The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A furious legal battle has erupted at a major Nassau hotel, with the operator suing its owner to recover $556,000 in unpaid fees amid allegations of numerous contractual breaches.

The Supreme Court action filed by Donald J Urgo and Associates, a respected and internationally-known hotel management company, lists 10 different management agreement violations allegedly committed by the Courtyard by Marriott’s owner.

Urgo’s Statement of Claim, filed on August 21, 2017, and seen by Tribune Business, claims that Sunset Equities, owner of the West Bay Street property located opposite Junkanoo Beach, had failed to make due payments to Marriott and the financiers that own the Courtyard by Marriott’s mortgage.

This newspaper’s records show that the original mortgage financing for the then-Nassau Palm Resort’s 2013 purchase by Sunset Equities, a private equity-type consortium of Caribbean and international investors, came from Sterling Financial Group (SFGI) through its New Providence Income Fund.

However, Sterling’s Nassau-based principal, David Kosoy, yesterday told Tribune Business that the mortgage financing provided by its fund had been “paid off” and replaced with new financing.

He revealed that Sterling had launched its own litigation against Sunset and its principals, seeking “millions”, on October 26, 2016, last year.

And Mr Kosoy said that despite being an equity investor in Sunset, he and and Sterling feared they were being “frozen out” by its principal, who is understood to be New York, Brooklyn-based real estate developer, Ron Hershco.

Valentine Grimes, Sunset Equities’ attorney, did not return numerous Tribune Business messages left at his office, and on his cell phone, seeking comment before press deadline.

However, Urgo’s lawsuit raises serious questions as to whether the increasing behind-the-scenes turmoil will ultimately impact the smooth running and profitability of the 174-room hotel, based at the corner of West Bay and Nassau Streets, which employs more than 100 staff.

The contents also raise issues around whether both Marriott and Urgo will remain as ‘brand flag’ and operator respectively, given the monies allegedly owed to them.

Urgo alleged that it signed a management agreement with Sunset Equities, believed to be for 10 years, on December 17, 2015, to act as the operating partner for the Marriott Courtyard.

“Urgo, as manager of the hotel, would operate, supervise and direct its effective and efficient running on a commercial basis,” the US-based operator, which oversees thousands of hotel rooms in the Caribbean and US, alleged.

Under the agreement’s terms, it claimed that it was supposed to be paid a base management fee equivalent to 3 per cent of the Courtyard by Marriott’s gross revenues. Incentive fees were set at 1 per cent of annual gross revenues, with other fees and reimbursements also included in the deal.

“Urgo carried out its contractual duties pursuant to the agreement to the best of its abilities, and as far as was permitted [by regulation] and not precluded or actively subverted by Sunset,” Urgo alleged.

“As a result of Urgo meeting its contractual duties and induced thereby, the hotel has managed to be run on a commercial basis and make a profit.”

Urgo, though, is alleging that Sunset Equities owes it a collective $556,000 up to July 27, 2017. It breaks this down into $239,492 under the base management fee; $44,639 in incentive fees; and $271,820 for accounting and service fees, including $90,867 worth of pre-opening expenses.

It alleged that Sunset Equities had failed to respond to its requests for payment and an end to breaches of the management agreement, prompting its August 21 legal filing.

Detailing the alleged violations, Urgo claimed that Sunset Equities and its principals had directly interfered with the Courtyard by Marriott’s operations and management.

“The owner [Sunset] has refused to make the mortgage payments, resulting in litigation with the lender [not Sterling],” Urgo alleged, “and franchise fee payments to Marriott, again placing it in breach of the agreement and prejudicing the plaintiff’s ability to perform its obligations under the agreement.’

Urgo then claimed that Sunset Equities had failed to meet its commitments to provide $150,000 in initial working capital and inventories, and “$300,000 upon opening as a Marriott Courtyard”.

“The manager was never able to establish the required reserve account, which was never funded by owner despite it being a specified owner’s contractual obligation,” it continued.

“The owner refused to co-operate in order to establish requisite bank accounts to be controlled and administered by the manager. The owner prevented the manager from operating the hotel and paying expenses pursuant to the approved operating budget.

“The owner prevented the manager from satisfying requirements of the Marriott franchise agreement due to lack of any working capital. The owner hired, directed and controlled (and threatened to terminate) employees at the hotel, while preventing the manager from supervising those employees. The owner directed employees to act in contravention of the agreement, and contrary to manager’s direction or instruction.”

Urgo is alleging that Sunset Equities has been “unjustly enriched”, and benefited from the fees and expenses spent by the management in promoting the Courtyard by Marriott to the global travel market.

Besides the payment of due fees, it is also seeking damages “and a full accounting for loss of profits” for the remaining eight-plus years of its management contract.

Mr Kosoy, who was initially contacted for comment by Tribune Business over the mortgage financing, confirmed that the debts owed to Sterling had been paid off and replaced.

Disclosing his own legal action against Sunset Equities and its principals, he said: “We issued a substantial lawsuit against them last year before Urgo. We know Urgo, and they’re a very reputable company. He’s a pretty good guy, and we’re very friendly with them.”

Mr Kosoy indicated his concern with Sterling’s own equity holdings in Sunset, adding: “They have not shown us any [financial] statements, anything, which bothers us/

“They’re freezing us out. If you look at all this stuff, it’s crazy.”