August 15, 2009 - Less than 18 months after opening, the upscale Hotel Ivy in downtown Minneapolis has fallen victim to the economic downturn that has hit the travel business especially hard.

Dougherty Funding, the hotel's lender, has sued the developers in Hennepin County District Court and on Friday a receiver was appointed for the property.

The court documents don't say whether the hotel has defaulted on its loans. Representatives of Dougherty declined to comment.

The receivership is only for the 136-room hotel at 201 S. 11th St., not the condominium tower that was developed along with the hotel or the Ivy Spa Club that leases space at the hotel and has separate ownership.

Chip Johnson, whose Turnstone Holding will serve as the receiver, said the hotel will continue operating as usual. He said that he has retained Regency Hotel Management of Sioux Falls, S.D., to help run the hotel but that its current management staff will not change. The hotel is part of Starwood's Luxury Collection and is keeping its Starwood brand, Johnson said.

Minneapolis developers Jeff Laux and Gary Benson developed the $100 million hotel and condominium project after acquiring the historic Ivy Tower near the Minneapolis Convention Center in 2000. The tower and a new 19-story building are the hotel portion of the development. A new 26-story building houses the condo units.

The hotel got off to a rough start, opening behind schedule in March 2008. The owners are still in mediation to settle a contract dispute with Bloomington-based Bor-Son Construction, the property's general contractor. Earlier this year, the management team and the chef in its restaurant were replaced.

The hotel owes about $4,700 in taxes and penalties for this year and has delinquent taxes for last year, according to Hennepin County property records.

Laux was not available for comment Friday, but in an interview last month he said occupancy had been "terrible" from January through April this year. He said that business had begun to pick up recently and that the hotel was starting to increase room rates it had previously cut in order to attract business.

General Manager Chuck Paton said Friday that year-to-date occupancies are up 40 percent from 2008 and that event business has doubled.

Susan Feyder --612-673-1723

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