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How Radisson Hotel Owners Stiffed the Subs in Wisconsin

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Barry Bloom, owner of Assured Power in Milwaukee, Wis., knew something was wrong last year in the late stages of a renovation project to create a new Radisson hotel in nearby Menomonee Falls.

Four months after the soft opening, the general contractor filed a $2.8-million lien on behalf of the subcontractors. The hotel’s owners insisted that funds were still available to pay all of the subcontractors, but Bloom says he never received the last of his draws after work was done.

Bloom decided to take action after he found among the project documents a list of the other subcontractors. “I thought, it’s kind of strange I’ve never talked to these guys,” he says. “So I started calling them, one by one.”

They had similar stories to tell. Most said that they had been only partially paid; some claimed that they never received any reimbursement. Bloom found himself organizing the subcontractors into an email list and encouraging them to take their plight to the public.

They may be in for a long wait. The Menomonee Falls Village Board, which provided a $17-million loan to the hotel’s owners so they could refit it as a Radisson franchise, has moved to foreclose on the loan since the  developers missed the first two payments. Because the village’s claim for legal remedy outweighs that of the subcontractors, there is a possibility that the missing payments will never reach the contractors’ mailboxes.

On June 25, Menomonee Falls named the subcontractors defendants in the foreclosure filing—because the village and subs now are competing for the same funds.

Should village officials have seen trouble coming when the developer had legal problems early in the project? Or was Menomonee Falls taken in along with the subs by a financially-challenged development team? (See Interactive Timeline below)

One possible sign: The development group included two owners of a Wisconsin general contractor that was performing the renovation work, Gil-Her Construction, Inc., and one of the owners filed for bankruptcy protection about six months after the village approved the loan to the project.

So far, the subcontractors’ efforts to be recognized have gone unrewarded. The village board has responded to their publicity campaign only with a “no comment.” More than a year after the hotel began accepting guests, some subcontractors are waiting to see if the subcontractors will be compensated at all for what they are owed. On July 2, residents attended the village board meeting public comment session and expressed their frustration over the original loan agreement and the unpaid subcontractors.

What started as an email list grew as the Radisson subcontractors reached out to the local media and attended village board meetings to speak during public comment sessions. Unfortunately, public comments at these meetings are entirely off-the-record, and according to Bloom, “our requests to be placed on the agenda have been denied every time, citing pending litigation.”

One of the subcontractors seeking the village board’s attention is Horner Plumbing. The company’s controller, John Haubner, says “at this point we’re pleading our case to get a little sympathy from the village board, to get them to not cut us out.”

Haubner adds that it’s been a one-sided conversation: “They haven’t talked to us, they haven’t given us a sign of what they intend.”

At their last billing in summer 2011 Horner Plumbing expected payment of $80,000, or 10% retainage on Horner’s contract.

No Communication

Likewise, subcontractors claim that neither the Radisson’s owners—Lodging Investors of Menomonee Falls, LLC—nor the ostensibly defunct general contractor—Gil-Her—have communicated to them since early last year, when all parties were still promising timely payment to the subcontractors.

When contacted by ENR, Village Manager Mark Fitzgerald said only, “We don’t comment on matters of litigation.” The village’s attorney, Randall Crocker, supplied a formal statement on the foreclosure but refused to comment on whether any potential outcome for the legal case could involve payment for the subcontractors.

The village’s loan came after Lodging Investors formally acquired the independent hotel’s property in 2006 from prior owner James Heyden, who is now the majority owner of Lodging Investors. Court documents show that the investors sought funding from the village for the renovation in February 2009; the village board approved a $17-million loan on the property, which was assessed that year at a fair market price of $1.84 million, in April 2010.

Subcontractors say that, in general, work on the hotel went as expected with some minor delays and change orders, even after general contractor co-owner and development investor David Gilbert filed for bankruptcy in October 2010.

Bloom says his last correspondence with Gil-Her was just a copy of the paperwork for the $2.8-million lien, filed on behalf of several subcontractors, in August 2011. He adds that although he had no way of contacting the general contractor, the village encouraged subcontractors to continue work, which included change orders for wiring to the hotel’s signage and installation of emergency hallway lighting after the hotel’s soft opening the previous May.

“With the economy right now, a 10% margin on a job like this would’ve been excellent,” Bloom says. “We essentially did this work for free, and we could’ve said no to finishing work that we were asked to do after the general contractor left.”

Haubner is in a similar situation: “In this particular economic climate, the profit on jobs—even on large jobs like this—is less than the retainage. We don’t have a 10% profit, not even close.”

No Payments on Loan

Since the Radisson opened for business, it has been operating normally and, according to the village, drawing a steady stream of income. However, the developers have yet to make a loan repayment, and the village has paid this year’s franchise fee to Radisson Hotels and payroll for employees, according to Waukesha County Circuit court proceedings and public records reported by the Milwaukee Journal Sentinel.

In November, the village appointed a receiver for the hotel. Then in May, local media reported that liens for the project totaled more than $3 million. Last month, the village filed a restraining order against Heyden to restrict his access to loan collateral assets. The foreclosure paperwork was officially filed later in June.

Additionally, a May 2011 lawsuit against developer investor Dean Grosskopf and Professional Hospitality, LLC., a company which oversees Lodging Investors of Menomonee Falls among other Wisconsin hotel franchises, alleges that Professional Hospitality diverted funds from other hotel development projects’ short-term investment accounts to the Menomonee Falls Radisson.

Attorney David Frank is the current legal representative of Lodging Investors of Menomonee Falls, but he says that each of the individual investors have their own representation. “We’re going to continue to cooperate with the receiver as we have in the past” was his only official comment.

The next court appearance for the village’s case against the hotel’s owners takes place in September. Until then, the subcontractors have few viable options except to hold on and pay attention. As Nic Meyer, owner of subcontractor Nic Meyer Construction, says, “all we can do is wait to see if we’ll get pennies on the dollar, if anything.”

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