Nov. 20, 2011--The owners of the new Radisson Hotel in Menomonee Falls, which was financed with a $17.65 million village loan, are facing a civil fraud lawsuit tied to private financing for the hotel's development.

As a result, the 135-room hotel could soon be operated by a court-appointed receiver -- just six months after it opened.

That would shift control of the property away from Lodging Investors of Menomonee Falls LLC, a group led by Madison-area hotel operator Dean Grosskopf. His group borrowed money from the village in 2010 to convert the dilapidated former Falls Inn into the upscale Radisson, which opened in May on Main St., just west of U.S. Highway 45.

Grosskopf and his partners are scheduled to make their first loan payment, of $700,000, to the village this month. Village officials, who receive regular reports on the Radisson's financials, say the hotel has been performing well.

But, added Village Manager Mark Fitzgerald, "It wouldn't be appropriate to say we're not concerned. We certainly are."

For now, the village continues to monitor the litigation, Fitzgerald said. He declined to say what actions village officials might take.

The Village Board recently met in closed session to discuss the lawsuit. The Wisconsin open meetings law allows closed sessions to discuss possible litigation but requires any action be taken in open session.

The appointment of a court-appointed receiver would complicate the village's relationship with Grosskopf and his partners. It also would give Minneapolis-based Radisson Hotels International Inc. the right to terminate its franchise agreement with Lodging Investors, according to the village's loan documents.

However, a receivership wouldn't automatically lead to the franchise being dropped, as long as the hotel is properly operated, said Radisson Hotels spokeswoman Joan Cronson.

The group led by Grosskopf is being sued in Dane County Circuit Court by groups led by Madison investor George Raupp.

Raupp is a principal in two separate groups that own Fairfield Inn hotels in Green Bay and Beloit managed by Professional Hospitality LLC, a hotel management firm that lists Grosskopf as its president.

The suit contends Professional Hospitality took $376,437 from the Green Bay hotel's short-term investment account, and $821,740 from a similar account operated for the Beloit hotel, and wrongfully diverted that money to the Radisson.

Professional Hospitality tried to hide the transfers by continuing to show on monthly balance sheets that the funds remained in those accounts, the suit says. Raupp, in court documents, said he learned of the transfers in the fall of 2010, when Grosskopf allegedly admitted the funds were used to help finance the Radisson.

Grosskopf denies those claims, saying any investments made by Raupp's groups were properly documented on financial statements.

In court documents, Grosskopf said funds taken from the Fairfield Inn hotel accounts were to reimburse Professional Hospitality for bills it paid on behalf of the hotels' owners. None of the funds from Raupp's groups were used to develop the Radisson, Grosskopf said.

Raupp, in his lawsuit, also claims Lodging Investors of Menomonee Falls is either insolvent or "in imminent danger of insolvency."

As proof, the suit cites construction liens filed in Waukesha County Circuit Court claiming overdue bills from the Radisson's development. Raupp wants Dane County Circuit Judge Juan Colas to appoint a receiver to operate the hotel.

Grosskopf responded in court, saying the hotel is not insolvent and there is no judgment pending against Lodging Investors. A court hearing on the receiver request is scheduled for Wednesday.

The largest construction lien pending against the Radisson's owners was filed in August by Gil-Her Ltd., the project's general contractor. Gil-Her, of Sun Prairie, says in the lien that it's owed $2.8 million from construction work completed in June. The firm's owners couldn't be reached for comment.

The Radisson's financial performance has been "within a normal range for a new hotel," said Lawrence Drabot, attorney for Lodging Investors. He said Lodging Investors is working to pay the money owed to Gil-Her.

Meanwhile, there are public signs of financial trouble for Professional Hospitality, and Grosskopf.

Professional Hospitality was evicted this year from its Madison offices and now operates out of Grosskopf's Waunakee home, according to online court records. The firm's former landlord has a judgment of $44,857 pending against Professional Hospitality.

Grosskopf faces a $401,402 judgment pending from a foreclosure suit that targeted a commercial building in rural Westport, according to court records.

Also, judgments totaling $548,363 against Grosskopf are pending in Door County, where he owns a Sturgeon Bay condominium that's facing foreclosure, according to online court records.

Finally, another Dane County foreclosure suit has been filed against Grosskopf by James Heyden, a Brookfield-based real estate investor and Lodging Investors partner.

Those lawsuits don't reflect on the financial performance of the Radisson and its ability to repay the village loan, said Fitzgerald, the village manager. The hotel was projected to have an average daily rate of $118 and average occupancy of 57% during 2011, with those performance indicators projected to improve in 2012 and later years, according to loan documents.

Along with the hotel serving as collateral for the loan, Grosskopf and his partners provided a $1.25 million cash bank account, controlled by the village, to cover any short-term financing gaps.

Grosskopf and the other Lodging Investors owners also provided personal guarantees that the loan will be repaid. Each owner had net worth ranging from $2.7 million to $7.2 million as of last year, according to village loan documents.

The Village Board in April 2010 voted to finance the conversion of the former Falls Inn into the Radisson. The $17.65 million loan, plus interest, is to be repaid by 2026, with $4.1 million in principal due over the next four years.

The board took that action after Grosskopf and his partners started the project in 2008 but were unable to obtain private financing to complete the conversion when global financial markets nearly collapsed that year.

Without the village loan, the project probably would not have been completed for several years, which would have left a high-profile eyesore, Fitzgerald and other village officials said.

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