Just exactly what that action might be remains unknown. PM couldn't find out any details from the labor department nor could we find out more about the contents of Maddaloni's letter as we closed this issue. The labor department already stepped in last year midway through construction and required the pension fund's trustees to assign an independent fiduciary to oversee the completion of the job.
The actions Maddaloni's letter discusses likely come under the auspices of the Employee Retirement Income Security Act, a conflict of interest statute designed to prevent the trustees of a multiemployer national pension fund from engaging in self-serving actions and to ensure fund investments are prudent. The ERISA laws are what triggered the independent fiduciary assignment, and the labor department has also approved an otherwise prohibited transaction under ERISA, which had to do with the use of pension money to buy the property in the first place in 1997.
The Wall Street Journal reported on April 2 that one union official believed that the labor department asked Maddaloni, who is chairman of the fund, and four of the other six pension plan fiduciaries to resign or face a lawsuit. The Journal also said that, in his letter, Maddaloni said the Diplomat has been doing better than projected after opening earlier this year, and that he expects the resort to provide "substantial income for many, many years."
Meanwhile, we did speak to a staffer from MCAA who had had the letter read to him. "The union feels that is it is on solid ground with the development."
While more details are bound to come, clearly the labor department has a keen interest in knowing more about the use of pension dollars -- currently, a 20 percent chunk of total pension assets -- in what many local Florida papers bill as the most expensive hotel project in South Florida.
The Westin Diplomat Resort & Spa finally opened last February, almost 18 months late and at a cost well above projections after two years of construction. Much of the hundreds of millions of dollars spent on the property has come directly from the UA's $4.2 billion Plumbers and Pipe Fitters National Pension Fund.
The labor department has been keeping tabs on the development almost since day one, when the union used $40 million dollars in pension money for the 24-acre property in 1997.
Considering the final cost, the project started out downright modest. The original plan was to invest $250 million in tearing down the old hotel and developing the new resort. While the original financial stake was still substantial, the UA also had other aspirations for the development. Maddaloni and other project backers hoped to strengthen the labor unions in Florida and revitalize a town that has not seen the development that other nearby coastal town like Miami and Ft. Lauderdale have long since taken for granted.
Any dissent to the initial plans was barely a whisper. While reviewing whether to approve the original purchase, the labor department asked UA members for their opinions. The department received only 65 letters from 123,000 pension plan participants.
But as construction delays mounted and costs escalated, the protests become louder and louder. Dissension reached a high point last year when Tommy Preuett, who had been one of the UA's top organizers, run against Maddaloni in last year's elections. Maddaloni won re-election with Preuett getting 1,233 votes out of the 3,251 ballots cast.
To be sure, a real estate investment is a long-term hold and any investment made for a pension fund may be an even longer-term hold. In our research for this story, many hotel analysts quoted in other reports agreed that the hotel has plenty of advantages ranging from its newness, beachfront location, size, urban location and amenities. Plus, considering the UA put so much at stake, it's a natural to be the destination of choices for any number of trade union conventions.
In the meantime, the hotel has to cover a lot of ground to cover its cost. At $800 million, that means as much as $750,000 will have been spent on each room. According to hospitality industry statistics, that's one the highest prices spent on a hotel, excluding casinos.
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