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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.”

Sarah Millard 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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