by Dawn Gilbertson – Jan. 11, 2009 12:00 AM
The Arizona Republic
Hunt Construction Group shows off the luxury JW Marriott Desert Ridge and Sheraton Wild Horse Pass resorts in the portfolio of projects on its Web site. But there are no snapshots of its latest hometown hotel project: the trendy W Scottsdale.
Hunt and the hotel’s developer, Triyar Hospitality, are locked in a legal battle that threatens foreclosure of the 224-room property and hangs a cloud of uncertainty over it during an already challenging time for hotels.
At issue in the case: $20 million Hunt says is still owed for work on the hotel, which opened in early September after repeated delays. It is Arizona’s first W, the hip sister to the Sheraton and Westin chains, and became an instant social hotspot with its sushi restaurant and bars
Triyar, a division of Los Angeles-based commercial real-estate developer Triyar Companies, is making its first foray into hotel development. It says Hunt did poor work, went over the $57 million budget by millions of dollars and delayed the hotel’s opening by more than a year.
Scottsdale-based Hunt is one of the country’s largest contractors, with several high-profile projects in metro Phoenix, including the convention center expansion and University of Phoenix Stadium. It blames Triyar for the delays, saying the extra work was at its insistence.
Hunt and its subcontractors, whose claims make up a large portion of the $20 million Hunt is seeking, aren’t alone in taking legal action against Triyar.
Two other Valley companies who worked on the W, but not under Hunt, have sued for non-payment. In all, nearly 30 liens have been filed against the property on Camelback Road, just east of Scottsdale Road, since November.
Officials with Triyar and Hunt declined to comment on the litigation.
Disputes between contractors and developers are common, especially when the economy is weak and money is tight, construction attorneys say. Still, the wrangling over the W stands out to many. Hunt’s $20 million lien, which started the legal feud when it was filed in November, is one of the largest ever recorded in the state.
“That’s not your average, run-of-the-mill case,” said Phoenix construction attorney Claudio Iannitelli, whose Phoenix law firm represents Canyon State Electric. It filed a lawsuit to recover more than $180,000 owed for work on the hotel’s condominium units.
Janet Summers, whose Tucson firm has filed liens on behalf of several subcontractors on the project, said it’s been a long time since she’s seen this many liens on a project.
“Even some (housing) subdivisions that have lots and lots of lots don’t get this many liens,” said Summers, the president of Van Rylin Associates. “All that tells me is it’s a very troubled project.”
A first hotel
The big question for many is whether Triyar Hospitality has financial woes or is playing hardball because it has a legitimate gripe with the work of Hunt and the subcontractors on the project.
Triyar Companies is privately held and doesn’t release financial information.
The family-run commercial real-estate business – the “Yar” is for the Yari family behind it – has roots going back to the 1950s in New York real estate. In the Valley, it has developed office buildings and retail centers, including the strip center near the W that houses its headquarters and Sprinkles cupcakes. Triyar also has interests in top Scottsdale nightclubs, including Axis/Radius, and previously proposed an entertainment district in the area.
The parent company also has Hollywood ties through an affiliated company, Yari Film Group, which produced the Oscar-winning movie Crash. An arm of that company filed for Chapter 11 recently after a dispute with creditors. A company official blamed the filing on the tight credit markets.
The swanky W is the hospitality division’s first hotel development, soon to be followed by a new aloft hotel nearing completion in Tempe. It is doing the latter and future hotel projects in a $160 million joint venture formed in 2007 with a private equity fund, Warburg Pincus Real Estate.
Unpaid bills
Some W vendors with unpaid bills said they got no answers from Triyar when they tried to collect. But others said Triyar mentioned at various times over the summer that it was waiting for money to be released from the bank or for invoices to get approved.
The firm’s construction lender was a New York division of German bank HSH Nordbank, which, like other lenders, has been hurt by the worldwide credit crisis. The bank’s CEO was replaced last fall after heavy losses.
Mesa small-business owner Chad Baltrusch was thrilled to be asked by Triyar to set up the rooms at the hotel and repair some damaged furniture.
“We were jumping through hoops to perform for them,” Baltrusch said of his firm, Marbecc Custom Design. . “When they needed something, they needed it right now.”
He said Triyar quit paying over the summer, leaving about half its bill, or $65,000, unpaid. Company officials told them it was waiting for money to be released from the bank.
Baltrusch said he met with Triyar Hospitality CEO Michael Mahoney to go over the invoice for the balance. He said Mahoney personally signed and approved the invoice and said it would be processed for payment.
“But that never happened,” he said.
Marbecc can’t easily swallow $65,000, especially in a recession, and is trying to “cut corners everywhere,” Baltrusch said. He has kept his sense of humor through it.
“If we foreclose on it (the hotel), it’ll be easy,” he said. “We’ll just flip the W upside down and make it an M.”
Stephanie Haldiman, one of Canyon State’s owners, said her firm was supposed to do $300,000 of work on the W condominiums this summer but stopped in October because it hadn’t been paid for any of the work. The firm is a subcontractor of DG Fenn Construction, the condominium contractor, and is owed $182,300.
“We’ve never not received any money on a project before,” Haldiman said.
$20 million lien
Scottsdale-based Hunt Construction, the 33rd-largest contractor in the country last year by revenue, according to trade publication Engineering News Record, began the legal feud when it filed the $20 million lien against Triyar.
Triyar responded with a civil lawsuit alleging breach of contract for “poor and defective” work and excessive cost overruns and delays. It did not detail the allegedly shoddy work. The developer says Hunt said it could build the hotel in 18 months, which would have set an opening day in July 2007.
Hunt denied the accusations and just before Christmas filed a counterclaim, contending that Triyar is to blame for the delays and extra costs.
It cites more than 215 revisions to the original plan, the latest less than two months before the hotel opened. Its lien says it did $21.4 million in extra work “at the special insistence and request of” Triyar.
Hunt contends the project was behind from the start, with Triyar providing late, and sometimes incomplete or faulty, drawings and other building plans. It said the original design of the parking garage ramp, for example, couldn’t accommodate certain types of cars.
“It’s very common for disputes to arise between owners and contractors in terms of extra work and change orders because as a project goes on there’s always some amount of interpretation as to what was included in the original plans and what may be additional work,” said Mike King, partner with the Phoenix law firm Gammage & Burnham.
In a memo to subcontractors the day after it filed the lien, Hunt said it spent a few weeks meeting with Triyar to resolve issues but didn’t make much progress.
Financial pressures
Liens and lawsuits, because they spook lenders, often have the effect of getting both sides back to the negotiating table.
“It is pressure, plain and simple,” said Ron Messerly, partner with the Phoenix law firm Snell and Wilmer. “The lenders are a lot more heavy-handed with the developer than the contractor might even have the right to be . . . All of a sudden their cash flow is cut off because of this situation.”
Another incentive to avoid trial: Construction cases are complicated and expensive to litigate. Messerly estimated that attorney fees in a case of this magnitude could easily run up to $2 million, fees that are typically paid by the loser.
The outcome likely will come down to finances, King said.
“If there’s enough money to go around, people tend to compromise and reach an economic solution,” he said. “If it’s a matter where, for some reason, either egos and personalities get involved, or there simply is not enough money to fix the problem, then it gets litigated.”
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