Village Leaders Confident Troubled Radisson Will Weather Litigation

It appears there’s a storm cloud of litigation brewing above the new in Menomonee Falls, but village leaders are confident that Falls taxpayers needn’t worry about rain falling anytime soon.

The hotel’s ownership group Lodging Investors of Menomonee Falls, operated by Dean Grosskopf, is facing a civil fraud suit from investors claiming the management company diverted $1.2 million from bank accounts for two Fairfield Inn hotels in Green Bay and Beloit.

There are also several construction liens totaling $2.8 million in unpaid bills by the group stemming from the Radisson’s development in Menomonee Falls.

And then there's the matter of the $17.65 million loan that the Village Board voted to give Lodging Investors owners in April. The group missed its first payment on the loan, and the village has successfully petitioned the courts for a receiver to oversee the cash flow of the hotel and secure the village’s share of the revenue.

Does all this spell trouble for the hotel — and the village's investment in the Radisson? Officials say that despite the finance woes with the ownership group, they're confident that Menomonee Falls taxpayers are being protected.

“A lot of people hear 'receiver' and think it is bankruptcy,” said Village Manager Mark Fitzgerald. “This was really done under a circumstance to preemptively protect against the plaintiffs in the lawsuit perhaps filing for their own receiver.”

PATCH SURVEY: Weigh in on what's happening with the Radisson

The receiver will regularly check in with village administrators to report the financial activity at the hotel and will continue to monitor its progress, he said. Fitzgerald said there are enough safeguards in place to protect taxpayers from any fallout from the court battle Radisson owners will face.

“I think the protections are in place to ride this through. We wish this wasn’t going on, but what we see in business is that these kinds of things do happen, and when they do, you take the appropriate steps to protect yourself,” Fitzgerald said. “I don’t believe there is anything but an extremely remote possibility that it would be a burden on taxpayers.”

The fact that Radisson Hotels International Inc. approved the appointment of the receiver demonstrates the confidence the company has in the hotel’s ability to fulfill the terms of the loan agreement, Fitzgerald said.

Trustees feel good about future

And though the Radisson has gotten off to a shaky start, Village Board members are still confident that they made the right choice moving forward with the loan for the development. The money for that loan comes directly from the village's general fund.

“It’s a dispute among those partners and it will work itself out eventually. It’s a good investment and it will have good returns,” said Trustee Dennis Farrell.

The Village Board met weeks ago in closed session to discuss the litigation against Radisson’s owners.

“Everything we discussed was in closed session, but I have all the confidence in what we’ve done,” added Trustee Sharon Ellis.

The village’s bond rating recently was bumped up to a Aa2 rating by Moody’s, however, the credit rating agency did note that the hotel development project posed some risk should the hotel not meet its revenue expectations.

An investment for the long-term

Village leaders have their eyes focused on the long term when it comes to the Radisson Hotel, and future developments along the Main Street corridor. That stretch of road has become the focal point for improvements in Menomonee Falls.

The Radisson development was the first to come to fruition within Tax Incremental District #6. The village is investing into the infrastructure on Main Street with the hopes that added tax values will more than pay back the village’s investment.

“The whole Main Street corridor has been a bit of an eyesore and pretty marginal local economy in that area,” Fitzgerald said. “The strategy was to get the hotel done and complete, and then get the Main and Pilgrim shopping center operating. Those two end pieces would catalyze the corridor. I still think that is a sound strategy.”

On Nov. 21, Gatlin Development Inc. officially closed on its real estate purchases in the Pilgrim Village shopping center at the intersection of Main Street and Pilgrim Road. , to be anchored by a Walmart Neighborhood Market, along with three new retail buildings will be constructed over the next year.

The vacant BP gas station, cinema and Piggly Wiggly were all part of the purchase. to begin later in winter after the site is surveyed. Both and will remain in the revamped center.

“These are such tough times economically, and this is like no other time in our history to find the best strategy for development,” Fitzgerald said. “I think we are moving forward in a reasonably acceptable manner. We’ll be in as good of shape as we can be in this current economy.”

Expert issues warning to others

Although the pieces appear to be falling in place for a revival of Main Street, Todd Berry, president of the nonpartisan Wisconsin Taxpayers Alliance, said the litigation surrounding the Radisson serves as a fair reminder that taxing districts are a risk for municipalities.

“In the short term this sounds pretty disconcerting," Berry said of the Radisson situation. "But that doesn’t necessarily mean this is a permanent disaster, because you still have a new property that can generate income to pay back the village.

“There are other things in that district that are moving forward, and those are generating revenue that can also help the village," he added.

Berry said municipal leaders throughout the state started using tax increment districts liberally in the past two decades when real estate values were growing and the economy was healthy.

“Officials became a little too sure of themselves in that they assumed if you created a TID, and there was something in it that looked promising, it would work out,” Berry said. “With this almost unprecedented housing downturn and a slower economic recovery than we have seen perhaps ever, those things remind us that we still need to do our homework about taxing districts.”

Will the Radisson turn a profit?

Whether the Radisson will turn into a profitable venture is the question on everyone’s mind, and village leaders will closely monitor it. However, Fitzgerald said officials expected the first years to be a little rocky at the hotel.

“The first months of a hotel are always a little dicey, but — by and large — the operations are going well and the finances are acceptable,” Fitzgerald said. “But one of the things I always warn people about is that a hotel operation typically has about a four-year stabilization period.”

He said the village doesn't expect the hotel to be up at full speed for a number of years, and officials were prepared for this.

“We are prepared to ride through this into the stabilization period, and that’s one of the ways we structured our agreements,” Fitzgerald said.

Britton Colbert is a Florida-based hotel consultant who has more than 30 years experience working with large hotel chains nationally. He focuses on hotel operations, investment, financing and litigation and works on an individual basis to help hotels become profitable.

Colbert said it’s nearly impossible to put a “typical timeframe” on the time it takes for a hotel to reach its ideal profitability.

“Nothing is a 'gimme' in this business. To assume you will generate a certain kind of business in a given time can be inaccurate,” Colbert said. “It’s hard, without any sound foundation of data, to say it will be stable in a four-year period. You can’t really determine in today’s environment what it will take to get the cash flowing.”

Though the hospitality business can be unpredictable, Colbert said the Radisson Hotel’s affiliation with Carlson International is a definite advantage. He said the Radisson should benefit from its strong brand and should garner business from the frequent Radisson traveler.

He added that relatively speaking, the environment in the Great Lakes region is favorable for hotel operations right now.

“Menomonee Falls and the Great Lakes region doing relatively well based on employment there, so you will still get significant business travelers,” Colbert said.

He said the key for future success at the Falls Radisson is to capture local clients for events, business receptions and banquets. Having strong internal customers, who look to book the hotel repeatedly, are crucial to sustained success at a hotel.

The Radisson's new look should give it an edge is luring new business, Colbert added.