Downtown hotel project may be fading dream

One of two project lenders has filed foreclosure documents

By Charles O’Neill
Harbor Light Newspaper

Despite continued efforts to revive the downtown Harbor Springs Hotel Janelle project, one of its lenders has moved toward foreclosure. A foreclosure sale date has been set for Sept. 10.

Cottage Company owner Rob Mossburg, developer of the hotel project, said he was in active discussions with the appropriate parties. The lender in question is known as North Coast Credit Company. In fact that company is former hotel property owners and land sellers, Michael Sherman Sr. and Michael Sherman, Jr.

Mossburg said there are two mortgages on the property. The first mortgage holder is Fifth Third Bank. He said there is a separate commitment from Fifth Third Bank to finance the construction of the hotel which would also pay off existing mortgages from Fifth Third and North Coast.

Mossburg issued a statement to area media last week. He offered some follow up statements late last week.

Was it a loan you utilized from North Coast Credit, the land sellers, for $1.3 million?

“As part of that purchase agreement, they wanted to participate in the project and agreed to take a substantial amount of cash down with the remainder paid as units were sold.”

Now that they are foreclosing. Do they want the land back? In a worst case scenario, would they get the land back, or would Fifth Third?

“Their intentions are unclear at the moment? (Regarding who gets the property) This is really to be determined and would only be speculation. There are a couple innings left in the game but obviously, as a first mortgage lender, Fifth-Third is in the primary position.”

Would you consider an alternative for the property - one that might be more palatable to the bank such as residential or something along those lines?

“The benefits of the hotel to our community are so significant that I just would not at this juncture. Of course, if the city chooses not to renew the approvals, other options would have to be considered.

“By the way, unless new development projects today are all equity transactions, they simply are not getting done. Lenders are even declaring actual and technical defaults and stopping the funding of projects which are already under construction! It is really quite bad out there with more to come.”

Mossburg offered the following extended statement as well.

“The foreclosure filing is disappointing. North Coast is the same group from which we purchased the land and is a second mortgage holder. We have been in discussions with them, and our primary lender Fifth-Third Bank, for some time about preserving the project. While Fifth-Third has been cooperative, obviously North Coast felt they needed to take this action. I suspect this will now force Fifth-Third to file some sort of action as well. I guess the good news is that we may have some sort of a time table for resolution.

“We will continue to work with Fifth-Third and North Coast toward working out a satisfactory solution for everyone. Personally, I remain hopeful that an agreement can be reached to help move the Hotel Janelle forward, primarily because it results in such extraordinary benefits for our region.

“In fact, I prepared (a) white paper for our state government in an attempt to capture some of the stimulus funding. In it, we estimated that over a 39-year accounting life, this green, “shovel ready” project could generate close to $100 million in economic impact, including over $7million for our local school system, $2.5 million for the state education fund, $2 million for the City of Harbor Springs, $2 million for Emmet County, over $1 million to the Boyne Area Convention and Visitors Bureau (to promote tourism in the county), over $1 million for the Intermediate School District, close to $1 million for North Central Michigan College and almost $400,000 for our senior citizens. It would also create over 140 temporary and 50 full time jobs. My intuitive sense is that downtown businesses would also benefit greatly from guest expenditures and that it may even stimulate more positive development.

“That is the real story here, that we as a state or nation don’t have a mechanism to assist a project like this in reaching fruition - especially since all it would take is a LOAN that could be paid back versus a grant or gift. This would be an exceptional use of stimulus funds/public money.

“Short of governmental assistance, any solution will involve a reset of the capital structure and improved national economic conditions to get the hotel constructed. This reality is a shame, especially since the project was financed and we were days away from breaking ground. If it were not for the neighbor’s lawsuit against the city which delayed the project or the collapse of the financial world, we would be enjoying our first guests right now. We have been working non-stop for several years to make this project happen for the community, and I don’t intend to abandon those efforts now.”

This is part of the August 19, 2009 online edition of Harbor Light Newspaper.

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