|By Samantha Koon, The Daily Progress,
Charlottesville, Va.McClatchy-Tribune Regional News
March 20, 2012--Downtown Charlottesville's most famous eyesore appears headed for auction, and already, competition for the skeletal remains of the Landmark Hotel is heating up.
Though Milwaukee-based businessman Timothy J. Dixon offered to buy the hotel property for $2.8 million earlier this year, several other potential bidders have expressed interest, threatening to outbid him at auction.
A bankruptcy court judge on Monday asked attorneys representing various groups with interest in the project to work together to create a plan for auction procedures, and submit it within 10 days.
Rich Maxwell, the attorney representing Minor Family Hotels, said he has heard of several other interested parties who may be willing to pay more than Dixon to take over construction on the property.
The project was announced with fanfare in early 2008, and was expected to be completed in 2009. Intended to be a 100-room, nine-story luxury hotel for the Downtown Mall, construction on the Landmark Hotel got bogged down in disputes between developers, suits and countersuits, and ultimately, ended up in bankruptcy court.
Construction on the hotel was halted in 2008 as current owner Halsey Minor, a local resident who made his fortune in part through his involvement with Cnet.com, faced mounting legal and financial challenges. Minor will use the money from the hotel's sale to help pay off the more than $17 million in liens against the property, including more than $13 million from Specialty Finance Group of Georgia, which was involved in financing the hotel.
"We're not going to get $17 million for this hotel," Maxwell told Judge William E. Anderson Monday afternoon. He said that the property is currently valued at $2.1 million, and that he was shocked when Dixon first offered $2.8 million for the skeletal structure.
Maxwell and the lawyers representing several of the project's creditors disagreed on the best way to auction off the property.
Maxwell and Craig Young, an attorney representing the case's unsecured creditors, suggested that the auction be held in court June 18 and recognize the top two bidders -- the auction's winner and a "backup bidder" -- so that the backup bidder can close on the hotel if the first-place bidder proves to be unable.
As a further security, Maxwell and Young suggested that the auction's winner put down $200,000 on the property to prove that he is financially able to take on construction.
Maxwell and Young said that Dixon has invested approximately $200,000 in the Landmark Hotel already in due diligence -- an investigation on the investment -- and on marketing studies, which Maxwell said will be made available to other bidders at no cost. For that reason, Maxwell and Young agreed that Dixon should be exempt from the down payment should he be the winning bidder.
Young suggested that the court require potential bidders to include a breakup fee of $100,000 in any bid. A breakup fee is intended to compensate a prospective buyer for his investment in a property. This means that any competitive bidder needs to offer $150,000 more than Dixon, which means at least $3.2 million.
"[Dixon] is the classic stalking horse," Young said, meaning that Dixon made a high first bid that will ensure that a property is sold for a significant amount of money.
Maxwell told the judge that Dixon currently owns a boutique hotel in Milwaukee, the Iron Horse, and that he thinks Dixon can make the Landmark Hotel a similar success.
"We think he has the ability to bring that type of hotel to the mall in downtown Charlottesville," Maxwell said.
A number of lawyers representing companies with liens against the Landmark Hotel spoke out against Young and Maxwell's proposed plan.
John Maddock, an attorney representing Specialty Finance Group, said that the proposed plan gives Dixon an unfair advantage because it does not require any further financial commitment from him.
"In other words, Your Honor, if Mr. Dixon feels like purchasing the hotel he will, if he doesn't he won't," Maddock said. Moreover, if Dixon is not the highest bidder, he still gets paid.
"If you are going to serve as a stalking horse, you've got to put something out there. We've got nothing," he told the judge.
Several lawyers also spoke out against the proposed June auction date, saying that their clients have already waited long enough to be paid.
Anderson also expressed interest in auctioning the property as soon as possible.
"We want everything on a level playing field," he told the small crowd of attorneys gathered in the courtroom. He also declined to rule on the proposed breakup fee.
"I'll take it under consideration, but it will be 30 -- 60 days before I get an answer to you," Anderson told Maxwell.
Should the attorneys be unable to reach an agreement, they will meet at the bankruptcy court's hearing in Lynchburg on April 5.
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