A judge ruled in favor of a request from the Dayton’s Project owner-developer to delay 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. now must “move as quickly as possible” to complete project financing — which includes first paying off a $145 million mortgage loan and then the $78 million mezzanine loan — in order to remove Monarch Alternative Capital LP and Dayton’s CaboSparkles LLC’s from the project, according to a news release from 601 Minnesota.
The temporary restraining order delays Monarch’s planned auction of the project’s $78 million mezzanine loan. Monarch must post bond a $10 million and wait 30 days from Monday to schedule the next auction. If auctioned, 601 Minnesota, Karasick and Silberberg would have lost interest in the Dayton’s Project, the release said.
The plaintiffs claimed during an Aug. 3 hearing they’re able to pay off both the mezzanine loan and mortgage with funding from Fortress Credit Co. LLC and Winthrop Strategic Real Estate Fund GP LLC. They submitted proof of funding agreements to the court, their lead attorney Christopher Sullivan, with Mintz, said during the hearing.
“We are delighted by the decision of the Court,” Karasick and Silberberg said in the release. “We have the financing all lined up and just needed a bit more time to execute the documents, which the judge granted.”
During last week’s hearing, lead attorney for the defendants, Dan Perry, with Milbank LLP, said delaying the auction hurts Monarch as it will have to continue funding “escalating obligations,” like utilities and, potentially, real estate taxes due in October.
“This is intensive, complex, cash-intensive business and it’s not being funded by 601 [Minnesota] now,” Perry said.
601 Minnesota and its managing members first filed a lawsuit against Monarch in early June, claiming Monarch set out to “steal” the property and “turn a quick profit” by purchasing the mezzanine loan. The loan financed leasing costs for the project, the release said.
The developer failed to lease a certain portion of the square footage by target dates, as stipulated by the mezzanine loan, causing them to file a “non-monetary, technical default.” Monarch then requested a payment of $6.6 million as penalty, the release said.
In response, 601 Minnesota filed the June lawsuit, saying leasing target dates were scheduled before the pandemic and civil unrest impacted Minneapolis, according to court filings.
During last week’s hearing, Perry said businesses won’t sign leases for the Dayton’s Project because its ownership is in “limbo.”
“Failure of leasing … this project … is because you don’t have an operator in 601 [Minnesota] that has the money to induce people to come in and transact,” Perry said.
After the June lawsuit was filed, Monarch scheduled the public auction of the loan, along with a lawsuit in New York against the guarantors, Silberberg and Karasick. This prompted the plaintiff’s request for a temporary restraining order, according to the release.
In her order, Judge Susan Burke noted the “temporary restraining order is necessary to preserve the status quo.” She also noted in the order that “plaintiffs will suffer irreparable harm from the loss of control over the LLC that owns and controls the Dayton’s Building and renovation project. Minnesota law clearly recognizes that loss of control of a LLC that a member founded, managed and owned constitutes irreparable harm. Also, the Court expressly found that 601 Minnesota may prevail on its claim that Monarch was acting in bad faith and unfairly.”
The Dayton’s Project has been largely complete since February 2020, except for tenant improvement work. The owner-developers are returning to potential tenants of the building that had backed out of leases and are asking for them to reconsider, Sullivan said during last week’s hearing.
Located at 700 Nicollet Mall in downtown Minneapolis, 601 Minnesota partnered with The Telos Group LLC and United Properties on the project. 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.
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