It”s more than simply ironic that just as the national economy was hitting a new bottom last week, Little River”s Heritage House was having the worst days in its 60-year history.
World renown as the romantic site for the movie “Same Time Next Year,” the Heritage House closed Thursday, Dec. 4, laying off all workers indefinitely. Full-time staff has ranged from 12 to over 50 individuals.
On Friday, nobody bid at a foreclosure auction for the property.
The Heritage House”s rise and fall has mirrored that of the nation”s financial system. Built on frugality and hard work from 1949 until the founding Dennen family sold it in 1998, the inn was dressed up by subsequent owners with expensive loans and high-priced improvements for the extravagances of the 2000s.
Along with the rest of the deregulation boom, the Heritage House ended up deflated, cold and empty today.
Lantana LLC, whose public face is David Wilk, paid $26.5 million for the inn in 2004.
An analysis of the capitalization rate, the formula Realtors use to evaluate a business, shows this was about double the worth of the inn. The values, like the boom itself, seem to have been created out of speculative thin air.
“I”ve played that game [capitalization rate] with this property myself and I have no idea how they could justify a sale price like that,” said a local Realtor considered a top expert on selling inns. Like more than a dozen other people contacted for this story, he didn”t want to use his name. He has not been involved in the Heritage House financial doings.
Heritage House”s Website was still working this week. But when this reporter tried to make reservations, all dates showed “unavailable.”
At the Heritage House itself, phones still rang on Monday with a message that blandly stated the inn was closed indefinitely. A second phone number was given, but messages left there were not returned. By Tuesday, the phones were off and an answering service was hooked up, which made no mention of Heritage House.
According to any reckoning of value, the Heritage House”s 66 rooms couldn”t support anything close to the purchase price of $26.5 million, not even with seven planned hotel-condo units.
County records show more than $30 million in loans were made on the property.
A big surprise came on Friday morning, Dec. 5, when the bank, owed $27 million, reduced the starting bid at the auction on the county courthouse steps in Ukiah to $18.2 million.
“It is amazing to see them reduce the price like that,” the broker said. “I would speculate they had the property reappraised and came up with lower value.”
But despite a big crowd to watch the sale, which was reported to the Santa Rosa Press Democrat, the Heritage House got no takers.
Closing the hotel lowers the value further, the broker said.
“There is a significant cost to recapitalizing it and getting it up and running,” the broker said.
“These are not the kind of loans you could get from the Savings Bank of Mendocino County. Not surprisingly, they are not in any financial trouble. While the Heritage House is the only example we have seen here, these loans happened all over the country,” the broker said.
While global mega-banks get bailed out, local and regional banks across the country remain as sound as ever, the head of the Independent Bankers Association told Congress last week. Most refused to give the newly invented and deregulated loans.
The failure of the foreclosure means that WestLb AG, the German bank that loaned $27 million on the property, is now the owner.
The bank did not return emails to its customer service or news media contacts. With the current owners oceans away and unresponsive to local inquiry, this newspaper could not answer questions from people who had paid for rooms in advance.
While there are a record number of bank-owned residences in Mendocino County, none compare to the Heritage House.
Competing in the global market only recently, WestLB AG has gone through two rounds of bailouts by the German government because of questionable loans made all over the world. The bank is based in Dusseldorf, Germany and is partly-owned by the German state of North Rhine-Westphalia. The letters LB in the name stand for Landesbank.
Thanks to deregulation and the changing dynamics of the free trade-driven global loan industry that pushed size over everything, big banks wanted to loan more and more money as real estate prices skyrocketed endlessly.
Wilk appears to have been just one of countless dreamers who believed in an endlessly expanding economy, not sustainability.
“These [global] banks employed loan agents that got paid a lot for giving these kind of loans. They didn”t get paid for not giving loans, so guess what happened?” the broker said.
The local broker and two other Realtors came up with a value of about $12 million, based on simple formulas available on the Internet, combined with obvious higher costs, such as the age of the buildings.
Wilk, who now faces criminal charges including money laundering for allegedly misusing Heritage House moneys, referred comments to his attorney, Dave Eyster of Ukiah.
Eyster said he was not Wilk”s attorney on the property or civil matters, only in the criminal proceeding that alleges Wilk failed to pay “bed taxes” to the county.
He did respond to a question about media reports naming Wilk as the owner when court files show the inn”s ownership has been cloudy for the past year.
“Various media reports claiming that Mr. Wilk is the owner” or the sole owner” of the HH are simply wrong. The truth of the matter is that Mr. Wilk is one of several investors and his interest in the Heritage House is/was less than one-third. He isn”t even close to being an investor with the highest percentage interest or, put another way, an investor with the most invested,” said Eyster.
The late Lauren and Hazel Dennen did most of the work themselves at first, eventually building a staff as big as 110 people during peak seasons.
“It”s sad the new owners have let this occur … unbelievable to think this could happen, it doesn”t seem real,” said Margie Kamb, who treasurers her memories of working at Heritage House for the Dennen family in the 1980s.
The success of the Dennen family in creating a profitable business was maddening to outsiders who hoped to get rich from the rambling collection of former residences spread over 37 acres on both sides of Highway 1 on a big horseshoe curve in Little River.
The success was based on a place that was as eclectic as it was proper. Because the Dennens had bought up private homes and converted them into hotel rooms, each abode was different and all lacked phones or televisions.
The attraction, locals remember, was great service and consistency. Dining was often meat and potatoes but everybody dressed for dinner, especially the owners whose nightly appearance was part of the ceremony, Kamb recalled.
The partnership publicly led by Wilk and Duane Werb, Lantana LLC, sought to create more expensive rooms by tailoring the inn to super-wealthy Pacific Rim businessmen.
Putting flat screen televisions, walk-around phones and handmade Asian decorations into finely renovated cabins, no matter how tasteful, turned off some longtime customers and many locals.
In his interview with this newspaper, Wilk blamed the tightening of the credit market for his inability to get more loans to continue to pay the old loans, plus taxes, employees and extravagances like half million-dollar designer furniture orders from Singapore.
The idea that revenue from the business had to eventually pay off loans seemed to get lost, as it did nationally.
“The property is one of the most beautiful places on Earth and we were convinced that we could transform it into one of the top destinations in the United States,” Wilk told this newspaper last summer.
At the time of that interview, Wilk didn”t mention that he had given up ownership claim to the previous owners, HH LLC, a group led by Maureen O”Connor, former San Diego mayor and her twin sister, who have been prominent in Mendocino village business for more than a decade.
The array of lawsuits and other court and civil actions are dizzying. In a judicial foreclosure action, the federal court appointed Nicholas Clayton, president of the Los Angeles-based Kor Hotel Group, to run the facility until the county proceeding was complete, the Press-Democrat reported.
Clayton could not be reached for comment.
With a crackdown on deregulated loans based on speculative values causing “values” to crash, there may be some good news.
“I think the good news here is that a lot of people will do those calculations that you and I were just doing. The result will be a much lower price, a price that will allow the new owner to run the inn, employ people and even make a profit,” the local broker said.
