Dayton developer sues debt holder

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The owner and developer of Dayton’s Project in downtown Minneapolis is suing its debt holder over claims that the debt was purchased under a “predatory loan-to-home program.”

601 Minnesota Mezzanine and its executive members, Mark Karasick and Michael Silberberg of The 601W Cos., Seek an injunction and $ 270 million in damages from global investment firm Monarch Alternative Capital LP, claiming continued civil unrest in the metropolitan area and the global pandemic caused potential tenants to withdraw from rental commitments. The Dayton Project is the $ 350 million redevelopment of a 1902 apartment building in downtown Minneapolis at 700 Nicollet Mall, according to the civil complaint received by Finance & Commerce.

Although 601 Minnesota is up to date on its debt obligations, the complaint says the developer is in default for not leasing the project by leasing deadlines. These are scheduled dates when a property must have a certain percentage of the space rented.

601 Minnesota says rental dates were set before the double crisis enveloped Minneapolis: the COVID-19 pandemic and civil unrest after the murder of George Floyd. Monarch would apparently not engage in lease deadline renegotiations, and instead would seek to foreclose the loan and “steal” the property, according to a press release on the developer’s case.

“Predatory lender … seeks to shut down owner-developer of a local Minneapolis real estate project and take over the project for himself,” says the recently filed 601 Minnesota Civil Complaint, which has not yet been made public .

New York-based Monarch did not send a comment at the time of posting.

601 Minnesota is partnering with The Telos Group LLC and United Properties on the project. Work has continued for four years, during which time teams renovated the 1.2 million square foot building to house retail and restaurant businesses on the lower three floors and offices on eight floors, as well as a library, a gym and a park, according to the Liberation.

“This will be the first space of its kind in Minnesota,” Karasick said in the statement. “We will support the local business community with a designated area for small retail stores and kiosks, specializing in products made here in Minnesota, including those made by local artisans and minority-owned businesses.”

Crews completed most of the work on the 12-story building in February and March last year – a month before pandemic restrictions began. Prior to the pandemic and Floyd’s murder, the developer had rental commitments from two “significant” tenants – including a national accounting firm – and was in advanced negotiations with each other for a 150,000 square foot space, according to the complaint.

However, “the Minneapolis leasing market has been virtually frozen due to COVID-related lockdowns and widespread civil unrest, leading to the shutdown of retail and office operations across the city,” according to the complaint.

This included the Dayton Project, which has indefinitely suspended its rental program, according to the complaint.

In January of this year, two potential tenants withdrew from their rental commitments, citing continued civil unrest in the city center. The potential lead tenant, a national accounting firm, has postponed and “drastically” reduced the scope of its initial commitment to rent four floors of office space, according to the complaint.

601 Minnesota was – and still is – allegedly unable to meet rental dates, which were created when “no one could have reasonably predicted how the pandemic and civil unrest would cripple office and retail rentals in the United States. downtown, “the statement said. .

The Dayton Project is currently 98% vacant, according to the complaint.

The complaint states that the project was funded by mortgage financing from JP Morgan Chase Bank, NA; mezzanine financing from Angelo Gordon Management LLC; and federal government and city of Minneapolis tax incentives.

Monarch acquired Angelo Gordon’s $ 78 million mezzanine loan four months ago. Neither the mezzanine loan nor the mortgage is in default. But 601 Minnesota is in default because it failed to meet rental criteria, according to the complaint.

Monarch reportedly refused to meet rental deadlines and instead sought to foreclose the mezzanine loan and take ownership. The statement added that Monarch has ensured that other lenders can refinance the Dayton Project.

In addition, Monarch reportedly agreed to a “good faith agreement” whereby the parties would work together to restructure rental terms, according to the complaint.

“It is clear that Monarch intentionally acquired this mezzanine loan in order to capitalize on the unprecedented crisis facing the Minneapolis business community and to steal property from 601 Minnesota,” the complaint states.

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