Lawsuit is newest roadblock for District's long-awaited hotel

By Lisa Rein
Washington Post Staff Writer
Monday, January 18, 2010; A13

Is the District's 11-year quest for a high-end hotel to draw more convention visitors hexed?

Five months ago, Mayor Adrian M. Fenty (D) stood on the corner across from the Walter E. Washington Convention Center and signed legislation authorizing construction of a 14-story Marriott Marquis.

The $550 million hotel, to be built with public and private financing, would have almost 1,200 rooms for convention-goers. The District would be better able to compete with other cities -- and protect its $850 million investment in the convention center -- by offering a large hotel at the doorstep of its prime meeting space. The city pledged some of its most valuable real estate and $206 million in public money. The project was scheduled to break ground as early as October, and big conventions began bookings for late 2013, when the hotel was expected to open. It appeared that the project -- threatened over the past decade by the credit crunch, rising construction costs and squabbles over the location -- was finally underway.

That was before one of the region's largest real estate developers filed a lawsuit against the city alleging favoritism, threatening to unravel the deal with what could be years of legal delays. No construction bonds have been issued, and a D.C. Superior Court judge has twice refused to dismiss the case. Meanwhile, local business owners and civic leaders in Shaw, the historically black neighborhood counting on the hotel at Massachusetts Avenue and Ninth Street NW to advance its long-awaited renaissance, are furious at the latest setback.

"People finally thought they'd seen the light at the end of the tunnel," said Alex Padro, an advisory neighborhood commissioner. "And now they're thrown back into the darkness."

For now, the equity investor pledging much of the $331 million in private money for the Marriott is still on board. But the legal issues could push the investor to look elsewhere, officials involved in the project said.

On its face, the lawsuit by Wardman Investor, a company controlled by Chevy Chase-based JBG Companies, is a protest against the bidding process. The city selected Bethesda-based Marriott several years ago to develop the hotel, but when financing grew scarce, increased the public subsidy before the deal was finalized last summer.

Wardman Investor claims the D.C. Council acted illegally by negotiating exclusively with Marriott, granting the firm "extraordinarily favorable terms," including not only the subsidy but also a 99-year lease on a city-owned site, with no payments during construction or the first three years of operation. Marriott would run the hotel, which would be built by Quadrangle Development and Capstone Development.

The suit seeks to halt construction and require that the city solicit new bids for the project. When the city initially opened the competition, JBG did not bid, but managing partner Ben Jacobs said the developer "would have been an obvious contender" if the original bidding process had included the new terms negotiated with Marriott.

JBG and Marriott are embroiled in another dispute over another Marriott owned by JBG more than two miles away, the Wardman Park on Woodley Road NW. On Thursday, Marriott sued JBG in D.C. Superior Court alleging that the JBG lawsuit is part of an "extortionate plan" to stop construction of the convention center hotel and force Marriott to renegotiate the Wardman Park management agreement.

JBG, which owns 11 hotels in the Washington area, bought the 1,316-room Wardman with another company in 2005, when the real estate market was peaking. JBG planned to convert hundreds of the rooms into luxury condos. With the hotel market now flat, Marriott is resisting a potential decline in revenue if many of the rooms it operates are sold as condominiums, according to interviews and court documents.

Jacobs declined to discuss the company's dispute with Marriott, but said competition from a convention center hotel would threaten the Wardman Park.

"It's disappointing that we are forced into a position where the city's actions are so threatening to the economic viability of other properties of like kind," Jacobs said.

District officials dispute the claim that the new Marriott will glut Washington's 26,000-room hotel market.

"It's clear there's a shortage in peak season when we're trying to book conventions," said Greg O'Dell, chief executive of the convention center authority. "Anybody in our hospitality community understands that we need more rooms to support the convention center."

The District's attorney general, Peter Nickles, called the lawsuit "outrageous" and said that JBG should have contested the deal years ago. "These folks have no connection to the deal except coming in now, years later," Nickles said. "Anyone who looks at their lawsuit will conclude that it's being used to hold up a critical project for the city."

Marriott officials declined to comment, citing the ongoing litigation.

Behind the scenes, D.C. Council member Jack Evans (D-Ward 2) is trying to get the parties to resolve their dispute, according to those with knowledge of the talks. Evans declined to comment.

Capstone Development President Norman Jenkins, the project's minority partner, called the convention center hotel a "boon for the entire city" that would create hundreds of construction jobs for District residents.

Meanwhile, business owners in Shaw, already hit by the economic downturn, say they're increasingly cynical about their future.

"We thought we were going to have this hotel in 2007, in 2011, in 2012, and now when?" asked Debra Chatman, owner of Chatman's Divine Bakery and Cafe on Ninth Street, on the first floor of the convention center. Chatman leased space in 2004. "I'm still afloat by the grace of God."

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