A ‘very frustrating process’

Five years after construction abruptly stopped on a hotel development meant to be a gateway to Speedway’s burgeoning downtown, the rusting, incomplete shell of the project taunts residents and town leaders awaiting the conclusion of a dispute over the site’s ownership.

Grant Kleinhenz, Speedway’s town manager since late 2021, said the development of the Wilshaw project at the southeast corner of Main and West 16th streets has been a “very frustrating process” that generally stems from a mix of communication failures, lofty development ambitions and a somewhat ambiguous initial agreement between the town and Indianapolis-based real estate developer Loftus Robinson LLC.

Now, the town is on the sidelines watching an ongoing foreclosure lawsuit brought by the Atlanta-based firm that Loftus Robinson picked to take over the project in 2021. It alleges Loftus failed to follow through on a promise to repay Loftus’ debt to Indianapolis-based general contractor F.A. Wilhelm that Hotel Equities stepped in to cover.

“There is nothing that is either clear or easy about any of it. From a path forward to looking back, it’s just not an easy situation,” said Kleinhenz, who was hired by the town in mid-2021. “The agreement that we entered [in 2016 with Loftus Robinson] I think caused some of those issues, and we have tried to deal with that … to make sure our rights are protected. I feel powerless in many ways because we’re not the lead in the lawsuit.”

Partners Loftus Robinson and Indianapolis-based Scannell Properties LLC announced in December 2015 that they intended to build a mixed-use campus with 150 apartments, 10 condominiums, a 120-room hotel, 15,000 square feet of retail and a 500-space parking garage directly across West 16th Street from the main gates of the Indianapolis Motor Speedway. Scannell was in charge of the residential; Loftus Robinson was to build the hotel.

It was a big step forward in an ongoing effort to revitalize Speedway’s downtown and the 3.4-acre parcel at the northern end of Main Street, adjacent to what was then a brand-new roundabout at Georgetown Road and West 16th Street. The town reached a final agreement with the partners in late 2016, amending the project to include a public parking lot, 90 apartments and a 127-room hotel to be called the Wilshaw.

The apartments opened in March 2019.

But the hotel’s development has been plagued by delays, financial problems and partnership changes.

In fact, construction has been fully stalled on the hotel since September 2019—with only occasional maintenance to clear weeds and trash—after Loftus Robinson, which owns the property, encountered financial problems that led four companies to stop their work and file liens to recoup $6 million in unpaid bills. Liens are claims of legal rights to sell a piece of property to pay for a debt owed by its owner and are standard practice in situations where contractors aren’t paid for work.

Early this year, the hotel’s current developer, Hotel Equities Group, filed a lawsuit seeking the title and deed to the Loftus owned Wilshaw property through an affiliated holding company. Hotel Equities in 2022 secured a promissory note—a document promising to repay a debt—after it agreed to take over the project from Loftus and paid off the company’s $5.83 million debt to Wilhelm.

But since gaining control of the project, Hotel Equities has also struggled to secure adequate funding to resume work at the site. In February—after the company filed its lawsuit—Speedway said it was putting an indefinite hold on a $2.5 million shortterm gap loan to supplement the project.

“The financing they had from the private sector was not moving forward, so our loan wasn’t an effectual thing,” Kleinhenz said. “We decided that it was time to take that off the table with the understanding that it could be available in the future to them or even to another developer, if that made the deal work or finish things up.”

The town first indicated in early 2023 it would be open to a loan for the project—an additional public subsidy to the $5.6 million in tax-incrementfinancing bonds approved as part of the original development agreement. In March 2023, IBJ reported some partners in Hotel Equities failed to disclose a nearly $2 million settlement with the U.S. Securities and Exchange Commission, news that led the Speedway Town Council to postpone a vote on the loan. The council has never publicly revisited the issue.

The project is something Kleinhenz said follows him wherever he goes, and in whatever he’s doing.

“Every single moment of every single day—it’s something I have dreams and nightmares about,” he said. “I think about it off work hours, have discussions with residents or others as I attend meetings or go to lunches or speak at events. It’s something that is forever present in our town because it is a key project on a key intersection in the heart of our town, across from the most iconic racing venue in the world.”

‘Get really patient’

Town officials have been considering their legal options related to the project for more than three years. Officials told IBJ in February 2021—after an agreed-upon completion date for the project had lapsed the previous month—they had hired a law firm to “assist us in reaching a resolution” that could include filing a lawsuit.

Town officials made similar remarks that June but never moved forward with specific action because the developer came to terms with Hotel Equities to take over the project. In late 2020, Loftus Robinson had partnered with Indianapolis-based MHG Hotels LLC to advance the project, but the work quickly fizzled after additional funding challenges.

Kleinhenz said the town learned in late 2023 of Hotel Equities’ plans to sue to gain control of the property—and subsequently move ahead with construction—but agreed to stay out of the dispute to allow the parties to reach terms on their own.

Kleinhenz said Hotel Equities told town officials that gaining ownership of the property would help the company obtain financing to finish the project. That led Speedway officials to decide not to file their own lawsuit against Loftus Robinson.

Also, he said the town’s original agreement with Loftus Robinson “wasn’t as clear” as it needed to be about the town’s rights to reclaim the property if the development stalled. Still, Kleinhenz said Speedway officials have since sought to bolster the agreement through an amendment giving the town the teeth to enforce deadlines, stake its claim to the land (which it initially sold to Loftus Robinson and to Scannell for $750,000) and otherwise implement clawback incentives. That amendment has not been finalized.

He said the town continues to have biweekly calls with representatives of Hotel Equities to check on the project’s status.

“It causes us concern, and we think about it, and we talk” about it, he said. “We still have those discussions internally and externally, and until the project is solved and there’s a resolution, that will always be the case.”

Doug Noonan, a professor of public policy at Indiana University Indianapolis, said the town’s decision not to join Hotel Equities’ lawsuit against Loftus could be advantageous, as its participation would have likely exacerbated tensions in the case and prolonged the process. Most lawsuits involving municipalities last two to three years, but others can drag on far longer, he said.

But staying in the background also leaves the city without a firm plan to move forward after the suit is resolved as well as an unclear timeline for when the matter will be resolved, he said.

If you’re the town, “you’re either just being patient and hoping, or you’re taking it to court,” Noonan said. “Those are two really unpleasant options, because Loftus seems like they’re just trying to run the clock out, and there’s no expiration on the clock—this could run indefinitely. I would buckle up and get really patient, unless you’re going to go to court over it and try to reclaim it.”

On Aug. 29, Loftus Robinson-affiliated holding company Wilshaw LLC—the primary party in the lawsuit—was granted an extension to respond to allegations laid out in the initial foreclosure complaint, its fifth in as many months. However, the request for the extension indicated that Hotel Equities was supportive of the request.

“The parties are hopeful a resolution can be reached without the need for Wilshaw to respond to the complaint,” the filing reads.

Ryan Vershay, a partner at Indianapolis law firm Lewis Wagner, is representing Wilshaw LLC. He declined to comment for this story. Loftus Robinson principal Drew Loftus, who now operates a successor development company called Silverstone LLC, did not return multiple calls requesting comment for this story.

A media representative for Hotel Equities did not return an email requesting comment for this story. Jason R. Burke, a partner at Blackwell Burke & Fowler PC, which is representing Mortgage Holder I LLC—a holding company for Hotel Equities and Atlanta-based 33 Degrees LLC, a joint venture between Hotel Equities and Arizona-based Virtua Partners—did not return a voicemail requesting comment.

A financial pit?

Kleinhenz said while the goal remains to have a hotel at the site, the town is open to alternatives, including a mixed-use development with retail and apartments or a corporate headquarters. And he said the lack of progress on the site hasn’t exactly deterred activity elsewhere in town.

The hotel project “does not affect the attractiveness of Speedway in any way, shape or form,” he said. “I think everybody involved—the town, the Redevelopment

Commission, the residents, the business community—would love to see that hotel or whatever ends up ultimately going in there finished, but it has not stopped or slowed development at all.”

The 20-acre Founders Square project on Crawfordsville Road, just east of Interstate 465, is continuing to fill in, with plans for another hotel getting the green light during a recent Town Council meeting. The 1300 Block project from Rebar Development on Main Street, a $7.2 million effort featuring 14 condominiums and 8,600 square feet of commercial space, opened in 2023. And a new, undisclosed user has signed a lease for a portion of the vacant Community Health Pavilion on the opposite end of Main Street from the Wilshaw.

While the town continues to push for additional economic and real estate development opportunities, the Wilshaw continues to be a major priority. But Kleinhenz acknowledged that big questions remain about how Hotel Equities—or any other firm—might secure funding to move ahead.

“We have provided various alternatives to the developer. It just depends on where the financing is going to come from and what the construction costs are,” he said. “And those, to me, are the two issues that need to be resolved, other than ownership, before anything could realistically move ahead.”

Noonan, the public policy expert, agreed, noting he is surprised given the project’s proximity to IMS that none of the three developers involved in the project have managed to shore up funding. The town has already secured bonds for its portion of the project and has been making payments on that debt for several years.

“At the end of the day, somebody still needs to actually want to finance this, and until they solve that,” nothing else matters, Noonan said. “That’s the part that’s a bit peculiar, is why financing can’t be found. … My sympathies and condolences to Speedway. This is so tough, and I wish I knew why no one wants to invest in that, because they need to find something that someone wants to invest in.”

Vince Dora, president of Fishers-based Dora Hospitality, said many proposed hospitality projects continue to face financing challenges because of market conditions. He said that, although supply chains are loosening, construction costs and interest rates are still high.

Federal Reserve Chair Jerome Powell said in late August that “the time has come” for interest rates to begin dropping, with the body widely expected to announce at least a quarter-point cut in its benchmark rate by mid-September.

But those rates are only one part of the equation, Dora said, noting that subcontractor availability, pricing on materials and the general availability of capital are all important factors in how a project is priced. So, too, is the ability for companies to infuse more equity into their projects.

“It stinks because, in general, hotels are doing really well in 2024,” he said. “It makes it even harder to carry [debt] and get a return on investment, whether it’s a private investor or public fund. So, it’s tough out there right now for development, and I can’t imagine … what having that public-private partnership between the city of Speedway, banks and developers does.”

Looking forward

Since work began to put together the Wilshaw project began in 2015, Speedway has had four town managers and five economic development directors. The leadership of the Town Council has also undergone multiple shifts; in 2019, two of the five council members were voted out, while four were replaced in 2023.

The lack of progress on the project has long been a point of contention for business owners and residents, and that worsens as the project continues to gather rust.

Turner Woodard, who owns the Speedway Indoor Karting building at 1067 N. Main St., said while he would stop short of calling the unfinished development an eyesore, work needs to resume soon to help the town move forward. He said he’s heard many residents echo frustration over the development’s status.

“I think I speak for most of us in Speedway that, my gosh, it needs to get done,” he said. “I have a suite out at the Speedway, and I’m a big racing fan. I’m happy to be a landowner and building owner in Speedway, and I think those sentiments, I would share absolutely—[it’s] frustrating. It doesn’t seem to be coming to an end or any closure, and it needsto get done.”

Woodard, who acquired the karting building in August 2021 from operator Sarah Fisher O’Gara, said he inquired about becoming involved in the project shortly after work stalled, but Loftus Robinson and its partner at the time, MHG Hotels, weren’t interested.

Woodard isn’t the only businessman with local interests to inquire about the project.

In 2019, Roger Penske considered buying either a portion or all of the ownership interest in the project when he bought the IndyCar series and Indianapolis Motor Speedway, said Doug Boles, president of the speedway.

“He did have his team take a look at the project and figure out if there was a place that made sense for Roger or for Penske Corp. or for [IMS], for that matter, to get involved with it,” Boles said. “But it’s so complicated with the original investors that there’s no real way for somebody to come in and step in—or at least not for us—there wasn’t a way to step in and make it make sense for us to get it done.”

Boles, who took over as president of IMS in 2013, said track management hopes the hotel will move forward, because it would benefit the town year-round, rather than just during big race weekends.

He said the track is currently used about 140 days per year, with most out-of-town participants staying either at hotels on the opposite end of Speedway or in downtown Indianapolis. At a proposed 127 rooms, the Wilshaw, which has long been proposed to bear the higher-end Tapestry brand from Hilton, could help bring more dollars to Main Street tied to those events.

“We continue to be supportive and try and figure out what we can do to be helpful,” Boles said. “We’re like the neighbors and the people that live in the town. We want to see it happen because we know that it’d be better for the town—it’s our front door … and that’s the front door to Main Street. All of us that are in the town, whether we live there or work there, want to see that developed and finished.”

Kleinhenz, the town manager, said construction should move quickly on the Wilshaw if and when it resumes. It’s expected to be an 18-month build, and the steel and concrete are largely intact; the existing structure can still be used if work begins in the next couple of years, he said, citing a 2023 structural integrity analysis.

But will it? That, he said, is an unanswerable question.

“The reality of the situation is, I can’t give a timeline at all, as far as what the town could do if the lawsuit was settled tomorrow,” Kleinhenz said. “We have discussed backup plan after backup plan, about what we could do. To put a timeline on it … I could say 10 years, but that would be ridiculous. I would hope to heaven it’s not 10 years, but there’s just no way to know.”•