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The Edgewater

The State Capitol is framed by the The Edgewater hotel after a $100 million renovation and expansion on the eastern shore of Lake Mendota. The original hotel tower, right, opened in 1948. The additions include a 15-story tower, left, waterfront hotel rooms, bottom, and four restaurants, spa, ballroom and a public plaza.

The Edgewater Hotel, after enduring a series of construction delays, is now dealing with financial problems.

The hotel is facing a $2.86 million construction lien from Fond du Lac fire protection contractor J.F. Ahern seeking payment for plumbing and mechanical work completed on the high-profile development on Lake Mendota.

Also, Madison-based Underground Meats has filed a lawsuit in small claims court for unpaid bills.

The subcontractor lien from Ahern was filed late last month in Dane County Court. The claim also names Madison-based J.H. Findorff & Sons, the general contractor on the hotel project.

The $100 million project — which was privately financed after the city of Madison declined to provide $16 million in requested tax increment financing — has been gradually opening its various components since September. It involved renovating the original 1948 Art Deco hotel and constructing a new 15-story tower to the north, with luxury condos on the top floor.

The 202-room property now boasts a total of 356,220 square feet of space including four restaurants, a ballroom, roof-top event spaces, a spa and a digital gallery that celebrates the history of Madison. A 150-foot pier is scheduled for construction this spring.

But the Edgewater took longer to complete than expected and faced a series of construction delays that pushed back scheduled grand opening times.

Officials with J.F. Ahern declined to comment on the lien filing.

Edgewater spokesman Rod Hise also said the hotel had no comment.

“It’s an issue between the contractor and the subcontractor,” he said.

But Findorff president Dave Beck-Engle offered a different version of events, saying that it is still waiting for payments so it can pay Ahern.

“We are working with the owner to get it resolved,” he said.

Beck-Engle said it’s not uncommon for large construction projects to end up with financial disputes once they are completed.

“There is a process you go through and this one has been complicated,” he said.

Edgewater developer Bob Dunn had originally sought significant taxpayer assistance for the project. His request for $16 million in TIF became the key issue in the 2011 Madison mayor’s race between incumbent Dave Cieslewicz and eventual winner Paul Soglin.

Cieslewicz had backed that amount of taxpayer support for the project while Soglin said TIF should be capped at $3.3 million, a figure he said was more in line with existing guidelines for offering city assistance to private developers.

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After the election, Dunn balked at accepting $3.3 million in TIF and said the project was dead. But a group of local investors led by Jerome Frautschi stepped in to bankroll the project using a federal low-cost financing program.

Edgewater Hotel LLC eventually secured the OK to issue $66.15 million in Midwest Disaster Area bonds. The program was established to encourage redevelopment of areas impacted by the heavy rains during the summer of 2008. Thirty of Wisconsin’s 72 counties are eligible, including Dane because of its location on water.

As with a municipal bond, the interest paid to purchasers of the disaster area bonds is exempt from federal income taxes. This allows the investors to be satisfied with a lower rate of return since the interest they receive is not taxable.

The borrower — in this case Edgewater LLC — was thus able to borrow money at a lower rate than if it had used traditional financing.

But taxpayers are not on the hook if Edgewater does not pay back the investors. The bond holders are fully at risk, as with any private borrowing arrangement, with rates and terms of the borrowing set by the individual parties. The only “public money” involved is the federal tax exemption granted to the investors.

It’s unclear how much money Edgewater owes Underground Meats LLC, which specializes in sustainably sourced meats. But since the lawsuit was filed in small claims court the debt is less than $10,000.

Underground Meats declined to comment for this report.

The 202-room property now boasts a total of 356,220 square feet of space including four restaurants, a ballroom, roof-top event spaces, a spa and a digital gallery that celebrates the history of Madison.