601W Minnesota, the owner and developer of the Dayton’s Project in Minneapolis, was able to secure and finalize replacement financing two weeks earlier than expected.
601 Minnesota was able to pay off lender JP Morgan Chase as well as New York-based Monarch Alternative Capital, described in court filings as the purveyor of a “predatory ‘loan to own’ scheme”. At the same time, 601 Minnesota was able to remove Monarch Capital entirely from the Project.
“This is great news for the Project and for the potential tenants who have been sitting on the sidelines waiting to find out if there will be owners with a proven track record whom they can trust,” said Mark Karasick, co-managing member of 601 Minnesota. “We are very grateful to everyone who worked so hard to make this financing happen on an unbelievably fast timetable, and also to those in the broader community who supported us and this Project.”
Four years ago, 601 Minnesota began developing the historic and beloved Dayton’s department store into Class-A office space with amenities such as a rooftop park, gym and library. The 12-story property with 1.2 million square feet has restaurant and retail space on the second floor and a food market on the lower level. The renovation was completed with priority being given to maintaining the historic features of the space.
The redevelopment was completed in early 2020 and the project had already begun leasing when the double whammy of the COVID pandemic and the unrest following George Floyd’s tragic death devastated downtown Minneapolis. The Dayton’s site at 7th Avenue and Nicollet and numerous other buildings nearby had to be boarded up for extended periods of time. It was in this environment that 601 Minnesota was unable to meet its leasing requirements with lenders, although the company remained current on its mortgage payments.
At this juncture, distressed debt firm Monarch Alternative Capital, which only became mezzanine lender in March of 2021, stepped in. Instead of trying to work with 601 Minnesota, Monarch “intentionally acquired this mezzanine loan in order to capitalize on the unprecedented crisis confronting the Minneapolis business community and to steal the Property from 601 Minnesota“ according to court documents.
601 Minnesota Mezz, LLC and plaintiffs Mark Karasick and Michael Silberberg, filed suit in Hennepin District Court on June 9 and amended the complaint on June 30. Plaintiffs sued Monarch Alternative Capital LLC for declaratory and injunctive relief, describing Monarch as a “predatory lender that is seeking to drive the owner-developer of a local Minneapolis real estate project out of business and to take over the Project for itself” in court filings. In response, Monarch filed for an auction under the Uniform Commercial Code (UCC) to sell 601 Minnesota’s interest in the Project. 601 Minnesota then went to court, seeking a Temporary Restraining Order (TRO) to prevent the auction from taking place on August 23.
After a hearing on August 3, Hennepin County Judge Susan Burke issued the TRO which prevented the auction and allowed 601 Minnesota 30 days to finalize the financing it had previously arranged. Fortress Investment Group and Winthrop Strategic Real Estate Fund LP eagerly stepped in with a loan in the amount of $250,000,000 and are the new lenders for the Project which was funded before the close of business yesterday. The final paperwork was signed yesterday evening. The Dayton’s Project, with 601W Minnesota in full control, is now in a great position to attract new tenants, since the uncertainty about the building’s ownership has been removed and tenants can be assured of a reputable owner with a long-term track record of success.
