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Owner of Appleton, Wisconsin Hotels, the Radisson Paper Valley
Hotel and the Holiday Inn Neenah Riverwalk, Defaults on
$27 Million Balloon Mortgage Payment

City Planners Concerned about Possible Implications on Nearby Proposed Exhibition
Center Yet Business Continues as Usual During Receivership Process


By Larry Avila, The Post-Crescent, Appleton, Wis.McClatchy-Tribune Regional News

June 02, 2012--The owner of the Radisson Paper Valley Hotel in Appleton and Holiday Inn Neenah Riverwalk has defaulted on a $27 million balloon mortgage payment, casting uncertainty on the future of the two properties.

The Radisson and the Riverwalk hotels will continue to operate normally for now and the hotels' 365 employees will keep their jobs, said Dennis Langley, a partner with Illinois-based Montclair Hotel Investors, which owns and manages the properties.

All scheduled events and contractual obligations will be met, Langley said in an exclusive interview Friday with The Post-Crescent. That includes weddings and the Paper Valley's ongoing contract to host NFL teams that are playing against the Green Bay Packers.

In the crossfire

The receivership process, however, could have serious implications for the proposed $20 million downtown exhibition center that planners hoped to lock in this summer.

For months, the city and a board of developers had been working to hash out a memorandum of understanding with Montclair and the managers of the Paper Valley. That agreement would spell out the responsibilities of each of the parties involved, including managing the proposed 30,000-square-foot exhibition space.

Walt Rugland, who spearheads the Fox Cities Exhibition Center Inc. group, said the debt problems of Montclair do not jeopardize the expo center, but delay it.

"The refinancing of the hotels will delay our ability to follow up our memo of understanding with a definite lease agreement in the near future," Rugland said. "I don't know how long this will take."

Brian Jacobsen, chief portfolio strategist with the investments group at Wells Fargo Funds Management in Menomonee Falls, said the worst-case scenario would be a receiver closing the Paper Valley until the property is sold.

"If the cost of running the place is really high relative to the revenue it brings in, the receiver could decide to do that," Jacobsen said. "If the place is usually busy and the rooms are usually occupied, that should be an issue."

Jacobsen, a Fox Cities native, said the Paper Valley is a popular destination for meetings and special events, adding the receivership process is designed to keep the facility operating normally.

"Considering the place's popularity, I cannot imagine that anything will change that the public would notice," he said. "I suspect that it could slow things down related to the development of the exhibition center since whoever is the new owner will need to make that business decision."

Jacobsen recognizes how the uncertainty can rattle a community.

"It's always unnerving when something like this is announced, but I don't see any reason to panic or be concerned," he said. "The court will make sure it is an orderly process."

Appleton Ald. Jeff Jirschele said the receivership process may benefit the hotel in the long term.

"It's automatic to say that terrible things are happening, but this may be a prudent step to bring about some restructuring," he said. "This may be just a business step like renogiating a lease or mortgage to save money."

Weighing options

Langley said the Appleton and Neenah hotels are profitable, together generating about $17 million in annual revenues. He did not break down break down the dollars brought in by each hotel but said the Paper Valley brought in a majority of the profits.

Langley said his company had a five-year loan on the properties. The hope was the properties' value would have risen during that time, but didn't.

The commercial real estate market suffered during the recession and have been slow to recover.

"No one is lending 85 percent loan to value," Langley said.

He estimates both hotels together are worth between $18 million and $24 million, with the Paper Valley valued at $15 million.

Langley said Watermark-Montclair could have invested more money to build up the hotels' equity but decided against it.

Langley indicated the process could take from two to seven months after an Outagamie County judge agreed to slow down the immediate receivership process Friday.

Remaining focused

Rugland said a delay could add costs to the exhibition center project and delay the bonding through room tax initiatives in several communities in the Fox Valley.

While Rugland was positive about the future of the plans, the receivership inserts a load of uncertainty as to how interested the hotel's new owners will be in the exhibition center.

"The property makes a lot of good sense for a future purchaser. The value of the exhibition center to the hotel is well established," Rugland said. "Somebody that will buy it will want to continue on the path we're on."

Appleton Mayor Tim Hanna said all parties involved have made it clear the exhibition plans will not be derailed by an ownership change.

He said a new owner of the hotel will look at the work already completed by the development group and city and sign on board. Last November, Appleton's council pledged $3.4 million in its budget for the project.

"This is a $20 million asset that will be leased to them for a dollar and generate thousands of extra room nights," Hanna said. "The receivership has the potential to make our process more difficult, but it doesn't make the project any less viable."

Langley told The P-C the payment was due in November. The firm has been working since then to restructure the debt but has been unsuccessful.

Legal process

At a hearing Friday afternoon in Outagamie County Circuit Court, the Florida-based lending company LNR Partners, part of LNR Property, a real estate investment and finance management company, proposed Montclair pay what they owe, cover the lender's attorney fees and sell property to satisfy the amount due, according to a complaint filed May 1.

The lender doesn't want to take over ownership of the hotels and filed a motion to appoint a receiver, who would bring in Hostmark Hospitality Group, based in Schaumburg, Ill., to manage the property.

The lender's attorney proposed that the receiver take over immediately. The lender wants to take control of its properties as soon as possible to ensure Montclair doesn't waste money, attorney David Van Lieshout said.

There's no indication of wasteful spending in the past and rushing into receivership isn't a safe approach, Outagamie County Judge Greg Gill Jr. said. He ordered Hostmark to spend a couple of days looking at the properties and how they would transition management then present an analysis to the court next week. Then the parties and judge will determine if someone, and who, should take over as the receiver.

Montclair Hotel Investors lambasted the immediate appointment of a receiver in a memo filed in the court Thursday. Having a receiver jump in is an "inefficient and ill-defined method" of transitioning management that takes a "sledgehammer approach" inappropriate for a complex operation like hotels, the memo states.

Montclair is concerned about how employee benefits will be handled during the transition, how liquor licenses will be transferred and the impact on the proposed expo center.

"The success of the (exhibition center) is dependent upon the participation of the Radisson Paper Valley Hotel, but the plaintiff's proposed order fails to address the (exhibition center) in any respect," Langley stated in an affidavit filed in Outagamie County Court.

Optimism remains

Hanna and the city's community development director, Karen Harkness, watched proceedings from the back of the court Friday. Afterward, they stressed the importance of the exhibition center to Hostmark officials in the hall outside the courtroom.

Harkness sent a memo to city staff and the council Friday morning about the financial issues at the hotels.

The memo says Montclair expects a series of ownership and management changes in coming months, and that they will attempt to make the execution of a new memorandum of understanding for the expo center project, a condition of the new owners.

Jirschele recognizes the Paper Valley is not in financial trouble.

"Best case, (the hotel) has a sharp management team in place and have made the decision to reintrench their capabilities in Appleton," he said.

Jirschele said closure of the Paper Valley could affect future development investment.

"I'd hate to see the facility slide or go into some kind of prolonged business twilight zone," he said. "That will stop people from making investments (in Appleton) but I don't get the sense that is where this is. Montclair has been responsive, responsible and I'm hoping for a best-case scenario."

Harkness stressed that the hoteliers are not alone in facing the foreclosure process.

"This circumstance is not unusual based on the financial climate and the changing banking rules that have occurred since 2008," Harkness said. "We have faith in the strength of the Radisson Paper Valley and we have faith in the process that they have to walk through."

-- Nick Penzenstadler: 920-996-7226, or npenzenstadler@postcrescent.com; on Twitter @npenzenstadler; Larry Avila: 920-993-1000, ext. 292, or lavila@postcrescent.com; on Twitter @LarryAvila; Staff writer Jessie Van Berkel contributed to this story.

___

(c)2012 The Post-Crescent (Appleton, Wis.)

Visit The Post-Crescent (Appleton, Wis.) at www.postcrescent.com

Distributed by MCT Information Services



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