Des Moines cleared to buy fifth parking lot in foreclosure
A judge has authorized the sale of a 751-space garage, part of a downtown complex called The Fifth that is in foreclosure after developers fail to pay off a construction loan.
If approved by City Council, Des Moines will purchase and operate the parking garage. Once the sale is finalized, foreclosure action against developers Justin and Sean Mandelbaum and The Fifth LLC will be dismissed, although they have taken legal action against the city alleging that he violated a development agreement continue to.
Last week, the board approved the use of $ 47 million in bonds to pay for the garage. As of Wednesday, Jan.20, the garage’s sale price was $ 40.5 million, although the final price depends on the closing date, as the loan earns $ 3,306.40 in interest per day.
Matt Anderson, deputy city manager, said the sale would likely be finalized in early February. Weitz Co. is still finishing construction, he said.
“There are still other steps the board needs to take in purchasing the garage,” Anderson said. “The board has not taken its final step, but we have authorized the sale of the bonds.”
The 11-storey garage is the first of three buildings, including a 40-story skyscraper, planned for the complex. The future of The Fifth is uncertain amid the ongoing legal action.
In his motion, Justice Lawrence McLellan said he approved the sale because it “is in the best interests” of everyone involved – Bankers Trust Co. can close the loan it made for the project ; interest will cease to run; and Christensen Development, appointed to supervise the construction of the garage during the foreclosure proceedings, will be free of additional administrative costs.
“The court further concludes that a higher or better price would not be obtained if the foreclosure was completed and the property was sold in a sheriff’s sale given the limited market for the property,” wrote the judge.
Mandelbaum Properties is not opposing the sale, according to court documents, as long as its counterclaim against the city can continue. He alleges that Des Moines officials committed “flagrant violations” of the development agreement, falsely declaring the project in default and ultimately triggering the lockdown.
“The developers view the proposed sale as corroboration of their claims in several ways,” wrote attorney Todd Lantz. “… The promoters reserve all claims and rights of action against the city.”
Bankers Trust Co. initially filed a foreclosure action against the developers in September for non-payment of a $ 48 million loan for the garage that was due the previous month.
In June, Des Moines filed a notice of default against Mandelbaum Properties for failing to meet construction deadlines outlined in a complex agreement in an offer to acquire and develop the city-owned site. The company had to have completed the garage by August 16, 2020 and have started construction of the tower by October 31, 2019. In exchange, the city granted it a forgivable loan of $ 4 million and up to $ 10 million. dollars in tax rebates. .
The development agreement, signed in 2017, is the result of long-term negotiations between developers and city staff. Further negotiations took place last year when it was clear that Mandelbaum Properties would not meet its deadlines, although the extensions were not formally approved by the city council.
“I think we’re all frustrated with the way this project has gone and we’re not happy with it,” City Councilor Joe Gatto said at last week’s city council meeting.
He voted to sell the bonds, although he asked city staff to review other development agreements for separate projects to ensure developers meet their obligations. Gatto also suggested banning developers from receiving financial aid for 10 years if they do not meet the end of the agreements.
“Someone has to pay the contractor to build a structure that will be used by the city of Des Moines,” Gatto said. “Unfortunately, it’s incumbent on us as a whole that taxpayers are going to have to step in and do something like this.”
City Councilor Carl Voss, who voted against the bonds, said he didn’t know enough to make an informed decision whether or not to approve spending over $ 47 million for the garage. But City Manager Scott Sanders said the timing was critical given the additional steps that must be taken before the sale is finalized.
Mayor Frank Cownie reminded city council that the property is still in dispute and asked it to refrain from speaking about the matter publicly. Although he said the parking garage would benefit downtown workers, especially those in the nearby courthouses. The new garage replaces an aging municipal garage that was demolished in May for The Fifth project.
City council will hold a public hearing Monday on a $ 47 million loan deal for the garage.