Judicial sale planned for troubled Collinsville hotel

Auction will force current owners to give up property title

September 25, 2007

The Illinois State Treasurer’s office has scheduled a judicial sale of the Collinsville Holiday Inn next month that will transfer ownership of the property, State Treasurer Alexi Giannoulias said today.

The judicial sale will take place at 1 p.m. on Oct. 18 at the Madison County Courthouse in Edwardsville.

“This event signals a new day for the Collinsville Holiday Inn,” Giannoulias said. “It’s just another step in the process that will allow us to move forward with selling the property on the open market in the future.

“Transferring the hotel’s title from the current owners is long overdue for a property that should serve as an economic engine for the Metro East region,” he added.

The owners of the hotel currently owe more than $31.2 million in outstanding principal and interest. The last payment the borrowers made occurred in November 1998.

It is highly unlikely that a third party bid would be accepted at the judicial sale, given the amount of the outstanding debt. More likely, the property’s trustee – Park National Bank – will take title of the hotel. The state is the sole beneficiary of the trust.

The Treasurer’s Office would then seek to conduct a public commercial auction or sale.

If the trust takes title as anticipated, the value of the hotel will immediately appreciate. All liens and outstanding judgments on the property would be erased.

Furthermore, conducting a subsequent public commercial auction or sale would enable the Treasurer’s Office to market and advertise the property on a national level, reaching a much larger audience of prospective buyers and increasing the potential sale price.

“Our goal is to continue with a transparent process that will result in a buyer who pays maximum dollar for the hotel and is committed to making it a first-rate hotel,” said Giannoulias, who is confident the hotel will retain the Holiday Inn flag. “After taxpayers have been forced to endure this nightmare, we want to recoup the highest-dollar amount possible for the state.”

On Jan. 12, a court-appointed receiver – Hostmark Hospitality, Inc. – assumed control of the operations of the hotel. Since that time, the hotel’s net profit has increased dramatically. Records show that during the first six months of 2007, the hotel realized $502,638 in net profit, compared to just $49,060 during the same time period in 2006.

“These figures demonstrate the importance of appointing a receiver following years of mismanagement,” said Giannoulias, noting that the receiver retained all rank-and-file employees. “The hotel is turning a significant profit even before substantial improvements have been made to the property. That’s a trend we anticipate will continue.”

The court also gave the receiver the authority to scrutinize the hotel’s financial books and management policies to provide insight into its financial failings.

The receiver evaluated financial and employment policies and uncovered possible wrongdoing, questionable accounting practices and misappropriation of funds, all of which allegedly benefited the owners of the hotel. In early May, the Treasurer’s Office provided the U.S. Attorney’s Office with more than 100,000 documents obtained from the Collinsville hotel and a third-party accountant.

The politically connected owners received a $13.4 million state-backed loan in 1982 but soon fell behind on their payments. In 1990, the state gave them a second chance, renegotiating the loan in their favor, providing them more time to pay it off and lowering the interest rate. As part of the deal, the borrowers were only obligated to make payments if they reported a profit.

Last May, a Madison County judge issued a judgment of foreclosure and sale, a move the borrowers did not contest. That action paved the way for the judicial sale to take place.