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Scrima, former mayor Nelson, differ on Clarke Hotel's future in downtown Waukesha

Mayor calls city's loan 'high risk'; Nelson says it was 'the right thing'

Jan. 22, 2013

Former Waukesha Mayor Larry Nelson was blunt.

Before the complex located at 314 W. Main St. in downtown Waukesha was renovated into The Clarke Hotel from a flop house, it was the eyesore of downtown Waukesha.

In fact, the city closed it in 2006 for building code and sanitary violations.

"It was a building that was literally falling apart," said Nelson on the renovated Clarke Hotel. "It wasn't a building at the center of your downtown that you could be proud of. And that was the No. 1 question I got when I ran for mayor in 2006. What were you going to do with it?"

What the city did was transform that facility into a high-end boutique hotel and upscale bar and restaurant in December 2008.

During the hotel's development phase, the city gave then-owners Drew Vallozzi and Andy Ruggeri two loans worth $1.5 million. One totaled $750,000 in development incentives through tax incremental financing that would be paid back by the increase in property value and a separate $750,000 interest-free loan to be paid back in room taxes.

However, since its opening, the hotel has had numerous financial problems. Last week the Sheboygan-based Community Bank & Trust, which financed two loans for The Clarke Hotel, filed for foreclosure in Waukesha County Circuit Court.

According to documents filed in Waukesha County Circuit Court, the defendants listed in the case are Bethesda Development II, LLC., and the City of Waukesha.

Property's unpaid taxes

The documents note that the hotel's two mortgages were for $2.1 million and $1.3 million and, according to tax records from Waukesha County, Bethesda Development owes $233,009.58 in taxes from 2011 and 2012. Its property taxes are more than $100,000 and it also owed interest and penalty fees from 2011.

This comes after The Clark Hotel and Black Trumpet restaurant was also late paying more than $100,000 in property taxes and almost lost its liquor license in 2010.

In 2011, D Mo's Pasta and Chop House, located inside The Clarke Hotel, closed after opening under new management following the Black Trumpet closing.

In the meantime, Vallozzi took over management when Ruggeri left in 2009. And the hotel's most recent general manager, Anthony Colletti, has also since left.

New business model

Mayor Jeff Scrima was also direct in his assessment of the situation. He agreed that the building needed a makeover, but he said he could foresee these problems.

"At that time before I became mayor (in 2010) I had publically voiced skepticism of the project," Scrima said. "It was a high-risk investment on the city's part. Because of that, it's not surprising that we ended up at the position that we're at right now."

A position, he said, the hotel is in because of its business model, specifically the number of rooms (20 suites) in the hotel. Scrima said it does not make it profitable to operate like that in the long run.

"A brand new business model will need to be done," Scrima said. "But currently, our city staff is aggressively putting together a plan to create a solution which would get the lights back on in that building as soon as possible. That solution would probably involve a repurposing of the building and new third-party ownership."

A call for new ownership

While its website was suspended earlier in the week, the hotel has remained open amid the legal battle that has surfaced.

And Nelson would like to see it remain that way.

"Despite its current troubles, everyone can see how beautiful the renovations are and that's why I'm so hopeful that it can be successful in the future," Nelson said. "I feel strongly that the city helping in that renovation was absolutely the right thing, and I've seen it happen before where original ownership and managers might not be successful, then the new owners come in and then it becomes successful.

"Hopefully, this is just a bump in the road."

Officials talk city's involvement

Nelson added that the renovations of The Clarke Hotel attracted other businesses in the last few years to relocate to downtown Waukesha.

"There's no question that the renovation would not have happened without the TIF and I know for a fact other downtown businesses chose to come to downtown Waukesha," Nelson said. "People's Park and others were influenced by those renovations and that was a key catalyst in the renaissance of our historic downtown, which is continuing to this day."

Scrima said The Clarke Hotel was one of many contributions to the renaissance of downtown. He added that using TIFs in general aren't the problem, but added that "transforming that building could have been done differently without tax-payer money."

Still, the mayor called the building "beautiful and high-quality."

"We are committed to continue the positive momentum of downtown, in spite of this hiccup with The Clarke Hotel," Scrima said. "We're going to take this failure and bring new life into it. It might be painful but with the right planning we can and will turn that building around and better than it ever was before."

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