Court papers: Des Moines offers to buy parking garage property in foreclosure
KATHY A. BOLTEN Jan 11, 2021 | 4:04 pm
3 min read time
784 wordsAll Latest News, Government Policy and Law, Real Estate and DevelopmentThe parking garage at Fifth Avenue and Walnut Street in September 2020. Business Record file photo.
The city of Des Moines would buy a recently completed parking garage at Fifth Avenue and Walnut Street for about $40.6 million under a proposal by Bankers Trust Co. filed in Polk County District Court late Friday.
Bankers Trust is asking the court to quickly set a hearing on the request so that the Des Moines City Council can vote on the purchase at its Jan. 25 meeting. The city of Des Moines on Monday joined Bankers Trust’s request for an expedited hearing, the city said in a statement.
Bankers Trust in September filed a foreclosure petition in Polk County court alleging that the garage developers — 5th and Walnut Parking Garage LLC and Justin Mandelbaum and Sean Mandelbaum — were in default on a construction loan that was due to be paid off on Aug. 31.
The parking garage is part of a $200 million multipiece downtown development planned by the Mandelbaums. In addition to the 751-stall parking garage, the development called the Fifth was to include a 40-story tower with luxury apartments and a hotel, and a five-story commercial building with a multiscreen movie theater and restaurant.
The Des Moines council in 2015 selected West Des Moines-based Mandelbaum Properties as the preferred developer of the then-city-owned land located east of Fifth Avenue between Walnut Street and Court Avenue. 5th and Walnut Parking Garage, managed by the Mandelbaums, purchased the property in 2018.
“The deal proposed between [Bankers Trust] and the city is not a surprise,” Todd Lantz, a Des Moines attorney who represents the Mandelbaums, told the Business Record. The proposed purchase of the garage by the city “confirms exactly what our clients alleged in their lawsuit against the city last fall — that the city’s multiple and inexcusable breaches of its development agreement were designed to take the project over for itself.”
In September, the Mandelbaums filed a counterclaim against the city of Des Moines, claiming the city reneged on its development agreement and seeking $101 million in damages.
Lantz contends that information included in Bankers Trust’s latest court filing shows that the Mandelbaums were on track to complete construction of the parking garage under budget.
“The city’s actions, last summer and now, are focused on confiscating those savings, even though the savings were contractually promised to the developer,” Lantz wrote in an email. “The Mandelbaums expect to produce similar success if allowed to build the rest of this major downtown, mixed-use project.”
The amount due to the bank in August and the remaining construction payments totaled $39.68 million, according to court documents. The construction loan was for up to $48 million.
Scott Sanders, Des Moines’ city manager, said in a statement released late Monday morning, that Mandelbaum Properties “has been in default under its development agreement with the city since Nov. 1, 2019. The city served notices of default…in June 2020.
“We do not comment on pending litigation,” Sanders said in the statement adding that Des Moines had joined Bankers Trust in asking for quick hearing on the request to sell the property to Des Moines.
In the statement, Sanders did not respond to questions about what fund money to pay for the garage would come out of or whether the city planned to sell or retain the garage.
The Des Moines council in September 2017 approved a development agreement between the city and the development group. The agreement, which was updated twice, required construction of the parking garage to be completed by Aug. 16, 2020 and construction of one of the two other buildings to have started by late 2019. Neither requirement was met.
The court in October appointed Christensen Development as the receiver to manage the completion of construction of the parking garage.
Bankers Trust, in its latest court filing, said the city made an offer to purchase the property. The purchase price is based on a formula that court papers indicate would be about $40.6 million. The purchase price could change depending on the when the deal, if approved, is finalized and other related costs.
“The receiver and the bank believe that a sale, pursuant to the terms of the purchase agreement, is in the best interests of the parties because of anticipated limited interest of any third parties” in the property, Bankers Trust wrote its court filing.
This story was updated at 11:40 a.m. Monday, Jan. 11, 2021 to include the statement provided by the city of Des Moines.
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