Minor filing: Halsey files bankruptcy for Landmark hotel

landmarkwithMinorandDanielsonHalsey Minor, left, has been sparring with developer Lee Danielson.
FILE PHOTOS BY HAWES SPENCER AND JAY KUHLMANN

The company owned by bi-coastal Internet millionaire Halsey Minor to develop the stalled Landmark hotel on the Downtown Mall declared Chapter 11 bankruptcy Wednesday, September 1, in the federal bankruptcy court in Lynchburg.

Court filings indicate that Minor has directed the Roanoke-based law firm of Woods Rogers to handle the situation.

Minor recently won a $6.6 million victory against developer Lee Danielson in the hotel fiasco, but the two sides are slated to spar again on November 1, court records say, with a three-week trial in Atlanta, where Minor had been sued by Danielson and the project's Georgia-based lender.

The largest unsecured creditor in the bankruptcy of Minor Family Hotels LLC, which is headquartered at Minor's sumptuous Fox Ridge farm in Free Union, appears to be Minor's lawyer, Betty Shumener of the Los Angeles-based firm DLA Piper. A court document shows that Minor's company owes Shumener $3,047,360.

Despite the seven-figure debt, Shumener–- who bills her time at $790 per hour–- appears to have recently begun representing Minor in another matter after his original legal team began bailing out. On July 30, the L.A. firm of Browne Woods George asked the court to let it stop representing Minor after Sotheby's auction house conquered Minor in a $6.64 million judgment.

Sotheby's lawyer was portraying Minor as "unresponsive to prior court orders" and asserted that he has "obstructed" enforcement of the judgment. "It seems," Sotheby's lawyer John Cahill wrote in a motion, "that even Minor's own attorneys have incredible difficulty directly contacting Minor."

Indeed, Minor's lawyer, Eric George, in begging the court to leave his client behind, noted that relations between his firm and Minor have "broken down irreparably" and that communications have been "rendered impossible."

Repeated comment requests to Minor's publicist, Aaron Curtiss, have yielded no result on the lawyer switcheroo. However, in a press release dated Thursday, September 2, Curtiss quotes Minor as pinning blame for the hotel's troubles on others.

“It is unfortunate that our lenders and the FDIC have forced us to take this step," Minor says in the release. "However, the Chapter 11 process provides us with the most expeditious manner in which to resolve the litigation that has effectively shut down the project and put people out of work."

In a filing, Minor tells the bankruptcy court that he invested nearly $7 million into the hotel and asserts that the lender–- the now-failed Specialty Finance Group–- "breached its obligations to fully fund the loan." That breach, Minor alleges, halted construction and launched numerous lawsuits.

Not counting the $3 million claimed by his lawyer, Minor's company owes several hundred thousand dollars including $4,143 for an L.A. court reporter, $8,900 to architect Neil Bhatt, and nearly $15,000 for lawyer Steve Blaine, the only local name on the top-20 creditors list.

Minor is a major Charlottesville-bred success story. Having co-founded technology news firm CNet and several other successful internet companies, he amassed a fortune once estimated at over $350 million, and he once publicly expressed interest in becoming Virginia's governor.

In recent years, however, he has become the target of several creditor lawsuits. He traces his liquidity woes to Merrill Lynch, but–- perhaps bolstered by a victory over Christie's auction house–- he has begun lashing out at other perceived enemies. For instance, in July, he penned a Huffington Post opinion column to scold the FDIC as a threat to American prosperity. That same month he began accusing the Hook of unspecified defamation and warning the editor of an impending lawsuit.

When the Hook last tallied Minor's lawsuits a year ago, he had lost a suit to Merrill Lynch but was still waging a suit and countersuit against the two auction houses, at least two suits and two countersuits against the Landmark developer and its lender, and a case against the City of Hialeah, Florida over its decision to sell its historic horse-racing track. In August, he sued a company called Lithium Technologies for allegedly deceiving his venture capital firm by misrepresenting its value.

Chapter 11 is the form of bankruptcy in which creditors are typically asked to accept pennies on the dollar for the amounts they're owed. Rather than fold the company, Minor asserts in his press release that he's eager to put workers back on the job and finish the hotel. But his former business partner expresses doubt.

"This is just another stall tactic–- a big gamble–- and it may backfire on him," says Danielson, reached in California by telephone. "This is reality TV at its worst. Who would ever want to deal with this guy?"

***

Regarding the burning question of when construction might resume at the Downtown Mall's 11-story eyesore, the answer depends on such things as the willingness of the creditors to accept less than they're owed, the bankruptcy judge's view of the settlement, the outcome of the various pieces of litigation, and on the wishes of the FDIC, according to legal analyst David Heilberg,

"In a situation this complex," Heilberg notes, "a lot of dominoes have to line up."

Heilberg notes that besides the hotel shell and the property on which it stands, the only other big asset Minor's bankrupt company appears to hold is the $6.6 million arbitration award recently won from Danielson.

"Right now, that's a piece of paper," says Heilberg. "You have to collect on that."

Already, there is a luxury hotel on the hotel in the form of the $229-per-night Omni, and Heilberg figures the Omni won't get any high-end competition anytime soon.

"Someone could come in and buy it out of bankruptcy, but it could take several years," says Heilberg. "I think the real problem is the economy."

***

As this issue was going to press, a filing reminds the Hook of yet another lawsuit involving Minor, an attempted foreclosure action by Clancy & Theys Construction Company, the firm that built the Landmark shell. Minor has petitioned the bankruptcy court to move that creditor action–- along with Minor's $7 million counter-claim–- into his bankruptcy case. The court has set December 20 for a hearing at the federal courthouse in Charlottesville.

–updated 4:47pm on Friday, September 3 with the info after the first asterisks

–updated 11:02am on Tuesday, September 7 with info after the second asterisks

26 comments

no question---it is either the bank or Minor-----if the bank ends up owning it (and we will know in the next four months) then they will sell it to someone who can complete it. If Minor ends up with it he will HAVE to sell it off to someone who can complete it. No mystery here. According to various contractors it will take nine months to complete so 24 months seems pretty reasonable.....

cvllelaw- I only read the first sentence and scanned the rest. Give it up please. Keswick Hall has plans to double their number of hotel rooms. They actually do a heck of a lot of business at the hotel. The value of private golf courses is typically in the lots that surrouned them and that's why their rounds are under 10k per year. Also remember who their parent company is.

Cvillelaw---you have not the foggiest notion of what you are talking about....perhaps law is your deal....stick to it....you know not what you talk about...

@WhatHare: "Also, there is no question who gets building and that it will be finished within the next 24 months. "

That's ridiculous. There are questions on both the ownership and the timetable.

Cvllelaw, if the developer can get paid and get out early, he doesn't care whether it is viable. Same goes for the people arranging the loans in Atlanta. It would be hard to call them "bankers" in this scenario, more like deal makers. In that scenario, Danielson & the bank are not sincere, and Minor is the deep pockets they tried to tap, by stopping the loan and asking him to put in more.

In the opposite scenario, the bank & Danielson acted in good faith, Minor stopped payments, and he is either incompetent, etc., or saw the bank would soon fail.

I suggested earlier this would go to receivership (like bankruptcy), based on the very similar Milwaukee story of a mid-sized hotel project on that city's Water Street. If the Hook ever does a deep story, which is hard when the wackiness is more tempting to write about, I think the role of the bank will be key. But it may be too difficult to ever uncover. I would like to know what went on down in Atlanta, and where the Silverton / Specialty Finance Group officials ended up in their careers. The reason for my interest is that in the Milwaukee case the very same SFG was accused if colluding with one developer partner to defraud the other partner.

With a better economy, none of it would happen. But when the money runs out, parties stop paying and start demanding somebody else pay, at least in our type of finance-based 21st century economy. Apparently what we call banks even do this, if the accusations are right. I can just picture those guys down in an office in ATL trying to keep the game going one more week.

Despite all this, I'm still 50-50 on which scenario I think is more likely.

cvilelaw- Obviously you have not stayed in a decent hotel room recently nor are you familar with hotels as income producing properties. Nationally, the luxury hotel market has an average daily rate of about $230 per night with about 62% occupancy. The landmark was certainly never planned to be average. When this hotel was planned national average daily rates were around $290 with an occupancy of 71% for luxury hotels.

Boars Head was pulling in around $200 per night and Keswick was much much higher. South Street Inn pulls in $200+ per night.

The comparison of Keswick is not terribly encouraging; I understand that they have a LOT of financial troubles out there. Of course, it's a little hard to sort through how much of that is the hotel operation and how much of it is their ill-fated development operation.

No, I know that the average "high-end" room is going for more than $79 a night. The Omni is renting rooms at $200 and up (though trying to glean the average room rate from publicly available information is darn near impossible). My guess is that with corporate discounts and package deals, etc., their average room rate is somewhere in the neighborhood of $170. If there were another 100 top-shelf rooms available 3 blocks away, I'd guess that that number would be soft -- if they had to drop prices by 10% to keep occupancy rates up, we're down to $153. If we assume that the Landmark Hotel would have a typical occupancy rate -- and the average occupancy rate and the luxury occupancy rate are within a percentage point of each other -- then REVPAR comes in at rises to $94.86 a room (62% of $153). And that works out to about $33,600 per room per year. With $15,000 in amortization per room annually, that would be tough. On a national basis, labor accounts for about 45% of costs in the hotel industry. If that percentage were to hold, that's $15,000 of labor costs per room per year. Plus advertising, utilities, laundry, towels, soap, and who knows what all else. With labor and capital costs at 90% of revenue, you'll lose a lot of money every year.

Anyway, the only way that someone is going to make money on this deal is to be the guy who buys it from the fool who finishes it and then has to sell it in bankruptcy. If someone finishes it, loses his or her shirt, and then sells it for 50 cents on the dollar, the person who buys it may be able to turn a profit with half of the capital costs.

Great article Hawes, what a prick old Halsey is, just a sore loser. Go get em, tell him to take a little of that cash he has lying around and finish the hotel himeself....

A legal analyst points out why the Landmark hotel will probably stand unfinished for a long, long time (addition I just put up at end of story).--hawes spencer

I bet it won't!

The city will convince the taxpayers how using their tax dollars to finish the hotel will save the downtown mall once again and bring thousands of visitors to the city spending money.

It should be called The Radisson-Omni Annex when this happens! :)

I never understood how Danielson and Minor could have thought that it would be viable. Charlottesville has a great need for hotel rooms on weekends in the fall and spring -- perhaps 50 nights a year. Once you get beyond those 50 nights, occupancy rates drop precipitously. If I am remembering the numbers correctly, they were talking about a $15 million project, and about 100 rooms. That works out to $150,000 a room. Assuming you are amortizing that cost over, say, 10 years, that's $15,000 a room per year for just capital -- no interest. Assuming an occupancy rate of 61% (the industry average at the moment), that means that's $70 per night of occupancy, just for the building -- no staff or operating costs included. To use a statistic that hotel industry analysts use -- revenue per available room --

At the moment, the hotel industry is coming out of a bad slump, and is nowhere near the numbers necessary to sustain this project. According to a June Zack's analyst report, occupancy rates have risen to 61.3%. The average daily rate was up to $97.21. As a result, revenue per available room rose to $59.56. If the hotel performed on an average basis, it would lose money hand over fist.

If i remember correctly, it was going to be a mixed use building. The majority was going to be a hotel, but also high end condos, commercial and retail.

I posted just two or three sentences here this morning, but I've now expanded this to a 750-word story in case you'd like to check back.--hawes spencer

Watch him try and buy it for pennies on the dollar at auction. Hope somebody else out bids him. And just to beat him to the punch- no GSOE- the city isn't going to pay to have it finished!

What's scrap worth these days? I'll bid a $1 right now.

St. Halsey, the fat lady hasn't sung yet. :)

If I can jump back in here...

C'Villelaw is, I think, in the ballpark on his numbers. However, there is no way they could get that built and furnished for $15 mil., hence the initial lawsuit. And you can't really compare it to Boar's Head and Keswick, because they make a lot of money from the non-room revenue, something a resort-style destination has over a city hotel with limited function space, and restaurant alternatives right next door.If someone buys it for a buck, maybe they can make a go of it. Maybe.

cvillelaw,

Well, what you are talking about is what has become norm for so much of the business culture. Banks don't want to be regulated and manage risk, MBAs don't want to actually have to develop a plan. Don't research a market, don't understand the neighborhood you are establishing yourself in, nothing like that.

Nope. It's all just bad customers, the government, the residents, the employees. It's never the fault of those actually running the operation that should ever be responsible, even if they expect to be the ones reaping all the returns.

I'd like to think the City and some local business folks have learned something by this, but I doubt it. Posting on this forum and our political culture tells me the lesson hasn't been learned yet.

Hit the "submit" button too quick... The last sentence of the first paragraph of my comment above should be "To use a statistic that hotel industry analysts use -- revenue per available room (REVPAR) -- REVPAR would have to be about $40 just to cover the amortization. And you haven't even gotten to the biggest cost of operating a hotel -- labor." Unless REVPAR could be up over $100 -- which would require a HUGE change in the economy and the market -- this hotel will lose money in a big way.

It's likely to be demolished, due to its degraded condition. The question is who pays and who gets the land.

concrete post-tension slab buildings can stand for a long, long time with out degrading. Also, there is no question who gets building and that it will be finished within the next 24 months. Halsey Minor will NOT be the one finishing it either. His finances are such a mess and his reputation is so bad that there isn't a lending institution in the world who would give him a nickel.

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who can Minor blame for this?

"no question�it is either the bank **OR** Minor" (emphasis mine)

Ok. So there is a question.

"if the bank ends up owning it (and we will know in the next four months) then they will sell it to someone who can complete it. If Minor ends up with it he will HAVE to sell it off to someone who can complete it. No mystery here. According to various contractors it will take nine months to complete so 24 months seems pretty reasonable"

What sort of buyers do you anticipate? Cash-rich or with some special access to credit? Looming behind all of this is the sort of discussion above: does the project make business sense? I'm not at all sure it does.

i would like to know why the city allowed this to begin without a performance bond? Several city employees were completely remiss in their job responsibilities if none was required. Why>???

What's next -

As I understand it, the ceilings are too low for class A office space or luxury condos. I guess they shouldn't have squeezed in that extra floor.

Shed the old debts, and start over? As what? Like everything else Danielson did, it was impossible for that building to make a profit. I think the City should buy the derelict shell, and finish the build-out as offices. A replacement for the unattractive '70s city office building. Move all the city employees under one roof. Then demolish the current ugly cheap cinder block City Hall, and turn all that into an end of the mall park. The newer city office building next to it can be revamped to move the Charlottesville Circuit and District courts under one roof. But then I also think it should rain lollipops.

I think Minor should just put a "FOR FREE" sign on the front of it and walk.