March 23, 2013--After financing construction of the Radisson Hotel in Menomonee Falls, village officials now are pursing a foreclosure sale over the project's defaulted loan -- while also spending additional cash to keep the hotel open.

A public auction for the 135-room hotel, which opened less than two years ago, could occur this year. That would be a big step toward attempting to recoup the community's $15 million -- and growing -- investment.

"There is an endgame," said Mark Fitzgerald, village manager.

But getting there involves more expense, including attorney's fees and cash advances to help cover the hotel's operating expenses and taxes due to the village. It also means confronting rumors that the Radisson will close, which has led to dozens of canceled weddings and other events.

The village's approach is being criticized by Jim Heyden, the hotel's majority owner. He says the hotel's management structure, in cluding a court-appointed receiver who reports to the village, is cumbersome and hurts the Radisson, which is on Main St., just west of Highway 45.

A new round of village funds to help the hotel pay taxes and issue employee paychecks shows that the Radisson is in trouble, said Heyden, who's fighting in court with both the village and other hotel investors.

Those cash advances were needed because the Radisson, like most Milwaukee-area hotels, earns lower revenue during the winter, when leisure travelers disappear, said Fitzgerald and Randy Crocker, the village's outside attorney.

Unlike most hotels, the Radisson is tied to lawsuits that prevent it from using a bank line of credit to cover its operating costs during slow periods, Crocker said. The Radisson's owner, Lodging Investors of Menomonee Falls LLC, is expected to repay those funds by May, he said.

Despite the canceled events, the hotel is otherwise performing well, said Seth Dizard, the Radisson's court-appointed receiver. He and Crocker declined to provide the Radisson's occupancy level and average daily rate, saying the information could be used by competing hotels. A spokesman for Minneapolis-based Carlson Cos., which owns the Radisson franchise, declined to comment.

Heyden disputes claims that the Radisson is doing well, saying the hotel isn't profitable.

More cash advances

Despite owning 77.5% of Lodging Investors, Heyden is somewhat of an outsider. Lodging Investors' managing member is Dean Grosskopf, who is fighting Heyden in court. Grosskopf founded Madison-based Professional Hospitality LLC, a now-inactive company that managed the Radisson and other hotels.

Meanwhile, Heyden can't make unsupervised visits to the property because of Dizard's claims that Heyden took funds from the hotel, which Heyden denies.

The Radisson opened in June 2011. It was completed later than expected after problems with the construction project's general contractor, the now-defunct Gil-Her Ltd.

The Village Board in 2010 had unanimously approved a $17.65 million construction loan to Lodging Investors after hotel renovations halted because of the 2008 global financial crisis. The half-completed hotel was hurting efforts to redevelop other nearby properties, including a shopping center at Main St. and Pilgrim Road that has since been completed, Fitzgerald said.

After Lodging Investors missed payments on the construction loan, the village filed a foreclosure suit in June. The village claims it's owed $14.8 million in principal, plus interest.

The village delayed action on the foreclosure claim while pursuing settlement talks. Crocker said those talks have since broken down, which Heyden's attorney, Lynne Mueller, blames on the village for not responding to Heyden's proposals. Crocker declined to comment on those proposals.

A Journal Sentinel review of public records found the village had made cash advances last spring totaling about $177,000 to help the hotel pay its employees and to pay a franchise fee to the Radisson chain.

Crocker said last June that no further advances were expected. But the hotel, faced with lost business, returned to the village for additional cash.

So far, $395,000 has been advanced, with $36,000 of that amount repaid, Fitzgerald said.

The latest cash advances, totaling $218,000, occurred in February and March, Fitzgerald said. They paid the Radisson's first installment of its 2012 property tax, overdue state sales tax, and the hotel's payroll and other operating expenses.

The advances come from the village's construction loan proceeds, which were raised by selling long-term bonds. That cash also is paying the village's attorney fees, which have not yet been totaled, Fitzgerald said.

Plan to keep hotel open

The latest advances were needed in part because 45 planned weddings and other hotel events were canceled over the last six months, Crocker said. He and Fitzgerald said the cancellations are tied to news reports about the hotel's problems, leading to unfounded fears the Radisson will close.

"Short of a meteor hitting it, that hotel is not going to close," Dizard said.

Such public statements could prevent additional cancellations, said hotel industry consultant Greg Hanis. It's not unusual for a hotel to tap a bank line of credit to pay operating costs during seasonal lulls, said Hanis, who operates Hospitality Marketers Inc.

The Radisson is an attractive hotel in a good location, he said. It attracts business travelers generated by Kohl's Corp.'s headquarters in Menomonee Falls, as well as the nearby Park Place and Woodland Prime office parks.

He added that hotels typically lose money during a start-up period.

"I think it has a lot of potential," said Hanis, whose firm worked with Heyden several years ago to redevelop the property.

The Radisson's managers must do a better job of planning for seasonal shortfalls, Hanis said. Typically, hotels are better operated by a manager with an ownership stake and without a court-appointed receiver, he said.

Heyden said the hotel's problems are due in part to poor management after Dizard restricted his visits to the property.

Among other things, Heyden cited the village's delays in ending Grosskopf's $14,000 monthly contract to help manage the Radisson. That contact was terminated after Waukesha County Circuit Judge James Kieffer granted Dizard expanded receivership powers in February.

As a court-appointed receiver, Dizard said he couldn't end Grosskopf's contract without Kieffer's permission. Kinseth Hospitality Cos., a North Liberty, Iowa-based firm that operates more than 90 hotels, has been hired to manage the Radisson.

With the village already on the hook for almost $15 million, it makes sense to make the cash advances to keep it open, Hanis said.

"The hotel is going to be far more valuable if they invest in it than if they close it," he said.

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