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Developers sue DeKalb's Nicklas over loss of $2.5M in TIF funds

Lawsuit alleges Nicklas sought to ‘torpedo’ hotel project

Developer Nick Cronauer, who planned to convert the former St. Mary's Hospital at 145 Fisk Ave. into a boutique hotel and banquet facility, addresses the DeKalb City Council on Monday after City Manager Bill Nicklas recommended the council terminate the preliminary development incentive agreement for the project. "You're making a big mistake," Cronauer told the council.
Developer Nick Cronauer, who planned to convert the former St. Mary's Hospital at 145 Fisk Ave. into a boutique hotel and banquet facility, addresses the DeKalb City Council on Monday after City Manager Bill Nicklas recommended the council terminate the preliminary development incentive agreement for the project. "You're making a big mistake," Cronauer told the council.

DeKALB – Developers who planned to turn a vacant building on Fisk Avenue into a boutique hotel are suing City Manager Bill Nicklas in federal court, accusing him of unfairly derailing the project.

The suit comes after weeks of sometimes contentious behind-the-scenes discussion between city officials and the developers, Nicholas Cronauer and Chip Bulson, records show. Emails provided to the Daily Chronicle under the Freedom of Information Act request show Nicklas asking for proof of the commercial viability of the hotel and the company’s ability to finance the project, and Cronauer urging Nicklas to recuse himself from the process and telling him that “decisions have consequences.”

Council members voted unanimously Monday to terminate the TIF incentive agreement on Nicklas’ recommendation.

“Plaintiff would have been able to complete the project if not for Defendant Nicklas’ interference,” according the suit filed Monday in the U.S. District Court for Northern Illinois, Western Division in Rockford.

The lawsuit accuses Nicklas of retaliation, interference with the business’ expected $2.5 million grant and defamation. It claims Nicklas wanted to steer TIF funds to Geneva-based developer Shodeen Group, rather than the developers, and seeks damages of more than $2.5 million.

City attorney Dean Frieders said Tuesday that the city has seen the lawsuit and anticipates “vigorously defending” Nicklas.

“We believe the lawsuit is without merit,” Frieders said. “The city manager went out of his way to provide the developers with an opportunity to meet or submit additional financial information. We believe the actions [by the Council on Monday] were taken with the best interest of the city and public in mind.”

Frieders said that even though the lawsuit names Nicklas personally, not the city, the city will take on defending against it because it regards actions Nicklas took as a city employee.

‘So many numbers on a page’

DeKalb aldermen in December gave preliminary approval to award $2.5 million in tax-increment financing funds to Cronauer and Bulson’s company, 145 Fisk LLC, to turn the long-vacant building into a 40-room boutique hotel and banquet center.

Nicklas took over as city manager in January and not long after, began asking questions about the viability of the project, records show.

In February, emails show city officials began requesting more financial and market information about the hotel plan. Nicklas did not like what he saw in the information provided, records show.

In an email to Cronauer on April 1, Nicklas outlined six reasons that the plan was not feasible, including that 145 Fisk had no collateral, no private sources of funding beyond TIF money and an expected bank loan, no means of income to cover expenses or consulting fees, and no provision for paying federal income tax on the $2.5 million TIF grant.

He also noted that the developers had never built a hotel and had not said what comparable hotel their projected three-year profit-and-loss plan was based upon.

“Since you have not developed a hotel, your numbers are not rooted in an actual operation, so far as you have revealed,” Nicklas wrote. “They are so many numbers on a page.”

Near the end of his email, Nicklas concluded, “I do not want to embarrass either of you on the basis of a public report at an upcoming council meeting. My recommendation to you is to withdraw your application for TIF assistance.”

In their lawsuit, the developers characterized Nicklas’ review of information on the project as “obsessive,” and said they should not have been required to produce personal information – although Cronauer also said in an April 1 email to Nicklas that he and Bulson had spent “significant personal money” on it and “you can check to the canceled checks to the city to see what is being used to fund this project.”

“Defendant Nicklas carried through with his April 2019 threat to embarrass and harm the reputation of the plaintiff by publishing untrue statements of fact to the City Council and other third parties and general public,” the suit alleges.

Developer claims unfair review

The 24-page lawsuit alleges that Nicklas’ past involvement with a public-private partnership called College Town Partners LLC when he worked as an administrator for Northern Illinois University showed a direct conflict of interest, and should have required he recuse himself. The nonprofit partnership was meant to be a development cooperative to pool money from NIU and other DeKalb organizations, such as First National Bank, with a goal of redeveloping property between NIU and downtown DeKalb.

The developers also claim in the lawsuit that Nicklas’ motive for turning their project down was because he wants to give the TIF money to Shodeen Group.

“On Feb. 1, 2019, Defendant Nicklas began talking about bringing Shodeen to DeKalb, who previously wanted to develop a hotel in DeKalb,” the suit alleges.

Shodeen has sought TIF funding before for a hotel and conference center it proposed for property south of Lincoln Highway between Pearl Street and First Street. Requests were made in 2008, 2014, and 2015, at which time Shodeen developers told the Daily Chronicle they would seek financial incentives from the city. Shodeen has requested tax increment financing assistance to redevelop the property in the past but the developer’s plans have been shot down because of a lack of available parking.

In an April 2 email, city attorney Frieders attempted to explain the required documentation to Cronauer, using Shodeen as an example.

“... [Shodeen] promptly responded with very significant and detailed information,” Frieders wrote. “From my recollection, those documents were submitted inclusive of confidential and proprietary information, and thus are not available for public review.”

Cronauer’s emails show he didn’t want to provide information documenting personal finances, and said the TIF money was essential for any other financing.

“You are stopping this project before we can even get any firm commitments,” Cronauer wrote to Nicklas on April 1. “All we need is a loan commitment to proceed, but as you were made aware, commitment and income sources cannot be secured until a formal commitment from the City is finalized, which you have been trying to block.”

Frieders later invited the developers to submit concept information, as Shodeen had. Frieders’ email continued, saying the preliminary incentive agreement was passed by Council in December in part because of the strict TIF 2 expiration timeline.

“The process for the preliminary inventive agreement was unorthodox in that, because of the end of year time pressures, the city did not review a detailed pro forma (and related documentation customarily reviewed on similar request) prior to approving that agreement,” Frieders wrote. “The city has now, understandably, requested that documentation.”