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Construction Ceases on the Half Finished 100-room, Nine-story Luxury Hotel in Downtown
 Charlottesville, Virginia; Bank Files Suit for Default on $23.7 million Construction Loan

By Brian McNeill, The Daily Progress, Charlottesville, Va.McClatchy-Tribune Regional News

March 8, 2009 - Charlottesville is unlikely to bail out the stalled Landmark Hotel project on the Downtown Mall, city officials said.

Construction has ceased on the long-planned 100-room, nine-story luxury hotel. And it appears that work will not start up anytime soon.

The hotel's owner, Halsey Minor, a millionaire co-founder of CNET, has filed a fraud and breach of contract lawsuit against the project's former developer, Lee Danielson, and the Atlanta-based bank that was financing construction. The lawsuit states that Minor wants out of his commitments to the Landmark project. For his part, Danielson said he intends to sue Minor in the coming weeks.

Specialty Finance Group, the Georgia-based bank that made a $23.7 million loan to Minor for the hotel's construction, filed a suit Feb. 24 against him and Minor Family Hotels LLC in Fulton County State Court. According to the suit, Minor has defaulted on the loan by not completing the hotel on time, making misleading statements about his finances and pending litigation, not reporting his finances to the bank as required and firing Danielson without the bank's consent.

The suit also noted several of the lawsuits against Minor, including a $25 million claim filed by a Merrill Lynch affiliate over a promissory note and suits from auction houses Christie's and Sotheby's.

The increase in the project's cost from $30 million to $50 million also raised a red flag with the bank, which said in the complaint that the proceeds of the loan and the borrower's equity contribution won't cover the difference.

"The bank's policy is not to comment publicly on any individual loan, project, or pending litigation," said Cristi Kirisits, spokesperson for the bank's parent company. "Notwithstanding that policy, please be advised that the bank categorically denies Mr. Minor's allegations and will respond to them directly at the appropriate time and in the appropriate forum."

At least one mechanic's lien has been filed against the Landmark Hotel project. Contractor Froehling & Robinson of Richmond filed a lien Feb. 10 that says Minor has not paid for $22,713 worth of services that were completed as part of the project.

With the half-finished hotel's future uncertain, some have wondered if the city of Charlottesville might play a role in helping the project come to fruition. Mayor Dave Norris acknowledged that the city has a "vested interest" in seeing the hotel project finished, but he is highly skeptical that the city will offer any financial support.

"I would be hesitant to get the city involved," Norris said. "The city is already cutting funding for capital projects -- school improvements, infrastructure, replacing the city's fire station. How could we justify spending money on a luxury boutique hotel?"

In the 1980s, the city plunked down roughly $11 million to subsidize construction and operation of the Downtown Mall's Radisson Hotel, which became the Omni. By the mid-1990s, the city managed to recoup $1.1 million of its investment, but eventually forgave around $9 million of the loan.

In the Radisson's case, Charlottesville officials saw a need for a hotel on the Downtown Mall that would serve as a linchpin for tourism and economic development. City officials argued that the hotel generated economic gains that far surpassed the city's investment.

Could history repeat itself with the languishing Landmark Hotel? Not likely, said Aubrey V. Watts Jr., Charlottesville's director of economic development.

"I'm not aware of any discussions of anyone in the city about having a Radisson-style deal," Watts said.

Watts said he suspects the hotel's owner -- whether Minor or someone else in the future -- will want to finish the project as quickly as possible. A half-finished skyscraper has expensive carrying costs, whereas a hotel would bring in revenue to help pay down the project's $24 million price tag.

The project appears to be tied up in litigation, Watts said, meaning that its fate probably will not be known for several months.

"The dust needs to settle," he said. "Then there'll be a final determination about it."

Danielson said that his understanding is that the project is "dead," at least for the time being. He believes that the matter will be sorted out in court, with ownership of the project possibly going to Specialty Finance Group. In that scenario, he suspects the bank would want to finish the project, maybe with him as the developer.

"I just want to get it done and get it done properly," Danielson said.

In the meantime, businesses on the Downtown Mall are grumbling publicly and privately about the dormant hotel project, which some have called an "eyesore" and one local blog has dubbed the "Tyvek Tower."

"Nobody wants it sitting there unfinished," said Katharine Vleck, the Paramount Theater's marketing coordinator. "It just doesn't look good. And it sort of reflects poorly on the city."

The half-finished hotel is unattractive, Vleck said, adding that it makes spooky sounds when the wind blows.

"It sounds like a haunted house," she said.

Vleck doubts, however, that the unfinished hotel project will lead to a drop-off in ticket sales for the Paramount. "It might hurt walk-up traffic a little bit, but generally the people who want to come to the theater will still come to the theater," she said.

Bob Stroh, president of the Downtown Business Association of Charlottesville, said businesses are concerned that the Landmark project will remain unfinished for a prolonged period, but are generally optimistic that it will eventually start back up.

"It's too valuable a piece of property to remain uncompleted," he said. "It doesn't make any sense to leave it vacant."

Stroh said it is hard to see the hotel project's troubles in a good light, but he nevertheless expects the Downtown Mall will see a busy spring once the re-bricking project wraps up and the weather is warmer.

"There's a lot of positives happening around here," he said.

Calls to Minor seeking comment were not returned.


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