Jan. 19, 2013--A boutique hotel in downtown Waukesha that received $1.5 million in city financing is facing a foreclosure suit.

The owners of the 22-room Clarke Hotel, 314 W. Main St., defaulted on a pair of loans from Community Bank & Trust after failing to pay the hotel's property taxes on time, according to the suit filed in Waukesha County Circuit Court.

The hotel remains open, but it could end up being owned by Sheboygan-based Community Bank or a new investor if the lawsuit leads to a foreclosure auction.

The suit says in December 2007 Community Bank made two construction loans totaling $3.4 million to Bethesda Development LLC, led by Andrew Vallozzi. The Clarke Hotel opened a year later within a renovated former rooming house.

Those loans are due May 18, according to court documents. That extended due date was part of a refinancing agreement that included a third loan of $249,999 made in April 2011 to Gryphon Hospitality Group LLC, led by David Colletti, which is not named in the foreclosure suit.

Neither Vallozzi nor Colletti could be reached for comment Friday.

Both Bethesda Development and Gryphon Hospitality were required to make interest-only monthly payments on the Community Bank loans before the May 18 due date, according to court documents.

But Bethesda didn't pay the 2011 property taxes, which now total $118,865 with interest and penalties, according to the Waukesha County treasurer's office. The hotel's 2012 property taxes of $114,143 also are unpaid, with the payment due Jan. 31.

As part of its construction financing, the hotel received a $750,000 city grant, which is to be repaid through its property taxes.

The hotel also received a $750,000 no-interest loan, which the owners are to repay in annual installments from 2010 through 2022, according to the development agreement between Bethesda and the city.

Information on the loan payment history and the amount repaid on the grant so far was being compiled by city staff but not yet available on Friday, said Steve Crandell, community development director.

City officials viewed the Clarke Hotel and its Black Trumpet Restaurant as part of a larger effort to revive downtown.

But the Black Trumpet and a successor restaurant, D Mo's Italian Pasta & Chop House, both closed. The hotel almost lost its liquor license in 2010 when it was late on paying its taxes.

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