Hotel default: Bank sues Minor over Landmark loan
After months of public wrangling over its financing that's led to a month-long work stoppage on the Landmark Hotel, Silverton Bank has now officially thrown a gauntlet at the feet of Halsey Minor. The Atlanta-based lender has filed a lawsuit alleging that Minor has missed $10.5 million in payments on the $23.7 million loan he took out to build the hotel that Minor himself now calls "an unviable project."
The latest suit means that, combined with collection actions already filed by Merrill Lynch as well as the Christie's and Sotheby's auction houses, Minor could be on the hook for nearly $60 million in alleged debts.
In November, it was Minor who claimed Silverton was ruining the deal. "Halsey Minor paid," said Minor. "The bank didn't pay. They flat-out did not pay."
The bank's suit, filed February 24 in in Fulton County, Georgia, alleges that Minor has committed seven moves that constitute default including firing the developer without the bank's consent and making "misleading and incorrect" statements in loan documents.
Minor did not return the Hook's call for comment at the time of this post. However, last month, in filing a lawsuit of his own against Silverton and former developer Lee Danielson, Minor laid much of the blame in the opposite direction.
Minor alleged that the bank and Danielson "colluded" in presenting Minor a bogus construction budget. For instance, Minor alleged that Danielson intentionally hid $5.2 million in expenses for such "ordinary and customary" costs as elevators, fire protection, and plumbing fixtures plus the costs of the main-floor restaurant and the addition of a penthouse-level lounge.
Danielson has already blasted the suit's claims, calling them "preposterous" and asserting that he has paperwork to demonstrate Minor's foreknowledge of the charges.
In its default suit against Minor, Silverton agrees that cost has exceeded budget, but the bank directs blame at the owner. Silverton alleges that Minor has suffered such adverse changes to his financial position that he's unable to complete the hotel. The bank also claims that it wasn't until February 19, just after a work stoppage, that Minor informed the bank that the project budget had exploded from approximately $30 million to approximately $50 million.
According to George Overstreet, a professor at UVA's McIntire School of Commerce, a project in default of its loan has hit quite a roadblock.
"Minor will either have to pay up," says Overstreet, "or the bank will have to foreclose."
"With the cost overrun of $20 million," continues Overstreet, "his $7 million in equity is now a smaller percentage of the total cost. So in addition to this $10.5 million he's supposed to owe them, he'd have to cough up more in equity."
The City of Charlottesville has some expertise on that front. Beginning in 1985, through what some critics have characterized as a series of missteps, it began pumping over $11 million in taxpayer funds into what became known as the Omni Hotel.
As much as he hates the "eyesore" of the unfinished Landmark shell, current mayor Dave Norris doesn't see another City bailout of any private enterprise, much less another hotel.
"I can't imagine," says Norris, "how we justify putting money into a luxury boutique hotel when we're putting off capital expenditures."
So who will ultimately own the Landmark? The professor says it likely won't be Minor.
"Unless he pays up, I doubt Minor will be the owner," says Overstreet. "If the bank forecloses, they'll try to sell it. But in this economy, who's going to want a $50 million hotel?"