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Hilton Hotels Terminates Franchise License Agreement with Shubh,
Owner of the 700-room Pittsburgh Hilton

Shubh Claims Constructive Conversations Underway to Win the Hilton Name Back

By Mark Belko, Pittsburgh Post-GazetteMcClatchy-Tribune Regional News

September 03, 2010 ---Since 1959, the hotel perched so prominently at the entrance to the Golden Triangle has been a Hilton.

Not anymore.

The troubled Downtown hotel, beset by financial problems, suffered yet another blow Thursday when Hilton Hotels & Resorts terminated its franchise license agreement with Shubh Hotels Pittsburgh LLC, the hotel owner.

With the decision, the hotel has lost the Hilton name, one of the most storied in the industry, a place in its reservations system, and the prestige that goes with being associated with such a venerable chain. Hilton has removed the Pittsburgh hotel from its website.

The hotel, with more than 700 rooms, is Pittsburgh's largest.

In a statement, a Hilton spokesman tied the termination, which takes effect immediately, to "violations of the terms of the franchise license agreement" but would not discuss specifics.

"We expect the owner of the hotel to honor all current reservations and will provide further updates as appropriate," the statement said.

However, Kerry Ford, a spokeswoman for the Pittsburgh hotel, said Thursday the hotel would continue to use the Hilton name indefinitely.

"At this point in time, nothing has changed," Ms. Ford said.

Shubh, in a release in response to the action, said it had transferred control of the hotel to Dr. Kiran C. Patel, a Tampa, Fla., cardiologist and philanthropist. Under the restructuring, Dr. Patel will own 89 percent of the property and Shubh 11 percent.

In the release, Frank Amedia, the hotel's asset manager, said "constructive conversations are currently under way" between Hilton and Black Diamond Hospitality, which represented Dr. Patel, in an effort to win Hilton back.

"Hilton is the preferred brand and the new ownership hopes to resume that relationship shortly," Mr. Amedia stated.

Losing the Hilton name after such a long affiliation is no small matter, not only costing the hotel status but also potential business from travelers loyal to the brand.

"Certainly the Hilton name has cache. There's a lot of positive things to be associated with the Hilton name from a hotel's perspective," said Jeff Higley, vice president of digital media and communications for Smith Travel Research, a hotel performance benchmarking company.

While unable to comment specifically on the Pittsburgh situation, Mr. Higley said that, generally speaking, there are a number of reasons a major hotel company could move to terminate a franchise agreement, including breaches of standards or quality assurance or even financial issues.

"Generally, I don't think it's a good thing when a major brand decides to pull its flag from a property," he said.

Removing the name definitely could have an impact on business at the struggling hotel, he said.

"Hilton, like other major hotel companies, has a very strong guest loyalty program and that's a very big driver of business to these hotels. Finding another brand with an equally strong loyalty program would behoove them," he said.

"In this environment, brands are more important than ever because of the power the reservation system brings."

Hilton's decision comes after more than a year of turmoil at the hotel, during which Shubh racked up millions of dollars in liens because of money owed to contractors and others.

Unpaid bills resulted in work being halted on an exterior addition for more than a year, leaving an eyesore that was covered with a huge banner for the G-20 Summit last September. Despite the woes, Hilton chose to stick with the hotel -- until now.

In another sign of turmoil, less than two weeks ago, Shubh changed managers at the hotel, dismissing Virginia-based Crescent Hotels & Resorts after a legal battle that pitted Shubh against its lender, BlackRock Inc., which fought against the move.

In the lawsuit, Shubh charged that Crescent had talked to Hilton about removing its name from the hotel, and had held a series of discussions about the "appointment of a receiver" for the property.

It also maintained that the hotel's quality assurance scores had "dropped precipitously" under Crescent, with room cleanliness falling from 100 percent to 13 percent.

In his first public comments on the matter, Michael George, Crescent's president and CEO, accused Shubh Thursday of misrepresenting the events that led to the separation.

Contrary to claims that the property's quality assurance marks had dropped, Mr. George said the hotel had earned its "highest level of sanitation" scores in years under Crescent.

"The areas Crescent was able to impact had exceptional results," he said.

At the same time, he charged that Shubh owed Crescent $1.2 million in management fees and other debts, including a loan with an outstanding balance of $462,515, with interest. Crescent has filed a lawsuit in Virginia to collect the loan balance. Mr. George said he expects more litigation over the management fees.

He maintained the termination had more to do with economics than anything else.

"We became increasingly concerned that we were not going to be paid and, of course, could not offer our services for free," he said.

Over time, he added, Crescent also "became increasingly concerned about the character of this ownership group, which eventually drove to the choice to separate."

After Shubh filed a lawsuit to terminate Crescent as manager, Allegheny County Common Pleas Judge Michael A. Della Vecchia issued a consent order allowing Crescent to continue as manager for 30 days during an audit of the Hilton books. He also gave Shubh the right to search for a replacement, with terms acceptable to BlackRock. It eventually settled on Dallas-based Prism Hotels and Resorts. The firm took over last week.

Despite the loss of Hilton, Shubh said that it remains committed to completing the exterior addition and other improvements, including new stonework at the main entrance and refurbishing of the marble floor in the main lobby. Work resumed last month on the outside addition.

Mark Belko: mbelko@post-gazette.com or 412-263-1262.

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Copyright (c) 2010, Pittsburgh Post-Gazette

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