Menomonee Falls' new Radisson Hotel has been the target of a fair share of controversy in just its first year in business.
However, those troubles may be getting deeper.
Numerous subcontractors have gone to court because they claim they are owed more than $3 million for work they've done and haven't been paid for.
The uncertainty surrounding the hotel’s future has a group of subcontractors — who built the hotel and are still owed money — deeply concerned and frustrated.
And the failure to get paid for work completed more than a year ago has placed financial strain on a laundry list of contractors still awaiting payment more than a year after completing their work.
Harry Mattox, commercial division manager with Horner Plumbing in Pewaukee, said the company contracted a $469,000 project with the ownership group for the hotel’s plumbing. The company is still owed $80,000 for the work, which was completed in June 2011.
Mattox said Horner stood to profit roughly $10,000 from the project after labor and material costs. Without the $80,000, the company stands to absorb a net loss of $70,000 for its work, which is a big blow in an industry where many contractors are bidding projects “at-cost” simply to keep their workers employed.
“This has a huge impact on our business. In this market, we are working on 1 to 3 percent margins, if we are lucky,” Mattox said. “It’s upsetting, because we are providing work for a fair amount of guys and doing our best to keep things going in the market. How do you think it would be if we didn’t pay our guys or materials providers?”
Regardless of whether contractors receive their due payments from the hotel’s ownership group, they each still must find a way pay suppliers for materials — often within 30 days.
Menomonee Falls resident Thomas Malzewski owns Heritage Glass in Milwaukee and installed the exterior and some interior glasswork at the hotel. He said his company is still owed $57,000 after completing the contracted work nearly a year ago. He’s had to borrow money in order pay his suppliers, and is eating a $3,600 interest payment on that borrowed debt.
“I need a reason why they’re holding this money. There’s no reason for it. The village is paying the bill,” Malzewski said. “The money is supposedly there, but I don’t understand why they would want to risk putting me out of business, and for what reason?”
Is foreclosure on the horizon?
The problems with the unpaid contractors may not be the only issue facing the Radisson.
An email obtained by Patch indicates that village officials may be discussing foreclosure on the hotel, which opened in May 2011. In the May 2 email, David Frank, the attorney handling litigation revolving around the Radisson says:
"At this point all we know if (sic) that the Village intends to proceed with the foreclosure. We are awaiting its next move."
Frank and Village Manager Mark Fitzgerald declined to comment on the Radisson due to ongoing litigation involving its receivership.
The to oversee the daily operations of the hotel after the Radisson ownership group missed its first payment on a $17.65 million loan.
Despite the controversy circulating the hotel, that he remains confident in the future of the hotel, and that day-to-day operations were unaffected. Gaab could not immediately be reached for comment on Wednesday.
Owner says there is money for contractors
Jim Heyden, one of the members in the ownership group, Lodging Investors of Menomonee Falls, that funds have always been available to pay contractors despite the group’s failure to make its first payment on the principal. He said the funds have been sitting in an escrow fund.
“We are aware that the hotel has some contractors that should be paid, and others that were not based on completion and quality of work,” Heyden said Tuesday. “There are certain things that need to be worked out.”
Heyden said he planned to address some of those concerns in the next week, but deferred further comment on the status of contractor payments and foreclosure to Frank.
Although Heyden claims the funds have always been there, subcontractors have yet to see those payments. Some of those contractors are also receiving mixed messages from the village in terms of when those payments may come to fruition.
“We were told by the village that the funds were there and were just escrowed. Then we were told the village was requiring a third party, or receiver, to review all their paperwork,” said Barry Bloom, manager of A1 Services in Milwaukee, which Bloom says is still owed $70,000 for electrical work.
“Every signal sent to us from the village was not to worry, but now here we are all sitting here holding the bucket,” Bloom said.
Bloom said his company was required to submit the necessary paperwork to the to a village attorney several times. Bloom said he stopped hearing from village officials in March regarding information about when the village would draw funds to pay the bill.
“For our business, it has put us in a real cash flow pinch. This money is counted upon to put us into our next operating year,” Bloom said. “Village has been stalwart; they won’t talk. Period. The attorney for the ownership group is giving us different stories. We know that this may not end pretty, but we don’t have anything to lose because we aren’t getting any answers.”
According to Waukesha County Circuit Court records, the following businesses have filed construction liens against Lodging Investors:
- Gil-Her Ltd, $2,775,483
- Don Stevens, Inc., $15,054
- Horner Plumbing, $80,337
- Gypsum Supply Co., $24,668, although $13,395 has been paid.
- NIC Meyer Construction, $27,996, although $3,502 has been paid.
The total dollar amount from Gil-Her Ltd. is inflated due to the fact that numerous other subcontractors worked beneath the auspices of the now defunct Sun Prairie-based firm. However, hotel minority owner Dave Gilbert was also part-owner in Gil-Her, which went out of business after Gilbert filed for bankruptcy in 2010.
Bloom says the list of subcontractors wanting to get paid is longer than what shows up in court records.
Brian Miles owns a two-person exterior insulation finish systems business, and says he is owed $11,000. That might not seem like a lot, but for a small operation like his, waiting on those funds has been nearly devastating.
“It’s going to take more money out of our pockets every month until it’s paid off and it will create a hardship on my business and my family,” Miles said. “It’s very frustrating, especially because I get call once a week from my suppliers asking where their money is. All I can do is tell them it will come next month. What are we going to do? How are we going to pay this off?”
A Troubled Past
In April 2010, the village that featured a $17.65 million loan to kickstart the hotel construction. The ownership group included Heyden, Gilbert, Dean Grosskopf, Paul Nooyen and William Krueger.
However, things quickly went south after the village approved the loan. In October 2010, Gilbert, who was a 10 percent owner of the hotel, filed for Chapter 7 bankruptcy. According to documents from the U.S. Western District Court, Gilbert’s assets were worth some $3.3 million but had outstanding liabilities of $106.4 million.
That was just months after Gilbert provided necessary documentation to ensure he had necessary net worth to account for his portion of the hotel’s worth.
Then, Grosskopf’s hotel management firm, Professional Hospitality, became in Dane County Circuit Court. According to the suit, Madison investor, Gregg Raup, is accusing Professional Hospitality of wrongfully diverting $1.2 million from hotels in Beloit and Green Bay to the Radisson Hotel in Menomonee Falls.
That spurred the village to take preemtive action and appoint a receiver to monitor day-to-day operations at the hotel and its revenues in November. At the time, Fitzgerald said officials were concerned but optimistic.
"The Village Board of Trustees is certainly concerned about recent events involving the Menomonee Falls Radisson Hotel and the outside litigation that is pending against current owners," Fitzgerald said in a statement at the time. "However, the Village Board of Trustees believes that the appointment of a receiver is a prudent measure to take to assure the community and its citizens that the hotel’s operations will be legally protected during this period of outside litigation."
As part of the developer agreement crafted by the village, the hotel’s ownership group was required to make scheduled payments on the principal of the loan. However, the group failed to make its first $700,000 payment when it came due in November. A total of $4.1 million in principal is due to be paid by the partners over the next four years. According to the development agreement, the loan will be paid in full by the time the calendar turns to 2026.