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Challenge Ahead for Coral Gables Biltmore Hotel, a National Historic Landmark:
Profitability vs. Upkeep

By Tania Valdemoro, The Miami HeraldMcClatchy-Tribune Regional News

July 22, 2010--Over the past 17 years, the Biltmore Hotel has spent more than $9 million to repair the roof and hotel balconies, nearly $8 million to renovate the guest rooms and more than $3 million to expand its fitness center and build a luxury spa on the hotel's seventh floor.

It's all part of running a national historic landmark and luxury hotel, says Seaway Corp., the company that leases the property and golf course from the owner, the city of Coral Gables.

Yet it's these types of big-ticket costs that have been the center of a dispute between Seaway and the city, a dispute that has led the Biltmore to stop paying nearly $3.5 million in rent and fees since April 2009.

And while an interim agreement worked out Monday night calls for the Biltmore to resume its rent payments in the first quarter of 2011, the bigger issue remains: developing a new framework so the 275-room hotel -- one of South Florida's jewels -- can be maintained and still maintain profitability.

Negotiations between the two sides will begin in October.

"I wish they would get going. I'd like to see it tomorrow," said Coral Gables Mayor Don Slesnick.

Since assuming the lease in 1992, Seaway says it has spent $32 million on maintenance, apart from the $62 million on capital projects such as the Conference Center of the Americas, guest room makeovers and spa and health club upgrades. Additionally, the Biltmore has paid more than $17 million in rent to the city since 1992.

The company has said it would like Coral Gables to help pay for the hotel's historic preservation.

One hotel consultant believes that is a reasonable request.

"There's no question that the hotel is more expensive to maintain," said Gregory Rumple, executive vice president at Jones Lang LaSalle Hotels, hospitality brokers and consultants in Coral Gables. "Typically, hotels reserve 4 to 5 percent of their total revenue for maintenance. The cost could easily be double for The Biltmore."

In 2009, The Biltmore spent 8.1 percent of its revenues on maintenance, said Danielle Finnegan, a hotel spokeswoman.

During the past two years, The Biltmore's revenues fell nearly 25 percent, from $46 million in 2008 to $35 million in 2009. Its operating profits fell by 55 percent, from $8.2 million to $3.7 million during the same period.

Seaway faced a choice: Let the hotel languish and pay rent money, or fix it and suspend payments to the city, said Robert Kay, co-chairman of Seaway.

A possible solution to the rent woes lay in convincing the city to credit a portion of the money Seaway spent on historic preservation against the rent.

"There was precedent," Kay said. "After Sept. 11, our revenues fell off drastically and we had received a credit for capital improvements against the rent."

After 9/11, Seaway received a rent credit of $500,000 with the stipulation that it reinvest $1.5 million in repair and restoration.

In 2008, Seaway sought a credit of between $1.5 million and $1.8 million for the $2 million to $3 million it was spending to renovate its facilities. The credit would have covered the hotel's rent from the last quarter of 2008 to the beginning of 2010, Kay said.

The city balked.

Seaway cited a May 12 letter from Daniel Wenk, deputy director for the U.S. Department of the Interior, which oversees the Biltmore because it is a national landmark. The federal government deeded the property to Coral Gables in 1973 to preserve it.

"Expenses related to the hotel's repair, rehabilitation, restoration and recurring maintenance requirements should be paid before any excess income is realized," the letter stated.

The Biltmore contends its rent is "excess income."

The city disagrees.

Coral Gables City Attorney Elizabeth Hernandez wrote the National Park Service in June, saying the city "used the excess rental receipts from the Biltmore for public historic preservation, park or recreational purposes."

The city spent $11.6 million in 2008 and $13.4 million in 2009 for those purposes, according to a June 2010 report from the city's independent auditors, McGladrey & Pullen.

On Wednesday, Hernandez said she could not say how much of that money went to the hotel.

The National Park Service declined to comment.

"It is inappropriate for us to make any statements regarding the situation," said Bill Reynolds, a spokesman for the agency.

On Monday, the City Commission, meeting in a special session, worked out a short-term plan with the Biltmore. Seaway would pay $240,000 quarterly in rent and golf management fees, beginning next year. By July 2012, it would begin repaying back rent and delinquent golf management fees -- projected at nearly $4 million by then.

The city did not credit the expenditures against the hotel's rent. The commissioners said they would not agree to the repayment plan until Seaway dropped the issue.

"The Biltmore feels like the money is owed back to them. It's never been a real argument," said Slesnick. "It irritated all of us."

Seaway agreed to the commission's demands.

"We gave up a potential claim on the $17 million because the commission was willing to enter into a discussion about recasting our lease," said Gene Prescott, the co-chairman of Seaway, which also operates the Alexander Hotel in Miami Beach and the Sheraton Sand Key Resort in Clearwater Beach.

The credit issue may be moot now, but commissioners and hotel officials said it may arise in October, when the two sides start negotiating.

Seaway is seeking a new lease, saying the existing one is not sustainable. The current lease calls for the company to pay rent equal to 3.5 percent of the Biltmore's annual revenues. That totals about $1.3 million in rent.

"The original federal program envisioned the Biltmore would be restored and made into a luxury property for $36 million. It was a massive miscalculation," Kay said.


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