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An Audit of the Biltmore Hotel Offers Insights into Dealings with
 the City of Coral Gables, the Hotel's Landord

By Tania Valdemoro, The Miami HeraldMcClatchy-Tribune Regional News

September. 25, 2010 - --A new audit says the Biltmore Hotel owes Coral Gables millions in unpaid rent and other charges. But both sides said they will focus on the bigger picture: a deal that ensures the long-term sustainability of the hotel and protects the city's interests as landlord.

"The audit is static for me," said City Commissioner Maria Anderson. "I will bypass it and try to work on the future. My main focus is to get us back on track as partners, and that includes paying the rent and management fees."

The hotel's relationship with the city soured in April 2009, when it stopped paying rent and unsuccessfully sought to credit historic preservation expenses against the rent as its revenues and profits dropped.

By now, the audit has largely been overtaken by events. It wasn't finished until Aug. 27 -- six weeks after the City Commission approved a repayment deal for $3.2 million in back rent with Seaway Corp., the company that manages the hotel.

While Seaway disputed nearly all of the audit's 19 findings, it agreed the city should charge $3,664 to the Biltmore -- from the hotel's business interruption insurance.

"We note again, that a $3,600 adjustment -- the only correct one noted -- for operations over 18 years amounting to $550 million in revenue, is a record we can be proud of," wrote Jim Pelletier, chief financial officer of The Biltmore Hotel, in an e-mail to city officials.

The purpose of the 14-month audit was to see whether the hotel was complying with its lease.

In 1973, the federal government deeded The Biltmore Hotel to Coral Gables to preserve it. The city leased it to the Sovereign Group, which reopened it as a hotel in 1986. But Sovereign filed for Chapter 11 in 1990.

A year later, Seaway bought the hotel's lease from Barnett Bank, the hotel's biggest lender, for $24 million at a bankruptcy auction.

The audit came out before a study of the hotel's business operations by PriceWaterhouseCoopers is due this fall. Anderson and others want to review that report before negotiating a new lease -- a process that could start as early as next month.

Seaway has said the current lease is not sustainable because it is obligated by federal law to repair and maintain the hotel and pay rent to the city. In the past two years, hotel revenues fell nearly 25 percent from $46 million in 2008 to $35 million in 2009. Operating profit fell by 55 percent, from $8.2 million to $3.7 million, respectively.

The audit gives some new insights into the city's dealings with one of its most prominent tenants. Among its findings:

--The hotel is behind in several areas that make up its rent -- base rent, percentage rent and interest. Base rent is $300,000 multiplied by the consumer price index. Percentage rent is 3.5 percent of the hotel's gross revenues. Since April 2009, the hotel owes $750,819 in unpaid base rent and another $2,054,732 in unpaid percentage rent. It also owes $163,637 in unpaid interest related to the percentage rent, the audit said.

Hotel officials have said that under federal regulations, the rent should be payable only out of "excess income" -- or the money left over after Seaway pays expenses related to the hotel's repair, restoration and recurring maintenance. However, the city says the Biltmore's rent is not "excess income."

--The Biltmore met its obligations under an 2002 agreement in which the city deferred $500,000 in rent with the stipulation the hotel reinvest $1.5 million in repair and restoration. Grants were used to stabilize the tower.

--Coral Gables complied with the architectural and historic provisions of its lease with the hotel and federal requirements. But sometimes, the Biltmore did not notify the city before improvements.

Hotel officials said, "the draft report recommendations all suggest actions on the part of city staff and not the Biltmore."

--Coral Gables has not implemented proper internal control policies to enforce the lease terms. City Manager Patrick Salerno wrote, "city management has assigned the responsibility for oversight of the city's leases to the Economic Sustainability Department. . . . It will take some time to correct the deficiencies noted in this area."

--The city's Finance Department failed to bill the hotel $369,519 in a repayment plan for $6.4 million in loans for renovations to the Conference Center of the Americas. Hotel officials said they had an agreement with former City Manager David Brown to withhold payment until the city reimbursed $382,000 to the hotel for costs to replace the golf course's bridges.

The auditor blamed Seaway for not cooperating with the audit. "While the city has clear authority to audit the books and records of the Biltmore Hotel, our office was met with resistance from the onset of this engagement, where the auditor was informed we had no right to audit the hotel's books," City Auditor Lori St. John wrote.

Pelletier disagreed.

"The auditor was provided full access to audit the hotel's records and books at the premises," he e-mailed commissioners on Aug. 25.

Salerno was not available for comment. His office referred questions to St. John. She declined to comment, citing advice from the city attorney.


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