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City auditors came up short in their attempts to dig into the finances and operations of Denver International Airport’s on-site hotel because of resistance from the operator, according to a new report out Thursday.
The publicly owned facility was part of a $720 million project that also constructed a transit center beneath the Westin-branded hotel as the terminus of a commuter rail line to downtown Denver. Hotel profits above a certain threshold are supposed to go to DIA to help repay project bonds — a milestone that the 519-room hotel hasn’t yet passed, despite better-than-projected revenue each year since its November 2015 opening.
“This is a transparency and accountability issue,” Denver Auditor O’Brien said in a statement. “If we could not get the documents needed for the audit in a timely manner, how could the airport be doing regular monitoring on its own to assure the proper care and management of the hotel?”
The new audit report says auditors ran into a significant hurdle in trying to assess not only the Westin’s balance sheet but how the hotel is run: DIA’s contract with Marriott International, which owns the Westin brand, contradicts the city charter by restricting the city’s ability to perform a full public audit. It allows Westin to guard proprietary information.
As a result, “auditors were met with significant pushback and delays regarding documentation and information requests that would have allowed us to provide assurance over Marriott’s and Westin’s internal control structure and ensure financial transactions and operations are in compliance with the hotel management agreement,” the audit says.
In some cases, auditors could look at records only if they agreed to confidentiality provisions or took limited notes, falling short of the city’s auditing standards.
Denver’s city charter gives the elected auditor the authority to publicly audit city operations and assets. During an audit committee meeting Thursday morning, DIA officials and city attorneys could not answer how DIA’s contract came to contradict that voter-provided authority.
City auditors’ chief recommendation was for the renegotiation of the 2011 contract with Marriott to allow for a full and open city audit. Patrick Heck, DIA’s chief commercial officer, says the airport will start those talks soon, with a goal of reaching agreement on an amendment by May.
“I hope you will take these (recommendations) with the spirit with which they are intended,” O’Brien said during Thursday’s meeting, noting that the hotel is a public asset. “If you don’t, it’s going to become a liability, and I don’t think any of us want to see that happen.”
But there is no guarantee Marriott will agree to the contract changes.
“It’s not just something we can absolutely change,” Heck said, speculating that Marriott could ask for concessions before agreeing.
In the meantime, DIA, through an oversight manager, hired two external auditors last year to look at the hotel’s financial performance and other aspects, but it’s unclear if those will be public when they are complete. The city audit questions those as “potentially unnecessary” costs.
It also recommended several steps DIA should take to strengthen its policies, procedures and monitoring of the Westin contract to ensure the operator is complying with its agreement. DIA agreed to each of those recommendations.
Controversial hotel has been successful, DIA says
DIA’s hotel and transportation project for years was clouded by controversy due to cost overruns and changing scope.
In 2016, a final outside review commissioned by the auditor’s office pegged the final price tag at about $719 million, or about 7 percent higher than a budget approved in 2013 by the City Council.
But DIA officials say the hotel, which accounted for $203 million of the cost, is beating revenue goals outlined in the Westin’s operating agreement.
Thursday’s audit backs up that assertion, saying that according to Westin-provided figures, the hotel’s revenue has increased from $43.2 million in 2016 to a projected $51.9 million last year.
Westin’s agreement requires it to share some revenue with DIA once it has built up an operating reserve equal to two months of expenses. A footnote in Thursday’s audit says that threshold should be met based on 2018 revenue, resulting in “excess funds sent to the airport for the first time” — but it does not specify how much.
Competition looms in Gaylord
The hotel includes an expansive conference center. DIA officials have talked about the potential for another large hotel on the airport’s expansive property in the near term, but the December opening of the 1,501-room Gaylord Rockies Resort & Convention Center — also operated by Marriott — has introduced new competition just over the city line in Aurora.
Thursday’s audit report says DIA has postponed consideration of any additional on-site hotels.
Marriott’s dual involvement in those competing hotels raised some audit committee members’ eyebrows.
“There might be a potential conflict of interest in terms of controlling customer flow from one hotel to the other,” vice chair Rudolfo “Rudy” Payan said. “I don’t know how we address it, but I want to safeguard Denver’s asset instead of Aurora’s.”