A planned tower along Fifth Avenue between Walnut Street and Court Avenue has been reduced from 32 to 39 floors. The estimated cost of the project reached $ 170 million.
Developers of a parking garage that is part of the proposed downtown skyscraper, The Fifth, defaulted on a loan, questioning the future of the historic $ 170 million project.
A foreclosure petition, filed Monday by Bankers Trust Co., alleges owners Justin Mandelbaum, Sean Mandelbaum and 5th and Walnut Parking LLC failed to pay a $ 48 million bill on the 11-story garage, which was to be paid on August 31.
The property will go up for sale immediately – with Des Moines listed as a junior lien holder – unless the developers ask for a delay, according to the petition. Bankers Trust Co. has also identified a local developer, Christensen Development, to manage the completion of the parking lot.
The foreclosure follows a notice of default from the city, filed against developers in June, for failing to meet construction deadlines outlined in a development agreement for the 40-story apartment tower, hotel and building. theater planned at the corner of Fifth Avenue and Walnut. Street.
Des Moines is also demanding the return of a $ 4 million loan granted to help offset the cost of the site, which was owned by the city before it was sold to Mandelbaum in 2017 for the project.
Plans for the fifth include:
- A 21st century hotel-museum. On floors 1 to 13
- A restaurant on the ground floor
- A bar and patio on the 12th floor
- Apartments on floors 14 to 39
- A hotel suite, a corporate apartment and a leisure space reside on the 40th floor
A separate five-story building will house an Alamo Drafthouse cinema, as well as two floors of offices and a restaurant and bar on the ground floor.
Despite legal action against him, Justin Mandelbaum said in an email that construction of the 751-pit garage, which replaces a city-owned parking lot formerly on the site, will be completed in December. A spokesperson for Weitz Co., which is building the garage, confirmed this schedule.
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“This is good news, and another good news is that there is still a way to go for the rest of the project,” Mandelbaum wrote.
He asked for an extension of construction deadlines due to delays related to the coronavirus pandemic, but says he and city officials have not been able to come to an agreement.
“While I recognize the complexity of this project, the tight deadlines and the pandemic have posed challenges and strained some of our relationships, at the end of the day we all want the same thing: to see the tower built and achieve all of it. the ancillary benefits that flow from it, ”Mandelbaum said.
Letters sent to the development team by City Manager Scott Sanders over the past year, however, show a willingness to extend deadlines more than two years after the originally agreed date in order to complete the project.
A letter dated May 27 also offers Mandelbaum an additional payment of $ 2 million once the tower is completed. Mandelbaum did not agree to the terms offered and therefore the original development agreement remains in place.
The garage had to be completed on August 16, 2020 and construction of the tower had to start on October 31, 2019.
“Generally speaking, the city does not comment on the pending litigation. However, as it is claimed that an agreement has been reached by the city to resolve the disputes in the cases involving the 5th and the garage of Walnut, this statement is not correct and, furthermore, has no relation to the foreclosure action filed by Bankers Trust, “Sanders said in a statement to the Des Moines Register.” The developer is in default under of its development agreement with the city since November 1, 2019 and the city served notices of default on the developer in June 2020. ”
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At the end of last year and early 2020, the city entered into negotiations with developers to extend construction deadlines, already exceeded, instead of triggering the notice of default, which would allow Des Moines to resume construction. ground control.
Sanders had proposed a start date for construction of the tower of April 1, 2021.
At the time, Mandelbaum had declared in the Des Moines register that the delays were “quite reasonable”.
“I would expect us to exceed these deadlines,” he said in March.
But these new deadlines were never accepted or approved by Des Moines City Council.
In May, Sanders said he would agree to a later start date, but only if terms were agreed upon by Mandelbaum and approved by city council by the end of June. No updated term has ever been voted on.
Mandelbaum said construction documents – which contain everything from technical architectural details and material specifications to descriptions of hotel furniture – had just been finalized in March before the pandemic, when work was suspended due to social distancing guidelines and widespread closures.
He said he asked for an extension but did not receive one.
“It is clear that the pandemic has created an environment where few think about skyscrapers and bold projects like this, but we know there will come a time when it will be a competitive advantage for our community to have moved forward while that other cities and developers couldn’t or wouldn’t, “Mandelbaum wrote in an email.” We believe that (the) city council and other key players recognize this, as well as the fact that they have nothing to lose, and everything to gain by granting the extension. “
He retained the services of a lawyer.
Mandelbaum received the site in 2017 after the city requested proposals to develop the 1.4-acre plot on Fifth Avenue between Walnut Street and Court Avenue. Due to the complexity of the project, and in the interest of the taxpayers, who originally owned the site, the city and Mandelbaum signed a development agreement on April 3, 2017, imposing several rounds of deadlines to ensure completion. on time.
As part of the initial development agreement, Mandelbaum received a major financial package including a $ 4 million cash back loan for the full purchase price of the site. It will also receive rebates on tax increases, initially estimated at $ 10 million over a 20-year period, and a 10-year tax abatement on the residential portion of the project, a break given to all new downtown projects. .
The city also made a complex loan for the parking lot – a type of financial solution it had not offered before.
Under its terms, Des Moines agreed to offset some of the costs associated with building the $ 48 million structure with a “deficit loan.” It will cover the difference between Mandelbaum’s private loan payments and the revenue generated from parking fees.
Because the city triggered its notice of default, “the bank was unwilling to continue with the garage construction loan,” Mandelbaum said, triggering the repayment notice.
The foreclosure petition says Mandelbaum owes $ 33.6 million on the loan, plus $ 6,524 in interest each day it goes unpaid after September 1, 2020.
Des Moines officials declined to comment specifically on the foreclosure petition except to say that city lawyers are reviewing it.
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