Milwaukee-based contractor KPH Construction Corp. and related businesses have filed for Chapter 11 bankruptcy protection, stemming from the owner’s involvement in the redevelopment of a historic hotel building in Green Bay.
Earlier this month KPH Construction, KPH Envrionmental Corp. and other companies owned by Keith Harenda filed for bankruptcy with the U.S. Bankruptcy Court in the Eastern District of Wisconsin.
According to court filings from KPH, the company faces a cash shortfall of roughly $3 million, not counting what’s still owed to subcontractors, related to work performed on the redevelopment of the Hotel Northland in downtown Green Bay.
Harenda, along with partner Michael Frantz, formed Hotel Northland LLC in May 2014 and made plans to renovate and reopen the then-vacant building. The LLC in turn contracted with KPH to provide construction services on the project, according to KPH’s bankruptcy court filing.
Harenda and Frantz had gathered the required financing, from numerous sources, for the project by December 2015 and construction activity commenced the following month, according to the court filing. Frantz could not be reached for comment.
One year later, in January 2017, one of the project’s lenders, First Merit, pulled out of the project, according to the court filing. By April of that year the developers received a term sheet from Octagon Finance to provide a replacement loan of $20 million to complete work on the hotel and pay all outstanding bills. But then Octagon terminated loan negotiations in August 2017, the filing states.
Octagon petitioned the Brown County Circuit Court in October 2017 to appoint a receiver, and promised to pay all subcontractors and complete construction work, which was about 75 percent finished at that point. The project was required to be completed and begin operating within a certain time period to ensure tax credits were awarded.
The court appointed a receiver, who then sold the hotel to an entity controlled by Octagon. The hotel was sold “free and clear” of KPH’s lien claims against the property, according to the court filings. KPH alleges the sale was made contrary to state law and says it is “vigorously contesting all aspects of the sale.”
KPH further states it tried to avoid filing for bankruptcy and negotiate a resolution with one of its creditors, Liberty Mutual Insurance Co. A resolution was not reached, and in November the creditor filed a financing statement against KPH and also filed a lawsuit in the district court. KPH in turn filed for bankruptcy to prevent Liberty Mutual from obtaining its assets. Additionally, the filings will give the company more time to pursue construction lien claims against Hotel Northland.
The eight-story, 148,000-square-foot historic Hotel Northland was built in 1924 and operated as a hotel until the 1970s, according to an audit from Crowie Management Group. The audit, dated April 2018, was created by the request of the court-appointed receiver.
The financing involved with redevelopment efforts were complex. According to the audit, the $36.45 million in financing came from a senior loan from Huntington Bank (which acquired First Merit in 2016), a bridge loan from Octagon, a HUD Section 108 loan, tax incremental financing from the city of Green Bay, a WHEDA loan, a seller loan from the Conservancy Investment Group and a loan from the American Heritage Preservation Association.
According to the bankruptcy filings, KPH employs approximately 30 people and expects to bring in $11 million of revenue in 2019 from projects throughout Wisconsin. KPH says that if not for the problems associated with the Hotel Northland project, the company would be profitable.
Harenda could not be immediately reached for comment. Representatives of Octagon also could not be reached for comment. A spokesman with Liberty Mutual declined to comment.
Even as legal battles related to the redevelopment project continue, city leaders and community members celebrated the opening of the hotel on Thursday.
Wendy Townsend, program and project manager with the city, acknowledged the project faced plenty of obstacles but stressed the impact it will have on the community.
“It did take a lot of heavy lifting to get that one done … but it’s so beautiful and so worth it,” Townsend said.
