Goldman Sachs Group Inc. yesterday became the most prominent Wall Street investment house to raise concerns about the potential impact of an off-balance-sheet joint venture created and half-owned by Marriott International Inc.

The joint venture, which consists of two partnerships that own 120 Courtyard by Marriott hotels around the country, is "struggling," Goldman analyst Steven Kent said in a report issued yesterday. Marriott International has lent the joint venture $200 million and invested an additional $100 million as equity.

Kent, along with a small chorus of short sellers that have an interest in seeing Marriott International's stock fall, say the loan and the equity investment could be at risk. Further, while one of the partnerships in the joint venture files financial statements with the Securities and Exchange Commission, the other does not, and neither partnership's results are included in Marriott International's financial statements.

Courtyard by Marriott II, according to its most recent quarterly filing with the SEC, earned $1.4 million in the third quarter, down from $4.5 million a year earlier. Though it is current on its debt to Marriott and other creditors, on Sept. 6 it had a partnership deficit of $16.7 million, meaning its liabilities were more than its assets.

"The weakness in [the partnership] is a concern for us as [Marriott] has significant capital at risk," wrote Kent, whose firm has done investment-banking work for Marriott.

Bethesda-based Marriott, the world's largest hotel company, has written down just $4 million of the $300 million invested in the joint venture. The other half of the joint venture is owned by Host Marriott Corp., the former real estate arm of Marriott International that was spun off as a separate public company almost 10 years ago.

If the Courtyard joint venture continues to suffer, Marriott may be unable to collect the loan payments, as well as management and land-rent fees for managing the joint venture's hotels, Kent said.

Marriott said payments on its loan to the joint venture are current and defended the valuation of the joint venture in its financial statements, which short sellers have said is overly optimistic given the flagging performance of the hotels in the venture.

"They are current on their senior notes and [loan] payments," said Mike Green, a vice president for finance and principal accounting officer at Marriott. Marriott wrote down a $4 million equity loss on its investment in the joint venture in the third quarter, the only loss since the venture was created in 2000. Also, Marriott's $200 million loan to the venture is subordinate to all its other debt, meaning other creditors must be paid before Marriott is paid its principal.

In 1986, Marriott sold stakes in Courtyard hotels through a partnership it created called Courtyard by Marriott I.

Marriott set up Courtyard by Marriott II in 1987 and sold more of its hotels. But those hotels suffered because of an overbuilt hotel market and, later, the recession in the early 1990s. Some investors in those partnerships sued Marriott in 1999 because they said they were promised higher profits. Marriott settled the lawsuit in 2000 by buying out the owners of both partnerships and created the joint venture with Host Marriott.

Marriott generates significant income from the joint venture. In its most recent annual report, it said it collected $69 million in fees, land rent and interest income from the joint venture in 2001.

Standard & Poor's said the outlook for the Courtyard by Marriott II side of the joint venture, which has issued bonds to the public, is negative. It put Courtyard II on a credit watch in February after the hospitality industry was hit hard by last year's terrorist attacks. At that time, the Courtyard partnership had a corporate credit rating of BB-, with a negative outlook.

"At that point we were expecting the lodging environment to show some improvement in the second half of the year," said Stella Kapur, a credit analyst at Standard & Poor's. "When that didn't materialize, we lowered the corporate credit rating to a B+ and kept the negative outlook."

Marriott's Green said the company is comfortable with how it has valued its stake in the Courtyard joint venture.

"We're in a tough environment," Green said. "These hotels have performed well in the past, and the performance is going to come back."

Marriott International Inc., with corporate headquarters in Bethesda, above, has hundreds of millions of dollars tied up in a struggling joint venture.