The Fate of Lake Lawn Lodge

I’m not a fan of Delavan Lake. In fact, if you took me out on a boat on that lake, the only way you’d get me to swim in it is by tying a rope around my legs, attaching said rope to several cinder blocks, and throwing me and the rope and those blocks over the side of the boat. Then I’d swim in it. But only then. I just don’t care for the lake much. Many, many people do. But I, content with my torrid love affair with Geneva Lake, have little interest in this body of water. It’s only fitting then that I also have little interest in the resort that occupies a very considerable swath of lakefront there.

Lake Lawn Lodge has been a Delavan institution since its founding in 1878, and a permanent fixture along Highway 50 for generations of area residents. Boasting an 18 hole golf course, 250 acres of wooded land, copious quantities of Delavan Lake frontage, and 281 hotel rooms, this is certainly a large scale resort. But under the docile surface lies serious trouble, and this trouble is threatening to end the reign of Lake Lawn as Delavan’s premier vacation destination. I must lay a quick disclaimer at your feet: I do not know every detail about the current situation at Lake Lawn, so take this entire piece with a fist sized grain of salt, and certainly don’t take it for anything but my own personal opinion. If you want cold hard facts, best not read on. What I know I have gathered from various sources, including newspaper articles and recorded legal briefs. What I do not know is not nearly as important as what I do know, and what I know is that Lake Lawn is in the sort of trouble that usually ends in death. At first, it’s slow and tortuous, and at the end (September), quick and heartless.

In 2004, Lake Lawn Lodge was sold to a group who called themselves Delavan Resort Holdings. I like that ownership name, because if you ever want to look very serious and capable in print, just use the word “holdings”, it looks nice. In 2005 the ownership group pitched a renovation plan that included all sorts of goodies, like building a new hotel building at the Highway 50 entrance and a water park. It also included building some additional condominiums that would be sold and operated as condotels, in addition to converting the existing rooms to the same sort of ownership structure. The plan was approved, and shortly thereafter, the great work of converting an aging resort into a spit-shined vacant destination began.

There were some struggles along this renovation route, including ownership changes (from 37 original investors to roughly 10), but in January of 2009 the resort was declared open for big business- the fist phase of its forty million dollar renovation was complete. For a while, a very short while, life was pretty good at Lake Lawn. I’d argue that their Friday night fish fry and seafood buffet hasn’t been good since like 1990, but that’s just me. No sooner was the renovation completed that trouble began, and it began in earnest. In March of 2009, Orren Pickell filed suit against the ownership group claiming that they failed to complete a transaction where 37 condo units and some 258 acres of land were supposed to be sold to him. Then, in August of 2009, Anchor Bank filed a foreclosure motion. In March of 2010 that motion was granted by a judge, and a redemption period was provided for the owners. They had/have until September 2, 2010 to make good on an outstanding loan that exceeds $50MM, or Anchor Bank will be the new owners of this troubled resort.

This, as you may have guessed by now, is not good news. There are hundreds of individuals who own real estate at Lake Lawn, owners who will effectively be out in the cold should the bank take over ownership of the resort and ultimately cease resort operations, as I would assume they would do. Banks are not usually in the business of owning real estate, and it’s doubtful they’re also in the business of running resorts. There’s a reason why I hate condotel ownership, and this is the worse case scenario as to why. If you own a condotel, essentially, you own a hotel room. If the hotel that surrounds your hotel room ceases to function, what exactly do you have?

Today, the ownership group is either scrambling to secure alternate financing, or their quietly confronting their fate. The fact is, I would think another source of financing is probably going to prove elusive, since banks generally don’t feel much like giving more money to a group that has already defaulted on a towering mountain of debt. The best bet is to secure private funding, perhaps through the introduction of new partners, but even though Lake Lawn is apparently in the middle of a solid year in terms of revenue, this also seems unlikely at best. If the current situation holds, it appears as though Lake Lawn Lodge will be an illiquid asset of Anchor Bank within a month. And this is something that I don’t quite understand.

I’m famously anti-loan modification. I’m cold blooded when it comes to loan modifications, and even though Obama and his cohorts try to pretend the loan modification programs have worked, nearly everyone with a functioning brain knows they have been magnificent failures. In spite of this truth, I think Anchor Bank needs to take a look at the big picture here. This resort is making some inroads this year in terms of bookings and revenue. The outstanding loan is so monstrous that the only scenario possible- if Anchor takes the property back- is catastrophic loss for the bank. If this property were marketed currently, what’s it really worth? Is there any way it’s worth $50MM? I can’t see someone paying $40MM for it either. $30MM? Doubtful. $20MM? You’re getting warmer. Either way, the loss would be crippling, and business loans are rarely insured the way that many residential mortgages are. The loss for Anchor would undoubtedly be severe, and the loss for the community even more so.

I feel a bit like a bleeding heart liberal- sorry, progressive- when I write this, but there are hundreds of jobs at stake here. There are hundreds of condotel owners that stand to lose nearly every penny of their investment (even if it was originally misplaced). The bank itself appears primed to lose millions and millions of dollars. So what would I do? If I were Anchor Bank, I’d grant a stay of execution. I’d restructure that loan, and renew it for a couple years. I’d forgive some outstanding penalties, knowing that losing a million bucks is much better than losing $20MM. I’d realize that the chances are quite high that no one is going to want to buy my resort- particularly once the grounds and buildings immediately start to show decay from lack of maintenance. What lack of maintenance am I talking about? Have you driven by Hilmoor Golf Course in Lake Geneva? Remember that once manicured lawn that has since become an unkempt, blistering eye sore? Take that snap shot and place it over the Lake Lawn golf course, and now you’ll be understanding it a little better.

Anchor Bank should want nothing to do with this property, but even less to do with owning it. The resort could yet be saved, even if the bank will have to eat some serious money and heaping platefuls of crow. With an already shuttered dog track just a mile down the road, Delavan cannot afford to have its two more visible institutions closed, deteriorating into a sad stretch of unmanageable weeds, rusting steel and peeling paint. Lake Lawn deserves a better fate, even if I never liked the idea in the first place. Anchor Bank, forget about doing what some would call “what’s right”. Do what’s best for your own books, and do everything you can from having your name inscribed onto the Lake Lawn Lodge deed.