returns averaging 7 percent annually, and even
slightly higher in recent years, according to Marriott.
The investors say they expected at least a 16 percent return, however.
Burklew believes if the lawsuit goes to trial his side will prevail. But he fears there would be years of appeals,
and that may mean that some of the investors -- two-thirds of whom are over 65, according to Moriarty -- will never
reap their profits.
``I will be lucky to see the day that the appeals are over and the money is paid,'' he said. ``My grandkids might
see it, or my kids.''