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The Clarke Hotel's Unpaid Taxes Lead to Foreclosure Action

Sheboygan bank files a foreclosure lawsuit against The Clarke Hotel and the City of Waukesha; the city put $1.5 million into the hotel development.

The Clarke Hotel’s financial difficulties have led to a Sheboygan bank filing a foreclosure lawsuit against its owners and the City of Waukesha.

The lawsuit was filed Monday in Waukesha County Circuit Court claiming that Bethesda Development II is in default of its mortgage agreement because of the business’s failure to pay real estate taxes.

Waukesha County tax records show The Clarke Hotel is behind in paying taxes from 2011. Combined with taxes from 2012, The Clarke Hotel owes $233,009.58 in real estate taxes.

Because the taxes were not paid, Community Bank & Trust is alleging Bethesda Development II has defaulted on its two loans from the bank, now owing the bank $3.41 million. The original loans were for $3.4 million, the complaint states. A worker at The Clarke Hotel said there was no one available for comment about the foreclosure lawsuit.

The City of Waukesha is named on the foreclosure lawsuit because the city provided financing to the property via tax incremental financing. The lawsuit acknowledges the city may have claims to the property, but is asking a judge to find “that any and all interests of the City of Waukesha is inferior and subordinate to the interest of the mortgage of the plaintiff and that the plaintiff is entitled to foreclosure of any interest of the City of Waukesha in and to the subject real estate.”

The city invested $1.5 million into the hotel — money that was to be repaid to the city from the hotel room taxes and increased property taxes on the development. The room taxes are current, according to the city's clerk/treasurer's office.

But ever since the hotel opened, it’s struggled. Original partners Andrew Ruggeri and Drew Vallozzi split in 2009. They had “renovated a former crack house into $5 million boutique hotel and upscale restaurant,” stated a 2009 Milwaukee Journal Sentinel article.

Waukesha Mayor Jeff Scrima on Wednesday said the city is “rapidly moving forward in finding a solution.” The foreclosure suit is under review by the city attorney’s office.

“The city’s investment into the Clarke Hotel was created and approved by the prior administration and the prior mayor,” Scrima said. “At that time I had voiced skepticism in how the project was put together because I worked within real estate and was familiar with development projects.

“Right now our city staff is having internal discussions to lay out a plan which would get the lights back on in that building, which may involve a repurposing of that building.”

In 2009 and 2010, lawsuits were filed against the hotel and restaurant alleging unpaid bills. The restaurant previously was in danger of losing its liquor license in 2010 for unpaid taxes.

The restaurant changed hands a few times, but in September 2011 the restaurant was closed after the owner at the time, Ramon Antonio Mitre Hernandez, was in danger of being evicted for unpaid bills. The hotel has had a sign in the window since September stating the restaurant is “closed for renovations.”

Scrima said he wasn’t surprised when he learned the foreclosure lawsuit was filed.

“Over a year ago when the property first went into tax delinquency, we reached out to the ownership,” Scrima said. “They were rather non-responsive. They did finally come to us last year and ask for a property tax relief. However, we realized at that time that that was not the problem because they had little or no effort to fill the restaurant space in that building. That wouldn’t have even come close to bridging the gap at that point.

“At the same time we have seen other businesses downtown that have had (successful) restaurant space. … The problem is not the economy or the downtown location but appears to be a fundamental structural problem with how the development was put together from its conception.”

michelle January 16, 2013 at 07:15 PM
Who's Idea was is anyway to have a hotel downtown? Having a hotel in downtown Waukesha is like having the spring house back. Just an eye sore.
Waukesha Girl January 16, 2013 at 07:23 PM
Totally agree with you Jerry!! It was not a crack house to begin with - it was Cuddles. Where are Drew and Andy now? Drew is probably in Mexico bragging to them how much money he has (like he did when he was here). What's next Waukesha Big wigs?? the Convention center???? Give me a break! and yes, it will be the City tax payers who bail them out! What a JOKE our City has become.
jodi January 16, 2013 at 07:24 PM
That place never had a chance. Who wants to stay in an upscale restaurant in Waukesha. I had guests stay there while in town for my daughters wedding in 2011 the hotel service was horrible but not as bad as the restaurant/bar! After complaining to the owner we were asked to leave the establishment that is how they handled complaints. We left but they never gave us a refund!!! Crooks i am glad they are facing forclosure!
Erik Helgestad January 16, 2013 at 07:31 PM
It's sad to hear, but glad to know what is actually going on. My wife and I have stayed at the hotel twice as nights away in the past, and it was always a great experience. I've recommended it to business visitors too, and those who have stayed loved it. I hope this can get turned around quickly - there is a lot of positive activity in downtown, and if this central spot can be filled, hopefully it will boost that momentum further.
Lola January 16, 2013 at 09:47 PM
Some of you sound totally uneducated and completely ridiculous. The hotel is beautiful, and has without a doubt made the downtown area look better. I have had many people stay there, and everyone has commented on how nice it was. I understand the frustration with any business filing for bankruptcy, but please get your facts in order. To compare it to the spring house is absurd! Downtown has become incredible in the last couple if years, and those of us making a consistent effort to keep it that way are getting sick of these negative comments. The Clark situation will get turned around and downtown Waukesha will continue to do what it does best, continue moving forward in a positive direction.
Jerry Bean January 16, 2013 at 10:15 PM
Another dump downtown abandoned. Good riddance. I guess the hoards of heroin addicts wandering the streets down there will just have find somewhere else to shoot up and eat sub par food. If you want what the residents of this city ask for, bulldoze the entire area, put up an Applebee's and call it a day. The people will cheer such leadership with joy and victory!
Erik Helgestad January 16, 2013 at 11:08 PM
LOL WUT? When were you downtown last? Downtown isn't perfect, but it is a far cry from what it used to be.
Steve Edlund January 17, 2013 at 01:37 AM
Unless the City of Waukesha get's real about the assessed valuation of the Clarke Hotel, NO business will be successful. At $5 million with no parking lot your overhead with city taxes (can you say a failed TIF venture), and the BID tax, you're doomed before you open the doors. Thank goodness the former mayor and former city administrator were unsuccessful in the business venture for a stadium in Frame Park. The biggest dream was a Lake Michigan water supply from Milwaukee. 6 years and 1 1/2 million dollars later.... None of these ventures have origins to the current Mayor or current City Administrator. Sorry Common Council, these are your folly.
Big Davve January 17, 2013 at 02:27 AM
I have to agree 100% with Mr. Helgestad-WHEN was the last time you were in downtown Waukesha, Jery???!!! Maybe 10 or more years ago you could find your addicts roaming the streets, but its pretty tough these days. Have you been to People's Park, Sprizzo, Generations or any of the other hip new establishments down there. I guess not, but then apparently your idea of "cool" is APPLEBEE'S-THAT EXPLAINS A LOT!!! Let me guess, when you want to impress someone, you put on your best outfit (purchased at Wal-Mart in 1997 no doubt!) and you take them to Applebee's! Wow, what a great place, with all of the schloky memorabilia on the walls and the cookie-cutter food and drinks. Just admit, you are not just a loser, you're a loser with no style!!
Jerry Bean January 17, 2013 at 02:39 AM
Just last week I was down there and there were junkies asking for money and I'm pretty sure another one was looking for open cars. I heard some junkie kids were trying to steal the bathroom fixtures out of one of those places that night too. The vast majority of Waukesha residents don't want any Sprizzos or those other subpar places. Chilli's and Applebee's have multiple locations. Why? because people find their food much better than other places. It's a basic free market principle. If Sprizzos was so good there would be 100 locations, but there is only 1.
Big Davve January 17, 2013 at 03:19 AM
I don't need to ad a thing to your comments Jerry, you said it all yourself! Now, I think its time for you to get down to Wal-Mart and pick out your new wardrobe for your 15th trip to Disney World, you'll love it there, lots of bland strip malls chock full of Applebee's, Chili's and everywhere else a total DORK would want to be! Don't bother planning a trip to NYC, London or anywhere like that, someone might hit you up for a quarter and ruin your whole trip!
Ron Kading January 17, 2013 at 03:58 AM
Thank you Steve for putting the blame where it belongs!
Erik Helgestad January 17, 2013 at 04:24 AM
Jerry, that is your opinion, and I thank you for sharing that. I may disagree and shake my head at you, but that's your right. I cannot say I have had the experience you've described ever living downtown for the last year. I go walking nearly nightly with my wife and dog, and have never seen the activity you have described. I do hope if you were witnessing illegal activity, you notified the police. I typically walk around and through downtown and around the college, library, and have had by and large no real issues. Truthfully, i can only really think of two negative experiences, the worst, if you can call it that, was encountering a few intoxicated patrons getting into a cab late one Friday evening recently, and they all stopped to say hello to my dog. Harmless, happy people, getting a ride home in a cab. Not trying to discount your statement, I've just never encountered it. I do have an honest question though: what do you think of downtown Milwaukee then, or Madison, Chicago, Minneapolis, etc, with various single location restaurants? Have you never enjoyed a hearty breakfast at a corner restaurant up north? Grabbed a burger from Sobelmans? Enjoyed the view from Lake Park Bistro? Drank a Sprecher, Lakefront Brewery, Point, or New Glarus beer? Not every business has to have dozens of locations to be successful from what I can see.
Atron January 17, 2013 at 04:57 AM
Where was there any secure car parking where your car wouldn't get ripped off?
fromjanesville2waukesha January 17, 2013 at 05:19 AM
I've been the the Clarke several times. Nice place which was destined to fail. Thanks "city leaders."
Biff Ripone January 17, 2013 at 05:56 AM
I was never sure about the idea of a small, luxury hotel in downtown Waukesha, but I see some people here sure don't appreciate was they have and what has happened in the downtown area recently. @Jerry Bean-At first, I thought your comment was meant to be sarcastic, but after reading your follow-up, I think you might actually be serious. You would honestly prefer to see an Applebee's down there? Seriously? Using your "restaurant logic" then I guess the best restaurant in the whole world would be McDonald's, hands down!!! Boy have I been dumb, all of these years spending so much money on the occasional fancy dinner at some highly rated "fancy" restaurant, looking for a great meal, when I could have just gone through the drive-thru! But seriously, don't you realize what a gem you have there? I used to live in Waukesha, now I'm near Oconomowoc and I could only wish that downtown Oconomowoc was as eclectic and fun as downtown Waukesha. Do you think ANYONE drives 15 miles to go to an Applebee's or a Chili's? You can find those places anywhere. If you were going on an all-important first date with someone you really wanted to impress and show that you were a cool, fun person -or if you're married and your wife has been bugging you for a special date night, you would seriously pass up taking her to a cool and totally unique place like People's Park, where you can even sit on the rooftop deck during the warmer months, to take her to Applebee's???!!! That just blows my mind!
Victoria Hekkers January 17, 2013 at 02:26 PM
If I am not mistaken, City Administrator Jim Payne, was involved in the Clarke Hotel developers agreement. Lori Luther came in on the tail end and from what I heard she was pretty surprised by what the city had gotten itself into.
N Schmidt January 17, 2013 at 03:26 PM
What's most alarming about this is how delusional the mayor is. Or, if we give him the benefit of the doubt, how little he's learned about TIFs and the role and power of the city. Unless the mayor's gonna buy it at auction (perhaps, now that's he's gotten a raise and pockets his full salary), exactly what role does he expect to play in "repurposing" the property?
D A January 17, 2013 at 03:46 PM
Every citizen ought to read the MINUTES to the SPECIAL FINANCE COMMITTEE from Tuesday, April 17, 2007 6:00 pm. This is where Alderman Pieper and Francoeur knowingly justified, despite warnings, what the meeting minutes called an “unusual” and “risky” direct cash contribution from the City to the Developer in the amount of $1,500,000, with NO personal guarantees from the developer and NO third party evaluation of the hotel and restaurant income. These are the types of deals that elected officials and city staff could go to jail for. Sarah, can you get these meeting minutes and post them in their entirety on the Patch?
Victoria Hekkers January 17, 2013 at 04:14 PM
Hi DA, I do have the minutes from the 4/17/07 meeting and do not see what you are mentioning above. In fact, from what I can tell Pieper abstained from voting.
fact check January 17, 2013 at 05:57 PM
Rotten fish smell better than how this deal was put together. Alderman Pieper was there in those meetings and voted for it on the council floor. This is clear from the meeting minutes. And it even smells worse now because Victoria Hekkers is defending this stench.
Arianna January 17, 2013 at 07:18 PM
I feel sorry for the staff at the hotel I have stayed there quite a few times and had relatives stay there it is a great place with good service I hope they are treated well and those grumpy about how the deal was put together remember there are peoples jobs at stake here too.
Steve Edlund January 17, 2013 at 07:22 PM
Former City Administrator Payne quit shortly after this really bad deal for taxpayers was inked. It's almost as if he was forced to make the deal and he didn't want to accept responsibility for making it happen. Read today's Freeman for further insight. The former Mayor then hired the next CIty Administrator, Lori Luther under an Employment Agreement she wanted changed in closed session when held accountable by the new Mayor when the former Mayor lost re-election.
Victoria Hekkers January 17, 2013 at 07:39 PM
After me again? I have the minutes to the meeting and responded accordingly. I am not defending anyone and I am not anonymous.
Sarah Millard (Editor) January 17, 2013 at 10:32 PM
So it's too late to go back and change an agreement made several years ago. What should happen moving forward?
Steve Edlund January 18, 2013 at 12:10 AM
That's up to the courts. I wouldn't think the owner (whoever they are) of Bethesda Development II isn't just going to roll over. But if they do walk away, that property will sell at auction for a fraction of the assessed valuation. Hey Joe, I see a great opportunity for a new Pizza place.
Sandra January 18, 2013 at 03:40 AM
So Sarah, who is going to pay the unpaid property taxes and the $1,500,000 back to the city taxpayers?? Until the original problem is well defined, it can’t be solved. Those council members, including Pieper and Francoeur, were clearly part of the original problem. And is anyone surprised that Victoria Hekkers is playing the victim?
Biff Ripone January 18, 2013 at 04:25 AM
Yes, the Clarke project itself does look like its going to turn out to be a real boondoggle, although when you honestly take into account the effect it had on the surrounding area, it MIGHT not be such a bad deal after all. As was mentioned, they will have to get the tax value down to its real market value, $100k a year in property tax kills just about any idea I can think of for that place. I know there always has been an attitude shared by many Waukesha residents that the whole project was a complete waste at best. I know several of them and they do have good points against the project and its results, but they're part of a group of people in the area that just hate the downtown and don't want a cent spent to improve it. I think that attitude comes from the fact that they haven't been down there in years and don't appreciate the rebirth of the downtown area at all. Its still not 100% perfect, but its a night and day difference from how it was 10+ years ago, when you had prostitution and drugs everywhere, all sorts of crime happening all the time. Now, look at all of the new businesses that have opened up in the time since the hotel was announced, I think the ball was slowly rolling the right way downtown before, but once that hotel was announced, things really began moving fast! Yes, there are still some weirdos hanging around, but they have more to do with the fact that the county's social service programs are all there. I think overall, its been a plus for the city.
Ron Williams January 18, 2013 at 07:57 AM
I do not pretend to know all the ins and outs of Waukesha politics, but all cities have their challenges. I live full time in a Chicago cookie cutter suburb that is O.K. but is very bland, I recently (6 months) purchased a condo downtown because of the great things happening there, the shops, places to eat and Friday Night Lights are awesome. I plan on moving there permanently when I retire.This is a bump in the road, redevelop or repurpose the Clarke and it could be the center piece of an exciting and unique part of a great city. You should know that you live in a wonderful place and support the efforts to make it even better.

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