The Clarke Hotel's Unpaid Taxes Lead to Foreclosure Action

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.”