LITTLE ROCK — The only four-star hotel in Little Rock and in Arkansas will trade in its signature ducks for the sweeping “M” of the Marriott brand.
The Little Rock Advertising and Promotion Commission approved a letter of intent Tuesday to enter into a lease with Memphis-based Fairwood Capital LLC for the Peabody Little Rock hotel on Markham Street in downtown Little Rock. Attorneys for the commission said they hope the official lease can be signed in about a month, and the staff said the transition to a Marriott would be done in early 2013, although an exact time frame had not been negotiated.
The letter, which names the Marriott brand and Atlanta-based Davidson Hotels and Resorts as the management company for the hotel, was also approved by the Little Rock Board of Directors after a heated discussion Tuesday night. The city owns the hotel property and the attached Statehouse Convention Center, and the Little Rock Convention and Visitors Bureau operates the center.
Commission members told the board Tuesday that the rush to approve the letter was due in part to show a sign of good faith in the agreement between the new and old leaseholders but also stems from concerns of the Convention and Visitors Bureau staff about the effect the transition is having on convention booking. Commission members said members of the management staff have been leaving the Peabody for other opportunities because of the arrangement, which has taken longer than expected.
Fairwood, a private investment company, began acquisition of the hotel’s lease in June. It has been a complicated process because of the ownership and management agreement, and the shared utilities and resources between the convention center and the hotel.
“Fairwood has an excellent track record in ownership, and they are very well-funded,” said commission Chairman Philip Tappan. “This is slated to be a pure cash transaction. It won’t require any leverage on their part to acquire the leasehold.”
The preliminary lease terms approved by both the Board of Directors and the commission Tuesday include restructuring the profit sources for the hotel and for the city. Fairwood would enter into a 40-year lease with the city that provides the option of renewing that lease for two additional 25-year terms.
Under the proposed agreement, the rent paid by the company would increase incrementally starting at $85,000 annually for 2013; $90,000 for 2014; $95,000 for 2015; $105,000 for 2016, $120,000 for 2017, $135,000 for 2018; and $150,000 per year in 2019, through the end of the first lease term in 2052.
The terms also state that the rent would never be more than $400,000 or 1 percent of the total annual profit if that number is greater than $400,000.
The city’s agreement with the Peabody Hotel Group charges more rent — about $375,000 annually — but also includes a rebate of a percentage of the hospitality tax collected at the hotel.
The new agreement will charge a lower rental fee and give the full revenue from the 2 percent tax on hotels and prepared foods to the city.
“I think this is very, very prudent on our part,” Mayor Mark Stodola said. “I’m not sure we all understood that after a certain ceiling, that we are remitting back the hospitality tax as a rebate right now. We can really take advantage of the Marriott brand ... the opportunity for growth is really, really favorable for the city.”
The commission staff said that with the elimination of the rebate, the city stands to gain an increase of 52.3 percent in revenue from the hotel over the next nine years based on moderate occupancy numbers.
The preliminary lease terms also specify that the investment company could change the brand of the hotel after a review with the city every five years to an approved brand including Hilton, Hyatt, Marriott and selected Starwood hotels, after both parties agreed to a change.
Fairwood is to do about $16 million in renovations and improvements to the 414-room and 22-suite hotel, Tappan said. The company will be required to submit a plan for those improvements within 180 days of the lease signing.
According to the letter of intent discussed at the commission meeting, Fairwood created a separate limited liability company for the lease agreement, which will be called FWH II Little Rock and has been incorporated in the state of Delaware.
Fairwood would also be given exclusive catering rights for the convention center in exchange for 4 percent of the gross catering receipts through Sept. 30, 2015, when that percentage would increase to 5 percent.
The Peabody Little Rock was the third Peabody hotel including the flagship facility in Memphis and another Peabody hotel in Orlando, Fla. Neither of those properties are affected by the chain’s decision to shed its Little Rock location.
The Peabody took over a lease signed in 1980 by the Excelsior hotel, which opened its doors in 1982. The space had been occupied by the Marion Hotel since 1909. The Peabody opened its doors in 2002 after $40 million in renovations.
All of the Peabody hotels adhere to the tradition of marching mallard ducks through the lobby each morning, where they swim in the fountain before marching back through the lobby at the end of the day.
While some Little Rock officials said they will miss their web-footed friends, the brand-name recognition of an international hotel chain and its reward program will bring more cachet to Little Rock’s premier hotel.
Michael Hickerson, general manager of the Marriott Courtyard in the River Market District, said that “in the beginning stages of the conversion, we will have some guests relocate to the [former Peabody].”
But in the long run, the national brand will help draw more people downtown, Hickerson said.
“I think from a convention [perspective] it will substantiate our market even more.”
The Peabody is at 200 West Markham St., six blocks west of the Marriott Courtyard at 521 President Clinton Ave.
With the completion of the 107-suite Residence Inn by Marriott at 219 Rivermarket Ave. in May, there will be six hotels under that brand in Little Rock and North Little Rock.
Davidson Hotels and Resorts did not return a phone call. It operates 48 hotels under a variety of brands, including Hyatt, Westin, Hilton and Radisson. The group manages several properties with Fairwood, but this would be the first Arkansas property for both companies.
“We’re grateful to the city leadership and staff for their professionalism throughout this process,” said Denver Peacock of Cranford Johnson Robinson Woods, a spokesman for the current and future owners. “The improvement of the state’s largest convention center hotel is an example of a great private-public partnership that will continue to enhance the city for years to come.”
Gretchen Hall, chief executive officer of the Little Rock Convention and Visitors Bureau, has said that none of the brands that Fairwood has been talking with has a four-star Forbes Travel Guide rating. The Peabody achieved that distinction in 2011, making it the only hotel in the state.
Forbes has said that it would re-evaluate the hotel after the deal is finalized.
The Peabody Little Rock would be Fairwood’s eighth property acquisition since it was formed in 2008, according to the company’s portfolio. The company also owns Hampton Inns, Embassy Suites and Hilton hotels in cities all over the South.
Front Section, Pages 1 on 12/19/2012