State sells troubled Collinsville hotel

Bad debt off state's books

July 3, 2008

The State of Illinois has sold the Collinsville Holiday Inn, putting an end to an ill-fated, politically
connected sweetheart deal that cost the state millions, Illinois State Treasurer Alexi Giannoulias
announced today.

The state auctioned off the hotel for $5.3 million on Thursday to St. Louis-based Lodging
Hospitality Management (LHM), the highest bid among six that were submitted. In addition to the
money from the sale of the property, Giannoulias noted the state will also realize an additional $5.1
million based on profits the hotel has realized since the state took it over, outstanding letters of
credit and personal judgments against the former owners, B.C. Gitcho and Gary Fears. That
money combined with the revenue from the sale will result in a total of $10.4 million that the state
will recover.

“Putting an end to this debacle that funneled state money into the pockets of a few politically
connected insiders has been a priority for my administration,” Giannoulias said. “It’s finally over but
unfortunately the impact of this terrible arrangement has further scarred the state and given it
another black eye when it comes to unethical practices.”

LHM, which has been in business for 22 years, owns 16 hotels in the St. Louis and Metro East
area, including Hilton, Sheraton, Holiday Inn, and Quality Inn franchises, said Craig Cobler, senior
vice president of development with LHM.

“We plan to make significant renovations to the property to make it a first-class, upscale suburban
hotel,” said Cobler, who intends to pursue a new franchise flag for the hotel. “It’s our intent to
maintain a strong and lasting relationship with local leaders and the community.”

Sealed bids for purchasing the property were due on May 21. Since then, the Treasurer’s Office
has analyzed the bid amounts and conducted background checks on each of the bidders to ensure
none of them had connections to the previous owners.The process was delayed after the City of Collinsville offered a financial incentive package that could potentially be available to the bidders in order to ensure the long-term stability of the hotel and each of the bidders was given additional time to present final bids.

The Treasurer’s Office was told that the incentive package could be potentially worth several million dollars over the next 20 years, depending on the willingness of the new owner to invest in improvements to the property and their ability to run a successful business that would bring tax revenue back to the community.

According to Cobler, LHM plans to invest $9 million to make sorely needed renovations and
upgrades to the hotel after the former owners allowed the property to fall into disrepair for the past
several years.

Installing a new owner for the Collinsville hotel will finally put an end to the 25-year financial
debacle that enabled a group of political insiders to secure an outrageously favorable $13.4 million
state-backed loan. The owners soon fell behind on payments and the outstanding principal and
interest ballooned to $32.2 million.

“The hotel has been a burden on taxpayers for far too long,” Giannoulias said. “Selling the hotel
will relieve the state of this debt and also benefit the Metro East economy by better ensuring the
long-term success of this hotel.”

Giannoulias has said the state would never recover the entire $32.2 million the former owners
owed from defaulting on the loan. He noted the hotel’s value decreased significantly because the
former owners neglected the property and failed to make any improvements. This led to a decision
by Holiday Inn officials to terminate the franchise flag sometime in 2008, further lessening the
property’s value.

“Each of the bidders indicated that they would need to put millions of dollars into the property just
to get the hotel back up to industry standards,” Giannoulias said. “That obviously had an impact on
the selling price but the new owner is committed to making it a top-notch hotel.”

Days after taking office in January 2007, Giannoulias took action to install a court-appointed
receiver to manage the day-to-day operations at the 228-room hotel. In October, Giannoulias held
a judicial sale to take title of the property from the owners. In its latest report filed in court, the
hotel’s receiver – Hostmark Hospitality Group – revealed the hotel had earned a net profit of
$586,000 from January to November 2007, compared to a loss of $818,000 during the same time
period in 2006, resulting in a difference in reported income of more than $1.4 million. From January
2007 through May 2008, the hotel has generated $672,000 in net profits that the state will realize.

Giannoulias has also forwarded more than 100,000 documents relating to the hotel’s finances and
operations to the U.S. Attorney’s Office to determine if any wrongdoing took place.

Since gaining title to the property, the Treasurer’s Office made improvements that have included
renovations to 30 rooms and the installation of a new heating and air conditioning system in the
hotel’s main ballroom. All projects were competitively bid.

In Springfield, the Treasurer’s Office has taken similar steps to auction the President Abraham
Lincoln Hotel and Conference Center. Giannoulias effectively gained title of the Lincoln Hotel
through a judicial sale conducted on March 5 and plans to hold an auction to sell the property later
this year.