In a manner of speaking, the segment of state Highway 50 east of Interstate 43 in Delavan has split personalities.
The north side of the road is perhaps the most significant retail corridor in Walworth County. In recent years, several new stores have been built there including a Wal-Mart Superstore plus Kohl’s, Lowe’s and Staples stores. Few of the smaller retail spaces have turned over.
However, the properties on the south side of the road are troubled.
The 130-acre former Geneva Lakes Kennel Club dog track property, located southeast of Highway 50 and I-43, has been vacant since it closed in 2006.
Recently, Madison-based AnchorBank was the only bidder in a sheriff’s foreclosure sale for the 250-acre Lake Lawn Resort property, located south of Highway 50 along the shores of Delavan Lake. According to reports in the Janesville Gazette, the resort is in default on a $51.9 million loan, and the resort owes $34.34 million to AnchorBank.
The bank said it plans to close the resort, which opened in 1878, in early December if it is unable to sell it by then. If the resort closes 286 full and part-time jobs would be eliminated.
“It is not our intent to keep the resort open, as that is not our core business as a bank,” said Emily Campbell, spokeswoman for AnchorBank.
The bank has hired John Karver, a senior vice president with CB Richard Ellis’ Chicago office to market the resort property.
“The sheriff’s sale still needs to be approved by the court and therefore, I am not at liberty to discuss the opportunity outside confirming that CBRE is the listing broker for AnchorBank and we continue to respond to strong investor interest in this historic resort property,” Karver said.
Since AnchorBank was the only bidder at the sheriff’s auction, it will be interesting to see if anyone is willing to purchase the property from the bank, and if so at what price.
“There are guys out there that are trying to bid on it at really low-ball offers,” said one Walworth County commercial real estate source who declined to be named in this report.
The 281-room resort has numerous amenities that could make it attractive to a buyer including: indoor and outdoor swimming pools, a marina, an 18-hole golf course, a spa, a restaurant, 32,000 square feet of meeting space, plus a runway for small aircraft on the north side of Highway 50.
In 2006, the resort completed a $30 million upgrade to its guest rooms. The rooms were converted into condominium hotel rooms, which are sold to individuals that can use them for a certain portion of the year. The rest of the year the rooms are rented to guests as hotel rooms, and the resort and the condo owners share the revenue.
AnchorBank’s acquisition of the resort includes the entire property except for the rooms that were sold as condominiums, which is all but about 20 of the resort’s rooms, according to a source familiar with the resort’s operations. If the bank closes the resort all of the operations will be shut down except for the rooms, which will still be available for use by the condo owners and will be maintained by the condo association. But without the resort operations there will be no rental revenue for the condo owners. If the resort is sold to another owner that maintains operation of the resort the room revenue sharing arrangement with the condo owners could continue.
At one time, the owners of the resort were planning a $390 million renovation and expansion that would include the addition of 1,000 suites, but that never happened.
One of the problems for the resort is that the condo hotel structure did not provide enough revenue for the resort, the Walworth County commercial real estate source said. Another problem for the resort is that it spent too much money on its upgrades, the source said.
“They spent a ton on the renovations, high end materials, granite counter tops,” he said. “They way overdid it.”
However, the high quality of the property could allow it to be successful again if a new owner can by it at a rock bottom price, the source said.
“That’s what it’s going to take for someone to turn it around,” he said.
Greg Hanis, president of New Berlin-based hotel consulting firm Hospitality Marketers International Inc., predicts Lake Lawn Resort will eventually be sold off in pieces.
“My general feeling is somebody is going to buy it, and then break it up and sell the pieces,” he said. “That’s going to be interesting.”
A similar approach was taken several years ago with Olympia Resort and Conference Center in Oconomowoc several years ago when the skill hill, fitness center and golf course were sold by the resort, Hanis said.
“Sometimes the pieces are worth more than the whole,” he said.
Selling parts of Lake Lawn Resort, such as its golf course, could generate revenue to help stabilize the core resort operations, Hanis said.
One challenge that any buyer will have to confront is the simple fact that Lake Lawn Resort is in on Delavan Lake and not on Geneva Lake. Although the two lakes are just a few miles apart, Geneva Lake is the tourist hot spot that attracts throngs of visitors from the Chicago area each year. Delavan Lake simply lacks the cachet and the Lake Geneva name brand.
“It’s a huge difference as far as the numbers you can get for lake property on Geneva Lake versus Delavan Lake,” the Walworth County CRE source said. “It’s night and day.”
Meanwhile, about a mile west of the resort the former Geneva Lakes Kennel Club remains vacant. The 130-acre property was acquired in 2007 by McHenry, Ill.-based NRB Land for about $8 million, and NRB also acquired an adjacent 72-acre vacant property for about $6.5 million. The company marketed the property to commercial, retail and residential developers, but nothing has happened there.
The Walworth County CRE source said NRB paid way too much for the property. The Great Recession only made the deal look worse, he said.
“The numbers don’t make any sense at what they paid for it in a good economy, much less in this economy,” he said.
A representative for NRB Land could not be reached for comment.
The site seems like a logical location for big-box retail development, given the success of the retail development on the north side of Highway 50. However, the area’s low population (Walworth County, 100,593; Delavan, 8,471, according to the latest U.S. Census Bureau estimates) may not be able to support more big-box stores in addition to what Delevan already has, plus the Wal-Mart, Target and Home Depot stores in nearby Lake Geneva.
“I see that 10 years out (development of the dog track site) maybe making sense,” the Walworth County CRE source said.