Citizens fear city getting taken to cleaners by Gatehouse Capital, starting with $150,000 up front

MASON CITY – Some Mason City citizens with a skeptical view of city hall’s “Renaissance” downtown development claim the $150,000 payment to hotel developer Gatehouse Capital smells of a scam and are demanding the city council back off until after voters make a crucial decision on the matter later this year.

Gatehouse Capital is requiring a $150,000 up-front payment from Mason City for a “Predevelopment Plan” for a hotel in the Southbridge Mall parking lot. The company claims this payment is a standard business practice. Currently, in Marshall, Minnesota, Gatehouse is asking that town for $130,000 to cover “pre-construction planning” for a possible event center and hotel development there. Just like in Mason City, the general contractor for that project would be Dean Snyder Construction of Clear Lake, Iowa. According to documents out of city hall in Mason City, if the city decides to move forward with the project within 90 days of completion of the “Predevelopment Plan”, the $150,000 would be refundable ‘within 45 days of project financing.'”

Some citizens worry that if the Mason City council gives approval for the $150,000 at a special council meeting set for Thursday night (7 PM, Mason City Room at library), the payment will be made and the “Predevelopment Plan” would be finished by Gatehouse quickly – perhaps within 60 days or less. If the plan is done, say, by July 11 (60 days after the May 11 council meeting), the city would have to agree to move ahead with the Renaissance plan within 90 days of that date in order to get the $150,000 back. That date, then, would be October 11. However, the Renaissance deal hinges on a November 7 referendum on $18.5 million in city bonds required to build and finance a multi-use arena for Southbridge Mall, as the hotel, arena, music pavilion, parking ramp, and more, are all interconnected. City Administrator Brent Trout said at the last city council meeting that failure of that November 7 referendum – which requires a lofty 60% approval by voters – brings the entire Renaissance deal down like “a house of cards”.  (See video, below.) In other words, it doesn’t appear the city will be able to meet a required deadline prior to the November 7 vote to get its investment returned.

To make the matter even more of a head-scratcher, Gatehouse gets to keep results of the study all for themselves whether or not the hotel ever gets built – Mason City doesn’t get the study.  That’s not the case in Marshall, Minnesota, where that town gets a better deal from Gatehouse and would get to keep the study they paid for.

Citizens are also pointing out conflicts of interest in the matter. As councilman John Lee pushed forward to make Gatehouse the developer of choice and has been a steadfast supporter of the multi-use arena, it has been pointed out that he, and his wife, have recently served on the board of the North Iowa Figure Skating Club and have offspring participating in the club. Councilman Lee’s wife’s business storefront is only about two blocks from where the hotel could be built (Southbridge Mall parking lot). Plans for the multi-use arena show that for at least 6 months out of the year, it would be dominated by ice use. As NIT reported back on April 26, it’s a “deal-breaker” if the city’s youth hockey group cannot get the arena for at least 6 months out of the year – thus, benefiting groups like the figure skating club, who have clamored for more ice time. (Youth Hockey claims it will bring $2 million contribution to the Renaissance project). This domination of the arena by ice groups may hamper other events that could possibly be held in the arena during that stretch of time – October through March – or potentially even longer than 6 months. No concerts, no races, no performances outside of ice events.

NIT has also received word that at least two other council members may be politically compromised as they seek greater office and in one case, better employment opportunities – potentially with a local bank that has held millions of dollars of city money.  (More on those matters later.)  NIT has learned of an alleged secret meeting held between Chamber of Commerce Director Robin Anderson and some council members, where they were sold on dumping Philip Chodur’s G8 Development and turning instead to Rachie’s Gatehouse Capital as the hotel developer of choice.  We reported last week that Mr. Chodur plans to go ahead with a hotel very close to where Gatehouse could build theirs – but some citizens say a lawsuit against the city from Mr. Chodur is very possible after he dumped over $600,000 into a deal with the city and was then shut out.  NIT reported 2 years ago that Mr. Chodur was suing the California town of Vista after a development went wrong there.

Even as these issues continue to befuddle citizens, Gatehouse’s David Rachie – the face of Gatehouse in Mason City – is also coming under scrutiny.  For example, it has been brought to our attention that Mr. Rachie had his $340,000 home in Forest Lake, Minnesota, foreclosed just 2 years ago.  The house was set to be sold at auction by the county Sheriff in April of 2015.

Twin Cities business publication The Line reports of Rachie that “the financial meltdown grounded his last venture” and refers to him as a “serial entrepreneur“.  He lists several businesses on his LinkedIn account work experience.  He does not, however, list Gatehouse Capital, there.  Less than three years ago, the Minneapolis Star-Tribune reported David-Elias Rachie as the founder and CEO of Adestinn, a newer company at the time that creates employee-benefit packages.  The Star-Tribune said Rachie’s Adestinn was “raising about $750,000 in equity from individual investors to finance its expansion.”  Some people call that practice “using other people’s money” to do business.  Adestinn lists its headquarters at 5541 Clinton Avenue – a single family home just off Interstate 35 in south Minneapolis.

As previously mentioned, Rachie is working with the town of Marshall, Minnesota, on a hotel-convention center development there.  The Marshall Independent echoed some undercurrents of criticism here in Mason City from citizens: Is it fair for the city to participate in financing a new hotel, when there are already numerous others in town?  Did other businesses receive such large start-up costs (with no promise of a hotel being constructed) and massive, multi-million dollar interest-free loans?  Where is the protection for the taxpayers?