Hotel on Euclid Avenue Cleveland oh

CLEVELAND, Ohio - A slow-moving downtown hotel project could land in the hands of a new developer or owner, as the result of a foreclosure case affecting one of the last vacant stretches of Euclid Avenue in the center city.

A New York-based lender initiated a foreclosure lawsuit Aug. 31 against the owners of the John Hartness Brown Building, a historic property earmarked as the future home of a Le Meridien hotel. At that lender's behest, a Cuyahoga County judge recently appointed a receiver - an outside expert - to take control of the property and keep it from losing value as litigation proceeds.

The foreclosure suit adds a new wrinkle to a snarl that involves an out-of-town developer, scattered investors, local boosters and blighted real estate. A group led by Steve Goodman, a California businessman, has been trying to transform the John Hartness Brown Building, at 1001-1021 Euclid Ave., and an adjacent building at 1101 Euclid Ave. into a 206-room hotel with a restaurant and a rooftop lounge.

A walk through the buildings Wednesday made it clear that asbestos clean-up and some demolition - paid for using public money - are complete. But little else has been done. And Yidi, LLC, which claims it is owed more than $8 million in principal, interest and fees on a defaulted mortgage that dates back to 2006, is unhappy.

Receiver Mark Dottore took over the buildings and changed the locks earlier this month. He believes the Le Meridien still has legs, despite all the delays and the proliferation of new downtown hotels in the years since the project was announced.

"This is gonna work, " said Dottore, who focuses on troubled real estate and businesses from the Dottore Cos. office in the Flats. "All I can tell you is that I want this thing to go. And everybody in the city wants this thing to go."

Through one of his business partners, Goodman declined to discuss the foreclosure and receivership. Court records show that the developer hasn't yet filed a response to the foreclosure complaint.

"I'm still working with the development group that has all the different pieces and parts, " Tom Yablonsky, executive director of the nonprofit Historic Gateway Neighborhood Corp. in downtown Cleveland, said Wednesday of Goodman's team.

Starwood Hotels & Resorts, the parent company of the Le Meridien brand and the intended operator of the hotel, didn't respond to a request for comment. The company's website still lists the project with an opening date of January 2017.

"The only way this property maintains its value is if there is going to be a development, " said Robert Glickman, an attorney at McCarthy, Lebit, Crystal & Liffman, the Cleveland law firm representing the lender.

Yidi, LLC filed its suit, in part, to prevent Ohio from rescinding a valuable tax-credit award for the project. The state awarded historic preservation credits to the building in 2007, when the property belonged to a group led by Eli Mann, a Cleveland Heights investor. The Ohio Development Services Agency has given Goodman's team several extensions on the credits, which don't actually flow to a property owner until a redevelopment project is complete.

If the state voids the award, worth $11 million, any developer trying to tackle the John Hartness Brown Building would have to reapply and compete against other property owners for a limited pool of credits. Because of changes to the program, the maximum possible award would be $5 million in credits - leaving the Le Meridien with a larger financial gap.

A spokeswoman for the Ohio Development Services Agency said the credits haven't been pulled. Court records indicate that the award won't be terminated until after more hearings. The next hearing is scheduled for Sept. 30.

Yidi, LLC bases its foreclosure case on a series of loans that date back to 2006, when the borrowers were companies tied to Mann and his partners. In court records, the lender claims that those mortgages were consolidated and assigned to a company managed by Goodman in 2011. As of Aug. 31, the total balance on that $4.3 million loan was approaching $8.5 million, according to the foreclosure suit.

In legal filings, Yidi, LLC acknowledges that the John Hartness Brown Building is likely to fetch far less than that unpaid debt at a foreclosure sale. The lender, and anyone else with an investment in the project, has far better prospects of being repaid if the tax credits stay in place and a redevelopment happens.

On Sept. 1, Cuyahoga County Common Pleas Judge Brendan Sheehan appointed Dottore as the receiver responsible for figuring out the best path.

"Now I have to complete my deal with the taxing authority to hold onto the tax credits, which I believe I'm well under way to do, " Dottore said this week. "I need to interview some contractors. I need to deal with all these parties and bring them together so that we can move on this."