A $4 million city loan to create a Milwaukee north side hotel could be facing default. Its developer was investigated for sexual assault.

A $4 million city loan to create a hotel and conference center on Milwaukee's north side, whose developer was investigated for sexual assault, could be facing default

If developer Kalan Haywood Sr., who was not charged in that investigation, is unable to repay the loan, the city could file a foreclosure suit.

That would likely mean public ownership of the proposed project site until another developer buys it.

That scenario is based on a Department of City Development official's comments to members of the Common Council's Zoning, Neighborhoods and Development Committee at its Monday meeting.

The loan, to be paid off over 15 years, received approval from the Common Council and then-Mayor Tom Barrett in 2019.

Haywood's investment group, HG Sears LLC, has used $3.79 million of the loan to pursue the planned conversion of a historic former Sears store, 2100 W. North Ave., into the 80-room Ikon Hotel and conference center.

The loan proceeds helped pay for buying the property, as well as interior demolition, asbestos removal, architectural fees, utilities, insurance and property taxes.

But other renovations were delayed because of the COVID-19 pandemic's effects on the hotel industry, Haywood said in 2021.

So, the city Redevelopment Authority board last August unanimously approved a change to the city's contract with Haywood.

That amendment delayed the start of HG Sears' payments on the loan from September 2021 to September 2022.

However, Haywood since then hasn't secured additional financing, such as a private loan and cash from investors, "to move the project forward," according to Lori Lutzka, DCD's development projects manager.

She told zoning committee members that department officials would meet with Haywood in the next couple of weeks.

The first monthly loan payment of $14,208 is due Sept. 1. The loan's payments for the first 16 months are for interest only.

Asked what the city would do if Haywood's group misses the loan payment, Lutzka said the department "could look at foreclosure."

In that case, the city could end up owning the former Sears store, which was posted as collateral for the loan.

If that happens, the city could then sell the property to another developer in an effort to reduce any possible loss on the defaulted loan.

"There's different scenarios," Lutzka said. "We just haven't gotten there yet."

Haywood didn't immediately reply to the Journal Sentinel's request for a response to Lutzka's comments.

The council and Barrett also approved a second $5 million loan for the Ikon project, with council members saying the potential benefits outweigh the risk. Haywood cannot use that loan until the project's other financing sources have been tapped.

Additional financing sources were to include an expected $13.5 million from private investors drawn by the development's location in an Opportunity Zone — providing big federal tax breaks.

Other financing would include $7 million in federal and state historic preservation tax credits, $3 million in Property Assessed Clean Energy financing, a $2 million private loan and Haywood's $1.83 million deferred developer's fee.

Haywood was the subject of a sexual assault investigation that ended in January after prosecutors decided not to charge him — saying they did not believe they had enough evidence to prove the case to a jury.

The Wisconsin Department of Justice took over the investigation from the Milwaukee Police Department after the woman who made the allegation filed a lawsuit stating her rights as a crime victim had been repeatedly violated and she no longer had trust in the department to investigate the case properly.

Haywood denied the allegations and was never arrested.

Deputy District Attorney Matthew Torbenson said in January he believed the woman's account of what happened, but that investigators had not obtained other corroborating evidence he believed was needed.

He stopped short of saying the investigation was compromised by early decisions made by the Milwaukee Police Department, which at that time was led by then-Chief Alfonso Morales.

An independent investigation ordered after the Milwaukee Journal Sentinel reported on the case found a detective was told to interview Haywood over the objections of the prosecutor and lead police investigator, who both wanted more time to gather potential evidence.

Tom Daykin can be emailed at tdaykin@jrn.com and followed on Instagram, Twitter and Facebook.

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This article originally appeared on Milwaukee Journal Sentinel: A $4 million city loan to create a north side hotel could face default