Lincoln Hotel owners give up on fighting foreclosure

By Doug Finke

State Journal-Register, Springfield, IL

Published Wednesday, January 16, 2008

Owners have dropped their effort to retain possession of the President Abraham Lincoln Hotel and Conference Center, which owes more than $29.5 million on its state-backed loan.

The President Lincoln Hotel, 701 E Adams St., is being foreclosed by Park National Bank, acting as trustee of the Illinois Insured Mortgage Pilot Program. Ted Schurter/The State Journal-Register

Their decision should pave the way for the state to obtain title to the hotel, which is at Seventh and Adams streets, and sell it to a new owner later this year. Proceeds from the sale will be used to pay off at least part of the debt.

Sangamon County Circuit Judge Patrick Londrigan issued the agreed upon foreclosure order Monday.

“Going forward, the days of sweetheart deals and cronyism at taxpayer expense are over,” Illinois Treasurer Alexi Giannoulias said in an interview Tuesday.

Giannoulias’ office began foreclosure proceedings on the hotel shortly after he took office in January 2007. The owners, who include influential Springfield Republican Bill Cellini, were fighting to block foreclosure.

Giannoulias declined to speculate on why the owners had decided to give up the fight. However, he noted that they previously had billed legal expenses related to the foreclosure to the hotel. That hasn’t been possible since a court-appointed receiver took over in March.

He also said the owners had probably seen the “writing on the wall” after the state foreclosed last year on the Collinsville Holiday Inn, another hotel built with a state-backed loan that the politically connected owners fell behind in repaying.

Springfield attorney Stephen Tagge, who represents the owners of the President Abraham Lincoln Hotel, said they decided it was time to stop the court battle.

“Our client decided the process was going to be one that took, with appeals, another two or three years,” Tagge said. “The client decided the best thing for the hotel and the city of Springfield was just to consent to foreclosure and get on with it.”

“Do we think we have a good case?” Tagge added. “Yes, but we knew it was going to go on appeal, and you never know if you will win or lose. The hotel could not stand to be in limbo that long. The client thought about more than just themselves.”

Giannoulias said filing the foreclosure order completed “the most difficult and by far the most arduous task in resolving this debacle that’s been going on for 25 years and cost the state millions and millions of dollars. I’m not sure there’s a bigger mess in Illinois government.”

Another hearing in the case is scheduled Friday to address issues affecting the city of Springfield and the Springfield Metropolitan Exposition and Auditorium Authority. The city loaned $3.1 million in grant money to help with the hotel’s construction, and SMEAA owns the land on which the hotel was built.

Ernie Slottag, a spokesman for Springfield Mayor Tim Davlin, would say only that the city intends to “file paperwork to preserve our position.”

An attorney for SMEAA could not be reached for comment Tuesday.

Giannoulias’ general counsel, Paul Miller, said he did not anticipate any snags developing.

Under the complicated foreclosure process, the state eventually will gain title to the property.

“We have no intention of holding on to it,” Giannoulias said. “The state of Illinois is not in the hotel business, nor should it be.”

Instead, he said, the state will conduct a public auction and sell the hotel to the highest bidder. Giannoulias could not say when the sale might occur, although it is still several months away. He also would not estimate how much he expects to get from the sale.

“It would be irresponsible to toss out figures,” said Giannoulias, a Democrat. “We’re not going to recoup the full amount. The previous administration tried to sell it for $3.7 million. I’m pretty confident it will sell for more than that.”

In 1985, state Treasurer Judy Baar Topinka, a Republican, reached a deal with the hotel owners to let them settle the loan and accumulated interest for 25 cents on the dollar. Topinka said it was the best deal the state could get, based on appraisals. However, then-Attorney General Jim Ryan squelched the deal after his analysts said the hotel, then called the Springfield Renaissance, was worth much more than the appraisal indicated.

A 1990 restructuring of the loan agreement required payment on the loan only when the hotel showed a profit. As a result, only two payments have been made in the past 10 years. The total principal and interest outstanding on Jan. 1 was more than $29.5 million, with interest costs going up by more than $2,300 a day.

During the first six months after the receiver took over, the hotel reported a profit of more than $927,000. At least some of that profit is attributed to business from state employees. They were banned from staying at the hotel while on state business before the receiver took over.

Giannoulias’ office has hired forensic auditors to review the hotel’s books. That audit has not been completed.

History of controversy

The President Abraham Lincoln Hotel and Conference Center in Springfield was built with the help of a $15.5 million state-backed loan issued in 1983. More than 80 individual investors also put money into the hotel, including influential Republican Bill Cellini of Springfield.

The loan has been restructured twice, the last time in 1990. That restructuring required the owners to make loan payments only when the hotel showed a profit.

The hotel has made only two payments since Jan. 1, 1998, and none in the last four years. The balance due now totals more than $29.5 million.

A Cook County judge declared the loan in default in November 2006. Last January, the trustee for the state program, Park National Bank, filed suit in Sangamon County Circuit Court to foreclose on the mortgage and to place the hotel in receivership until it can be sold.

The hotel, at Seventh and Adams streets, has 316 rooms.