A Hennepin County Judge scheduled a hearing next week to consider a request from the Dayton’s Project developer to halt the upcoming auction of the project’s loan in New York.
601 Minnesota Mezzanine and its managing members, Mark Karasick and Michael Silberberg of The 601W Cos., are seeking a temporary restraining order against loan owner Monarch Alternative Capital LP and loan administer Dayton’s CaboSparkles LLC to block the foreclosure sale. New York City-based Monarch purchased the project’s $78 million mezzanine loan and is now seeking to sell it in a late August public auction, according to court filings.
Project owner-developer 601 Minnesota filed a lawsuit against Monarch in early June for relief from target leasing dates and $270 million in damages, among other things. It claims Monarch set out to “steal” the property and “turn a quick profit” by purchasing the mezzanine loan. The loan requires 601 Minnesota to meet leasing targets by set dates, according to the filings.
The loan, which was collateralized with the project, is now in default because the developer failed to meet the leasing target dates. However, 601 Minnesota has allegedly remained current in its debt services obligations. 601 Minnesota says the leasing dates were set before dual crises hit Minneapolis: the COVID-19 pandemic and the civil unrest following the murder of George Floyd, according to court filings.
“This unprecedented crisis of unforeseeable and uncontrollable events occurring at the end of the redevelopment period of the Dayton’s [Project] has forced prospective tenants to cancel or postpone office relocations within the City,” the plaintiffs wrote in the filings.
601 Minnesota claims the defendants, Monarch and Dayton’s CaboSparkles, are seeking to sell the loan to insulate themselves from liability. The developer also claims it’s able and willing to pay off the mezzanine loan or keep it current, according to court filings.
The defendants wrote in response they’re seeking to dismiss the case for lack of jurisdiction and failing to state a claim where relief can be granted, according to filings.
Monarch and Dayton’s CaboSparkles have allegedly filed two lawsuits against Karasick and Silberberg in the New York State court system, saying they’re personally liable for 601 Minnesota’s debt obligations. Dayton’s CaboSparkles and Monarch are pursuing one of the suits in an expedited manner, which 601 Minnesota claims is a tactic to evade Minnesota’s review of the case, according to filings.
A Hennepin County judge set a court date of Tuesday, Aug. 3, to review the temporary restraining order, which is ahead of the Aug. 23 auction, according to court documents.
Dayton’s CaboSparkles is selling 100% interest in entities that own the project. It sent an auction advertisement to 7,000 prospective qualified bidders in late June, according to court filings.
The Dayton’s Project is located at 700 Nicollet Mall in downtown Minneapolis. 601 Minnesota partnered with The Telos Group LLC and United Properties on the project, and work mostly finished before the pandemic began. Work involved renovating the 1.2 million-square-foot building to house retail and restaurant space on the lowest three floors and office space on eight floors, along with a library, gym and park, according to reporting from Finance & Commerce.
The project is 7% leased, according to the advertisement from Dayton’s CaboSparkles.
Prior to the pandemic and murder of Floyd, the developer had lease commitments from two “significant” tenants and was in advanced negations with an additional tenant. The city’s leasing market has been “virtually frozen” since the pandemic began. As of January this year, two prospective tenants have backed out and the anchor tenant “drastically” reduced its footprint. 601 Minnesota is unable to meet leasing target dates, according to reporting by Finance & Commerce.
601 Minnesota funded the $350 million project with mortgage financing from JP Morgan Chase N.A.; mezzanine financing from Angelo Gordon Management LLC; tax incentives from the federal government and city of Minneapolis; and private investors, according to court filings.
Minneapolis leaders have voiced support for the project’s developer by filing briefs in support of the project.
Attorneys for the Minneapolis Downtown Council and Minneapolis Regional Chamber of Commerce wrote the building is “on the precipice of renaissance” in court filings.
“After three years of work, the building has been fully restored and will offer premier retail, office, and dining space, and, if the vision is allowed to become a reality, will spark the revitalization of downtown,” attorneys for the organizations wrote in filings. “This promise is put at risk, however, by a last-minute takeover attempt which seeks to wrest control of the project from the team which has worked closely with the community to transform Dayton’s from an empty building to a destination that will, once again, serve as the hub of a vibrant downtown Minneapolis.”
The Minneapolis City Council voted 12-0 with one absent to file its own brief in support of the project last week. The City Attorney is seeking to file the brief “because of the importance of this development project to Downtown, and the City in general,” according to the city’s website.