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Salem hotel project faces looming deadline, as city learns of troubles in developer’s past | Business

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As a child in the 1950s and 1960s, Dan Friesland worked on a farm run by the Salem orphanage where he lived.

Now Friesland, 68, wants to replace the long-ago harvest of potatoes and strawberries with a true cash crop: hotel room billings.

The old farm was paved over decades ago for the Salem Civic Center, a baseball park, football stadium and parking lots. Friesland said he has worked full-time for more than a year to erect a Staybridge Suites hotel outside the civic center. He envisions fans leaving a game or concert and walking to their hotel, not their car. They would settle into their rooms and click on the big screen. All for $115 or so a night.

“That’s my old homeplace, so there’s a pride in this,” said Friesland, who lives in Roanoke County.

But legal and financial obstacles have delayed the start of construction. That’s been a source of frustration for Salem officials, who endorsed the $15 million project in spite of caution flags waving. A lien attached to the project site by federal prosecutors raises potential new complications.

Salem officials pledged incentives worth more than $5 million. They knew that neither Friesland nor partner Alan Criss of Salem had previous hotel development experience. Friesland disclosed to city officials that he had been convicted of fraud and that he filed for bankruptcy about 20 years ago.

Officials said they did not review court records. Friesland didn’t provide a financial statement — and Salem didn’t ask for one — so city officials didn’t know the extent of his debt.

In November, the federal government attached a $532,000 lien to the vacant lot that Salem provided for the hotel project. Federal prosecutors are seeking money that Friesland owes two businesses he admitted defrauding more than two decades ago. The IRS also is seeking back taxes. City officials said they didn’t know about either lien until a reporter inquired.

The hotel would operate under a franchise agreement with a national hotel company in a deal brokered by Criss, who is the chairman of a West Virginia bank. Before he and Friesland took up the project, no other developer with whom city officials had spoken had seen enough profit potential to get involved.

Salem officials realize there is a possibility that ground won’t be broken.

“I wish them the best of luck because I still think it’s in Salem’s interests to make it happen,” Mayor Randy Foley said. “But, being honest, I’m somewhat skeptical.”

Spartan Development, the limited liability company used by Friesland and Criss for the hotel project, has 83 days to obtain construction approval from the city and break ground. Otherwise, Salem could pull the plug. As of last week, no construction plans had been filed.

Friesland and Criss say they have invested at least $250,000, completed licensing, chosen a builder and progressed toward securing financing. But they declined to provide details about the financing partner they plan to use, citing a confidentiality agreement.

United Kingdom-based IHG, the corporation that both owns and franchises Staybridge Suites hotels, said in December that the extended-stay hotel should open in early 2020 as a franchised property. Newport Hospitality Group of Williamsburg, which Friesland and Criss are using for hospitality management, predicted profitability by the end of year one, according to a report Friesland released.

The hotel would feature about 100 rooms, while a restaurant next door would seat more than 200 people, according to records Friesland and Criss provided to the city.

IHG referred questions about the lien and Friesland’s past to Friesland and Criss. Newport Hospitality did not respond by the end of the day Friday to a request for comment on those issues.

Return to childhood turf

Friesland said he and his sister were abandoned by their parents and grew up in the Lutheran Children’s Home of the South, which sat on a bluff between downtown Salem and Electric Road. They lived in dormitories, went to public schools and helped produce food for the home’s residents on the sprawling orphanage farm.

Life was “wonderful” but “regimented,” Friesland said.

The property changed hands, with a portion going to Salem, which built its civic center there in 1967.

Norman Smith, a graphic artist in the Roanoke Valley, remembers Friesland from when they both lived at the home. “He was one of the good kids, never seemed to get in much trouble or anything even though some of us did,” Smith said.

After leaving the orphanage, Friesland spent time in the military, he said. He married a woman he met in high school, worked in sales and marketing and operated his own business in health care employment recruiting, he said.

One employment-related enterprise registered in his name, Doctors with Dings, helped physicians with blemishes on their records find work, according to its online postings. Wake Forest University in North Carolina said he was a student there but did not graduate. He also worked in the home mortgage industry, according to Roanoke Times archives.

Friesland described himself as “a man who has had some issues in his past but has overcome them.” He served time in a minimum-security prison for fraud, owes money to his victims and the IRS and is behind on his condo dues.

“There’s none of us on this earth wear angel wings, you know?” Friesland said in a recent interview.

In the mid-1990s, Friesland operated Union Hall Packaging, a corrugated container brokerage. Friesland’s company took orders and payment from clients and arranged for his previous employer in the same industry, Highland Containers of North Carolina, to fulfill them, court papers said. Friesland later pleaded guilty to wire fraud. Authorities said he failed to pay his suppliers, specifically Highland and another company that had fulfilled orders, Box USA Group Inc., in 1997. A judge ordered Friesland to pay $100 monthly toward restitution of $140,000 to Highland and $392,000 to Box USA for a total of $532,000, court papers said.

U.S. District Judge Jackson Kiser sentenced Friesland to 20 months in federal prison. He served his time at the federal prison camp at Seymour Johnson Air Force Base in Goldsboro, North Carolina, from Oct. 26, 2001, to April 7, 2003, according to federal records.

After working in the corrugated products business, but before his fraud case was resolved, Friesland leased and then ran an Italian restaurant near Smith Mountain Lake. In 1998, Franklin County authorities charged Friesland with six counts of failing to collect, account for and hand over meals taxes, court papers said. The business surrendered its beer and wine license in August of that year, according to Virginia Alcoholic Beverage Control records.

The next month, Friesland and his wife filed for bankruptcy. They outlined debt of $1 million and later received a discharge from those obligations, court papers said.

In 1999, Friesland pleaded no contest to the misdemeanor meals tax charges. A judge found him guilty of one of the counts and imposed a $600 fine and six-month suspended jail sentence, court papers said. Friesland paid the county $6,000 in court-ordered restitution, court papers said.

In 2000, Friesland still was facing the fraud case when he accepted a request from federal agents to participate in a drug sting, he said. The target was an employee of the Roanoke office of the Department of Forensic Science, the state crime lab, according to court papers and interviews. Friesland said he wore a wire and sold drugs to the woman, whom he knew, during a prearranged meeting in a parking lot. Friesland said he didn’t do drugs himself.

The woman confirmed that Friesland set her up for arrest. She said she later resigned her state crime lab job. After she pleaded guilty to cocaine possession, a judge fined her $1,000 and placed her on probation for three years, court papers said.

When Friesland later pleaded guilty to his charge, prosecutors asked Friesland’s sentencing judge to reduce his punishment in the fraud case in recognition of his role in the sting. Court papers don’t say how much of a break Friesland might have received.

The court’s original order saying he must pay restitution of $100 a month is still in effect, and he is paying it “just like they asked me to do,” he said.

The U.S. Attorney’s Office in Roanoke declined to provide the balance due on Friesland’s restitution, but prosecutors took action Nov. 26 to collect it, placing a lien against Friesland’s interest in the hotel project site, which is assessed at $1.5 million.

The lien wouldn’t necessarily block construction of the hotel, but Spartan Development could find the property difficult or impossible to sell with the lien in place.

Friesland also has been sued by his condominium association, which says in court papers that he has not paid $3,864 in condo dues for 2018. Friesland said he doesn’t have the money to pay the dues, in part because he and his wife live on Social Security and he isn’t paid for the time he puts into the hotel project.

A lien filed last year in Roanoke Circuit Court says Friesland owes the IRS $166,753.19 in individual income tax for tax year 2015, an amount he disputes. The filing doesn’t give the reason for the debt.

Slow out of the gate

Friesland and Criss met while working on an earlier development project, the men said. That venture, also in Salem, proved a success, said Melinda Payne, director of the city’s economic development office.

In 2015, a limited liability company owned by Friesland bought a vacant Commerce Park business center lot from the city for $500,000. A bank provided a $400,000 loan for the purchase, real estate papers said.

The LLC had pledged to erect medical office buildings, but those terms later were modified to allow a substance abuse center instead. The LLC resold the land five-and-a-half months later for $1.5 million to Tennessee-based Acadia Healthcare. The company built the inpatient Mount Regis Center, which sits across Texas Street from the hotel site.

Mount Regis CEO Curt Lane said Friesland and Criss provided “very, very helpful” assistance to Acadia in its effort to obtain city permission for the center. “They certainly worked for it,” Lane said of Acadia’s payment for the land.

Bill Modica, a real estate broker, raised an objection when the city council approved entering a sales contract for the land — but before the sale closed — warning that Friesland and Criss might flip the land for a quick profit. Salem’s city manager said he understands that it could look like that’s what happened.

But there is more to the story, Salem City Manager Kevin Boggess said. The city sold Friesland and Criss the land convinced they would build a medical office park as agreed and lease the space long-term. But Acadia wanted to own the land — and erect its own building — and it paid a premium for the site reflective of the present value of a long-term lease, Boggess said.

Mount Regis had operated at a different city location, but has expanded in its new one.

Boggess said the city gained jobs, capital investment, tax revenue and improved community service.

“Would I have preferred to be the one to sell it for a million and a half dollars? Absolutely,” Boggess said.

Friesland and Criss were looking for ideas for their next project when Payne told them about the city’s interest in a hotel at the civic center. Anybody looking to develop real estate in Salem would have received the same encouragement, she said.

“They are not your typical developers. They are learning as they go,” Payne said.

“It’s interesting when you venture into the land of the unknown but you have so much desire to make it happen that you stick with it. Dan and Alan, they’ve have done that. … They’re kind of like the underdog,” she said.

Each of the past two years, the hotel project appeared to be moving toward construction.

In 2017, Friesland and Criss filed a site layout and Salem approved it. An article in the city-published Salem Magazine, titled “Grab a Bite & Stay a While,” projected a summer 2017 groundbreaking.

In early 2018, Friesland and Criss briefed the Salem City Council.

“We’ll be busting [dirt] clods if you have to tie me up to a plow,” Friesland said. “We’re still positive about the whole project.” The team said it aimed to break ground by an October deadline set by the city.

A few days before the October date, the city council voted 5-0 to grant Spartan an extension until April 13.

Friesland and Criss said the delays have been caused by the complicated financial aspects of the deal. A number of banks turned them down for financing, they said. The banks saw hospitality projects as high-risk and were unsatisfied with the amount of money being put into the project by Friesland and Criss. Another impediment to getting a bank loan: The nation’s economic growth had not recovered after stagnating in 2015, the men said.

Criss said Spartan Development never sought to borrow hotel construction money from his bank, in which his family is the majority stockholder. He’s chairman, a position he’s held for eight years, and “it just doesn’t look right and I don’t want there to be anything that ever doesn’t look right for our bank,” he said.

Williamstown Bank, with assets of $162 million, is also too small to lend the $12 million to $14 million Spartan Development needs, Criss said.

Criss, who has experience in the construction materials industry and the one-hour photo trade, provided some seed money to get the hotel project going. He paid a $50,000 application fee for a franchise license received in 2016 from IHG, Friesland said. The city released a copy of the signed franchise deal provided to it by Friesland.

Salem was willing to help with the project. A 2007 study commissioned by the city found a hotel could do well at the 50-year-old civic center. If the hotel succeeds, Payne said, it could position the city to prioritize renovations. Officials have said the civic center’s concession areas, locker rooms and meeting rooms need upgrades.

Salem sold Friesland’s and Criss’ company the 6.75-acre parcel at a drastically reduced price of $100 an acre and agreed in concept to support $3.2 million in state-sponsored construction financing and lend $1.3 million for operations. None of the money has been paid out and won’t be unless the project goes forward.

If Spartan Development misses the mid-April deadline to obtain construction approval from the city and break ground, Salem can exercise an option to repurchase the land for $675, real estate papers said.

City officials haven’t had time to sort out how the federal lien might affect their repurchase option, Boggess said.

Boggess expressed unease as he recalled that the city hadn’t independently assessed Friesland and Criss beforehand.

The project raises “the whole idea of where does our responsibility lie in terms of protecting taxpayers’ interests but getting development to happen,” Boggess said. “Be interesting as we kind of go through this and digest this particular arrangement and [learn] how well protected we were or weren’t. … The last thing we want is to make a headline because we lost taxpayer money in a development, and that certainly has happened in lots of areas in the state and elsewhere.”

Boggess and council members discussed in 2018 making background checks standard for developers seeking city incentives. Boggess chalked up the discussion to the city’s greater use of incentives recently and not to any specific project.

The city council voted Monday to seek the resignation of Boggess, whose last day is scheduled for Feb. 15. Foley, who opposed the request, said those who wanted Boggess to depart never raised the civic center hotel project as an issue and he doesn’t think it had anything to do with the decision to oust the city manager.

Business strategy debated

A feasibility study on the proposed Friesland-Criss hotel by Georgia-based hospitality advisers Highland Group contains reasonable projections for success “assuming the property is managed well,” said Gary Walton, a professor in Virginia Tech’s Department of Hospitality and Tourism Management. Walton previously managed the Hotel Roanoke & Conference Center. He is not involved in the Salem hotel project but reviewed the study.

Friesland and Criss expect the hotel to garner significant business from the calendar of events at the James E. Taliaferro Sports and Entertainment Complex, the umbrella name for Salem’s sporting, event and meeting facilities on Roanoke Boulevard. Total attendance at all events last year reached 717,712, but the city couldn’t determine how many were from out of town, spokesman Mike Stevens said.

Granger Macfarlane of Blue Ridge Hospitality Group, formerly Eastern Motor Inns, sees a possible challenge for the future Staybridge Suites.

“You cannot survive on what we call one market,” according to Macfarlane, who explained that leisure and business travelers will be needed to fill beds on nights when there are no events on the complex site. After opening a Hampton Inn near LewisGale Medical Center about 20 years ago, Macfarlane found the hospital didn’t generate the business he expected.

Macfarlane predicted the Staybridge Suites would face “pretty stiff competition” for leisure and business travelers from hotels on Electric Road, a proven hotel market, including one of his.

An average of 20,000 vehicles daily travel that area of Electric Road. The section of Texas Street the new hotel would front carries about a third of that, according to highway department counts.



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