A developer whose company went belly up after he persuaded a small Wisconsin village to take on millions of dollars of tax increment finance debt for a resort has been sentenced to five years of supervision on a related charge of theft by contractor.
Edward Van Der Molen, a developer with ties to the Chicago area, admitted before a judge March 28 that he had accepted $80,429 for construction work that was never completed at the Three Bears Resort in the village of Warrens. Molen later was found guilty of racketeering and fraud charges related to his soliciting investments for properties he owned at the resort without disclosing his financial difficulties to those giving him the money.
For those crimes, Monroe County Judge Todd Ziegler sentenced Van Der Molen to five years of supervision, 60 days of which will be spent in jail. Van Der Molen also has to pay restitution to his victims, refrain from selling securities and cover court costs.
Van Der Molen’s company, Van Der Molen Recreational Properties Inc., persuaded Warrens officials in the late 1990s to take on about $18 million in debt to finance the construction of a hotel, water parks and condominiums at the Three Bears Resort, near Interstate 94. By 2009, in the midst of the recession, the properties were in foreclosure.
The debt was to be paid off using money collected by a TIF district established in 1998 at the resort site. TIFs let local officials take additional property taxes that are generated by increases in property values or new development in a particular area to pay for public works projects in the same place.
Within the first 10 years of the TIF, things were going well, said Michael Harrigan, a senior financial advisor in the Brookfield office of Ehlers and Associates Inc., which helped Warrens set up the TIF. The property value in the district had risen by about $90 million, placing it among the most successful TIFs in the state’s history.
But the recession came down hard on the Warrens’ TIF, as on many TIFs throughout the state. The value in the district plummeted by more than half.
Harrigan said the district, for which Ehlers still provides advice, continues to collect money. But the TIF has had to be declared “severely distressed,” a designation that gives the village 40 years to pay off the debt rather than the usual 27.
Harrigan said he is confident no further extensions will be needed.
“The village has worked hard with its bondholders to meet and pay off the obligations,” he said. “To date, everyone has got paid interest.”
Harrigan said it would be hard to draw a line between the crimes Van Der Molen was sentenced for Monday and Warrens’ TIF difficulties. State prosecutors found evidence that Van Der Molen had withheld financial information he was supposed to provide when trying to persuade various investors to buy villa properties at the Three Bears Resort.
Van Der Molen proposed an arrangement in which he would lease the properties back and then sublet them to people staying at the resort, according to the state’s criminal complaint. Van Der Molen assured the investors the scheme would net them an annual return of nearly 9 percent, which amounted to $20,655 in one case.
What Van Der Molen did not say, according to the complaint, was that he already was having trouble paying other bills. Among those he owed money to was Neenah-based Miron Construction Co. Inc., whose officials had been told by Van Der Molen in December 2006 that he could not come up with $800,000 he owed the company, according to the complaint.
Representatives of Miron could not be immediately reached.
The investors Van Der Molen had persuaded to buy villas at the Three Bears learned of his financial troubles through a letter he sent March 26, 2008.
Members of his family who had put money into the resort also suffered, according to the criminal complaint. Van Der Molen’s sister, Beverly Paigen, told investigators that she lost $280,000 on the property and that her other sister lost her entire life savings, according to the complaint.
And the roughly 360 residents of Warrens have not been spared. Jolene Rhea, village clerk, said the drop in property values following the foreclosure made it apparent the TIF would not be able to pay off all the debt associated with the TIF district.
To prevent a default, she said, some of that burden was made into a general obligation of the village. That meant residents had to pick up the tab through their property tax bills.
Property owners in Warren now pay $32.45 in property taxes for $1,000 in assessed value, which is one of the higher rates in the state, Rhea said. She said she was not in her current position when the TIF was established so declined to speculate on what might have been done differently.
She said she thinks local officials might have been misled.
“It must have been,” Rhea said. “Obviously there were things presented that made it appear to be a workable thing.”
Harrigan said there may be nothing local officials can do to completely protect themselves from dishonesty, but steps can be taken to mitigate harm. He said, decision-makers can insist on the use of development agreements, which provide a means of recovering money from a developer who fails to live up to his promises.
Sometimes the projection comes in the form of a personal guarantee. When that is what is being put on the line, Harrigan said, local officials would be amiss to not look into a developer’s finances.
“We’ve been recommending for a while,” Harrigan said, “that communities request personal financial statements on a confidential basis.”
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