Village Manager: Remember 'The Baghdad Hotel'

When Village Manager Mark Fitzgerald came to Menomonee Falls in 2006 to interview for his current position, he was planning to stay at the Falls Inn while he was in town.

When he arrived in the village, he parked in the blighted hotel’s lot, and quickly turned around and kept heading north to Germantown. On Monday, he asked residents to remember what once was before diving into a lengthy discussion about the current state of affairs at the Radisson Hotel.

“You (Village Board members) remember being bombarded by people in the community abut the nature of that hotel, and how embarrassing it was,” Fitzgerald recalled. “Everyone started calling it the Baghdad Hotel. It was an eyesore and an embarrassment.”

Read more about the Radisson Hotel on our Patch topics page

Fitzgerald, and hotel management, spoke for well over an hour Monday during a Village Board meeting. They stated their case for the hotel’s future and the board’s decision to help finance it. It’s a side of the story that has been muzzled due to restrictions associated with ongoing litigation.

Fitzgerald said it was time to start returning volleys in the battleground that has been fought in the newspaper and public discussion.

“When this (hotel) was getting bludgeoned to death week after week in the newspapers it was hard to keep a course of action to stabilize the hotel,” Fitzgerald said. “We’ve got to start shouting back…We have to fight regularly to make sure this hotel isn’t artificially devalued through a public process that thrives on the negative more than the factual.”

Outspoken naysayers of the hotel have continually stated that taxpayers would be on the hook for the hotel loan. That was a fallacy Fitzgerald wanted to dispel.

“I have no trepidation that the taxpayers of Menomonee Falls will feel any impact from the hotel,” Fitzgerald said. “We will be just fine, and moving forward with a clean redevelopment project.”

What’s Next for the Hotel

Fitzgerald couldn’t delve too deep into details of anything post-November 2011, which was the month when the village appointed a receivership attorney. But Fitzgerald used the podium Monday night as a chance to be more candid in places where he legally could.

As it stands, the village is in the midst of a foreclosure suit with the five-member group that took on the development and loan, Lodging Investors of Menomonee Falls. Essentially, the remaining members of the ownership group can pay their debt of just over $14 million to the village to reclaim the hotel. 

Track the village's ogoing foreclosure suit online 

Fitzgerald pointed to a heaping stack of papers collated in two binders while on the podium. It was the contract agreement with assurances and obligations between the village and owners to protect taxpayers and the village’s interests.

If not, the village would proceed with the foreclosure of the hotel, and an eventual sheriff’s sale. The hotel would be sold to new owners, and would operate the hotel with a perfected and clear title.

“We’ve spoken to a lot of potential buyers so when we can foreclose, we will have interested purchases, but I can’t go any further than that,” Fitzgerald said.

The village would use proceeds from the sale of the hotel, $1.2 million in principal payments made by the owners so far, and backstop the rest of the debt with incremental values from the taxing district that the hotel is in to recoup its upfront investment (more on taxing districts later).

Furthermore, the funds for the hotel are segregated into one of the village's 27 funds that cannot be comingled with other funds in the village. For example, money to pay for operating expenses originates from the Radisson taxing district fund, but not from the general fund. Protective cash advances made to the hotel to cover payroll, franchise fees, and property taxes still come from the original $17.6 million used in the Radisson hotel fund.

Read more about the village's protective advances

“We still have funds in the construction loan account, and not all funds have been drawn. It is our plan to use those funds to pay liabilities of the hotel as necessary,” Fitzgerald said. “It is our strong belief that there are enough funds to do all that, and not let it be a liability on the general levy of the village.”

The Subcontractors

Fitzgerald said the Village Board firmly wants to find a way to repay contractors, but that requires a legal avenue. A list of 53 subcontractors is still awaiting full payment for work completed more than two years ago.

“We have no contractual obligation to the general contractor or the subcontractors. The general contractor worked for the owner, and the subcontractors worked for the general contractor. We are the first mortgage holder on this hotel. That is our principal guaranty. That is superior to all other liens and encumbrances,” Fitzgerald said. “We remain committed to figuring out a means to have the contractors paid through this process. That is not a simple issue.

We need to protect and perfect the title to sell this hotel to someone else. We are looking for a legal means to do this.”

The Skinny on Tax Incremental Financing District #6

The Radisson Hotel falls within the village’s sixth taxing district, which was created to spur development along the Main Street corridor. Municipalities can use this form of public financing to spur development in blighted areas of a community.

Every taxing district must pass a “but for” test. That test requires representatives from all taxing entities – schools, municpal, county – to find and prove that development would never occur in a given location if it weren’t for public assistance. Fitzgerald said the hotel was a prime candidate for this form of financing.

He said if it weren’t for public assistance, a cycle of disinvestment along Main Street would continue and the village would spiral downward – especially in 2007 when banks were nearing financial collapse.

More on Tax Incremental Financing in Wisconsin 

“I operate under the assumption that blight and disinvestment create more blight and disinvestment and it becomes chronic in the area,” Fitzgerald said.

When a taxing district is created, the taxing entities collect the base property value in the entire district for the life of the district. As development occurs, the district’s value increases, property owners pay their increased property taxes, but the base value remains the same as far as the village is concerned.

The incremental value is held in a segregated fund, which offsets infrastructure improvements the village invests in. When the district closes, and the Radisson district closes in 2033, the incremental values are then spread out among the taxing entities, and the tax base as a whole increases.

The village initially proposed a more modest $6.5 million plan with hotel owners to make development equitable at the Falls Inn, which fell through. The owners secured about $500,000 to begin demolishing the hotel, but a longer line of credit shriveled up with the banking collapse.

It was at this time the village considered being the lender to spur the project, which was at a standstill.

“The idea of the village being the lender for the hotel was a last resort, not a first resort,” Fitzgerald said. “That decision was made with as much trepidation and as much concern as any decision made while you were trustees of the village.”

In 2006 the hotel was assessed at $1.8 million dollars. Now, it stands at $9 million. Further west on Main Street, the base value of the Pilgrim Village shopping center was $5 million, and has risen to $9 million with the addition of the Walmart Neighborhood Market development.

By 2033, the village's conservative estimates show the entire taxing district will jump from a base starting value of $33 million to $90 million.

Toward the Future

Radisson General Manage Dan Gaab also spoke Monday and had positive news to report from the inside of the hotel. He said things overall have been going well. The receiver has appointed an outside consulting firm, Kinseth Hospitality Companies, which will provide extensive support for hotel operations.

Gaab said the outside management group has reinvigorated the leadership team at the hotel, and morale is high.

“It helped stabilize things from staff morale. It’s kind of good to look in front of us rather than what’s behind us,” Gaab said. “(Morale) takes a dip every time certain things come out in the press, but we’ve been focused on keeping people positive.”

Gaab said the hotel continues to be rated highly, according to an independent team of hospitality assessors. The company collects survey data from guests, and ranks Radisson Hotels in geographical markets. The Radisson is ranked seventh out of 38 hotels in its the most local division.

“Actions speak louder than words. The proof is in the pudding. Our guests are telling us their positive experiences about our Radisson. I don’t know what could be more positive than that.” Gaab said.

One guest in the audience, Menomonee Falls Taxpayer Association President Steve Walcenbach, was also looking toward the future. But he was looking at Village Board newcomers Bonnie Lemmer and Jeremy Walz.

“I am here tonight to offer congratulations to the new members of the board. Congratulations on your electoral win,” Walcenbach said. “Our group appreciates that you stepped up and took on this opportunity to change this board’s tendency to use taxpayer money for private business.”

Although the opponents of the hotel are outspoken, Fitzgerald said there’s a growing segment of the population that just wants to move forward and support the hotel, and help it become as asset to the village. Trustee Sharon Ellis said information will be key to moving forward. 

“If there is a citizen with the best interests of the village in mind, it would behoove them to sit down and review the information so they can be best informed before communicating uninformed messages to the press,” Ellis said.