MORGANTOWN, W.Va. — On the surface, there’s no apparent reason why a relatively new Hilton Garden Inn located at a busy shopping plaza in Morgantown should be facing financial hardship.
“It’s in a great location. It’s a tremendous hotel to meet the needs of that area, and I am very confused why they’re financially in distress. I don’t understand it. I really, really don’t understand it,” said Monongalia County Commissioner Thomas Bloom.
The 5-story hotel at Suncrest Town Center boasts amenities like a pool, a spacious bar, a business center and conference rooms capable of hosting 50 to 70 people. Script over the check-in desk says, “A garden’s path can take you anywhere.”
In this case, the path leads to the brink of insolvency.
A lawsuit against Mountain Blue Hotel Group of Fairmont was filed August 8 in U.S. District Court for the Northern District of West Virginia. The lawsuit, filed by filed by trustee U.S. National Bank Association, alleges a commercial breach of contract over the original $15,470,000 loan.
The lawsuit alleges the hotel is in danger of default, risking its Hilton franchise fee and barely getting by on meeting payroll.
A new, multimillion dollar hotel at risk of default is news in its own right, but it’s gotten more attention because of some of the high-profile investors listed in the federal lawsuit. Senator Joe Manchin and his longtime advisor Larry Puccio are among those listed through their AA LLC partnership, although both have said they are not investors in the hotel.
A response filed this past week on behalf of Mountain Blue denies almost all the allegations in the original complaint. The response indicates a complete lack of knowledge of many things, including the role of Manchin and Puccio.
The investor who signed the loan is William Abruzzino, whose companies are also involved with a breach of contract lawsuit over Clarksburg and Elkins hotels and the bankruptcy of the Crossings Mall in Elkview.
MORE: Financial problems hound Clarksburg hotel too.
In addition to the federal lawsuit, the Morgantown hotel has been the subject of a legal action at the local level.
The hotel racked up so many liens for not paying business & occupation taxes, Monongalia County took Mountain Blue to court over $148,000. On Aug. 14, a Monongalia Circuit Judge ruled in favor of the county.
Commissioner Bloom is upset not only that the county has had to force the taxes to be paid but that the amount actually represents what hotel customers paid upon checking out and that the hotel was supposed to then turn over.
“What I know is they owe $140,000 in hotel/motel tax,” Bloom said this week in a telephone interview. “Now what frustrates me is, it isn’t like where you owe a tax and you have to pay it. Other people pay that 6 percent, so they took other people’s money and spent it. That is why I’m so angry and concerned they would do that.
“My frustration is, that was money people paid up front and they didn’t pay to the county. It’s $140,000 that could have gone to programs for the county. Half would have gone to the CVB and half to us. It’s two agencies and all the people in Monongalia County are hurt by them not paying this occupancy tax that is not even their money.”
Hotel problems
According to the Monongalia Assessor’s Office, the assessed value of the hotel is $4,184,540.
Observers contacted for this story say the difference between that assessed value and the $15 million loan isn’t necessarily uncommon. The original loan would have taken into account costs related to construction. And, as with buying a car, value can depreciate faster than investors might like.
The value of a hotel can vary depending on location, too. A Hilton Garden Inn for sale in the Cincinnati area is listed for $7 million. Another near Philadelphia went for $22.5 million. A Hilton Garden Inn in New York City went for $169 million.
In any case, the hotel near Morgantown doesn’t appear to be performing to its potential.
“It’s very expensive to make an investment in building a hotel,” said Susan Riddle, executive director of the Greater Morgantown Convention and Visitors Bureau.
“The only reason someone would make that type of investment and build a hotel is if they thought they could get a reasonable rate of return on their investment.”
The Morgantown market is fertile with still greater potential, Riddle said. Travelers stop and stay the night for a variety of reasons, including sports and cultural activities, local business including with West Virginia University, regional tourism or as a convenient stopover on the way somewhere else.
Hotel occupancy has been about 50 percent this past year, with local hospitality leaders aiming for about 70 percent in coming years. That occupancy number varies, of course, as hotels open and close. Property that could still be developed for more hotels continues to gain interest, Riddle said.
The federal breach of contract lawsuit filed Aug. 8 makes it clear the Hilton Garden Inn has been failing. The National Bank Association, says the borrowers are in default of their loan. The plaintiff is asking for a receiver to be named to protect the property.
Most alarming to the lenders would be the loss of the Hilton franchise agreement. Mountain West fell behind on its payments to Hilton to the tune of $235,671.23, and Hilton responded by sending a letter this past May 11 to terminate the franchise.
“The loss of the Hilton flag would cause irreparable harm to the value of the property,” wrote the National Bank Association.
From June 2015 to this past May, the State of West Virginia also has filed tax liens against the hotel amounting to $437,878.42. That’s a separate action from the local tax liens and county lawsuit.
There are other bad signs, too. The federal lawsuit notes Mountain Blue is supposed to submit a budget with projected revenues and expenses each year. Although the lender has repeatedly demanded it, according to the lawsuit, no actual budget information has been provided this year.
The hotel’s financial system works so that rent and revenue first are deposited into an account controlled by the lender. After paying each month’s principal and interest on the loan, the money is released back to the hotel for other expenses.
Last May 24, the hotel made an emergency request for an advance on the balance of the account.
“Borrower represented to Lender that, without the immediate infusion of funds from Lender, Borrower could not cover basic operating expenses including payroll and utilities,” according to the lawsuit.
On May 25, the lender released $180,000 for operating expenses.
That doesn’t mean the lender is confident the money is being used properly, though.
“Lender is not certain if the Property’s rents are being used to pay expenses of the Property. For example, franchise fees and taxes were included in the Budget and were clearly not paid,” according to the lawsuit.
U.S. Bank National Association wants payment in full on the $14,559,226.84. remaining on the loan.
Not much of that is surprising to Bloom, the Monongalia County commissioner, who first took a heightened interest in the taxes owed to the county after hearing word of hotel employees who weren’t being paid.
“The first way I got wind was several employees called me and said they hadn’t been paid for four or five weeks,” Bloom said.
Unpaid paychecks
Larry Nicholson went to work for the Hilton Garden Inn at Suncrest Plaza as a post-retirement job after 42 years installing and repairing heating and air conditioning units around Monongalia County. At the hotel he was supposed to perform maintenance work and sometimes drove the hotel shuttle.
When Nicholson took the part-time job two years ago, he expected a way to fill his time and figured he’d earn a supplemental income. He got the first. Instead of the second, he got the stress that comes with instability.
“It’s been so frustrating,” said his wife, Vickie Nicholson, in a telephone interview. “My husband just quit. He couldn’t take it any more. He wasn’t there to make money. He was just there for something to do.”
After an initial, steady period on the job, Larry Nicholson started missing paychecks last Dec. 16.
“We would deposit it, and I got notification from my bank that it had bounced,” Vickie Nicholson said. “Then I had to pay a fee because the check bounced.”
After that, every two weeks, the Nicholsons dealt cautiously with paychecks and their bank.
“We would wait and call the bank before we would ever take another one to make sure the money was in their account,” Vickie Nicholson said. “We would call – his manager would call down there — and there would be enough for 8 people to go cash their checks.”
She continued, “Sometimes they’d even take their little van and load it up with employees to go cash their checks.”
She said word would come from Abruzzino himself if the money was available to pay employees.
The hotel manager “would tell the employees Bill would call her and say no paychecks this week. You’ve got to wait till the money comes in from the bankruptcy court. Then she’d walk in and tell the employees no paychecks this week.”
Medical insurance through the hotel was canceled without warning too. The Nicholsons had gone on what the hotel provided, Vickie said, but wound up with hundreds of dollars in unpaid bills when she suffered a medical problem at the same time the insurance was in flux.
“I had a kidney stone, and it decided to make its exit on January the first,” she said. “Not knowing I didn’t have health insurance, I went to the emergency room. Then I had to go to the urologist for six weeks. It took about eight weeks for the kidney stone to make its exit. Hospital bills all along.
“We weren’t notified until Jan. 30 that there was no health insurance. The manager, she came out while I was standing there; she said ‘Oh, by the way Larry, everybody’s insurance has been dropped.”
Among those she reached out to for guidance on the medical bills was Manchin’s office, although it appears she got an automated response to her email.
Some families were hurt worse than others, Vickie Nicholson said.
“There was a husband and wife who both worked there and had four kids. They would go weeks without a paycheck and they wound up losing their car, they had their power turned off. They couldn’t pay because they had no money,” she said. “They all quit. Even the manager quit.”
Larry Nicholson quit the first of May.
“He walked in and got another job at the Holiday Inn here,” she said. “He walked into the Hilton and said, ‘I’m done. Take me off the schedule.”‘
Over the course of everything, Vickie Nicholson was surprised not just by the unsteady paychecks but by how the hotel appeared to barely get by at all.
“They ran out of food and had to shut the kitchen down a couple of days,” she said. “They would wait until they got some cash and run out to Sam’s to buy some food to keep the restaurant open.
“They didn’t have toilet paper. They were stealing toilet paper out of rooms to take to other rooms. They didn’t have coffee cups. They had to wash the same Styrofoam cup out and use it again. The Dumpster got taken away because they weren’t paying the garbage bill.”
Nicholson, like other locals, couldn’t see any reason for the hotel to be living on the edge.
“They very seldom had an empty room,” she said. “Especially football weekends and stuff, they would be sold out completely. They rarely got to the point that they didn’t have people in there.”
Community reaction
Morgantown leaders say the hospitality market in the area is good, and they hope the Hilton Garden Inn will soon be healthy enough to keep contributing.
“It’s puzzling where an individual property would be struggling,” said Paul Brake, Morgantown’s city manager. “It’s in a good location, so that kind of puzzles me as well. I think we want to maintain as many hotels as possible.”
He said a healthy hotel market helps other aspects of city life, both through the tax base and as a facet of being inviting to visitors.
“That concerns me from the downtown, as well as for other businesses in the city — what sort of ripple effect we would experience,” Brake said.
The Greater Morgantown Convention and Visitors Bureau would gain from the hotel/motel tax collected by the Hilton Garden Inn if matters were normal.
“When they do not, it hampers our ability to advertise and drive the tourism economy in Monongalia and Preston counties, which in turn is a major economic driver in the region,” said Susan Riddle, executive director of the CVB.
The convention and visitors bureau makes its own financial plans well in advance, so disruptions can create headaches.
“We have a 12-month marketing plan, and it’s based on what we expect to receive,” Riddle said. “When we have irregularities in that process, it makes it very challenging for us to do our job as planned.”
Nicholson, whose husband was among those quitting work at the Hilton, had stronger words for how the hotel situation has made her feel.
“I have gone home, and I have cried,” she said. “It just appalls me that they can treat people like this and open up a business like the Hilton Garden Inn, run it into the ground and treat their employees like scum.”