New York-based 601W Cos., the developer behind the Dayton’s Project in downtown Minneapolis, has asked a Hennepin County District Court judge to block an upcoming foreclosure sale of its interests in the $350 million office-and-retail redevelopment.
The Business Journal in an earlier story reported incorrectly that the order had been granted. A hearing on the proposed order is scheduled for Aug. 3.
In the proposed order filed Monday, attorneys for 601W Cos. asked Judge Susan Burke to issue a temporary restraining order against Monarch Alternative Capital LP, the owner of a $78 million mezzanine loan on the project and the defendant in a civil lawsuit filed in June by 601W Cos. The order, if granted, would block the New York investment firm’s proposal to put loan up for sale at an Aug. 23 auction.
601W Cos. pledged its stake in the Dayton’s Project, a former Nicollet Mall department store renovated into 1.2 million square feet of office and retail space, as collateral for the loan.
Monarch maintains that 601W Cos. is in default on the loan for failing to hit leasing benchmarks included in the loan agreement. Those benchmarks set a series of deadlines for 601W Cos. to either fill the largely vacant, 12-story space with tenants or pay millions in financial penalties.
In court filings, 601W Cos. made the case that those leasing benchmarks were impossible to meet, adding that it is otherwise current on loan payments.
The redevelopment was mostly wrapped up early last year when the Covid-19 pandemic hit, clearing out downtown towers and freezing the office market. Then the other shoe dropped.
George Floyd’s death at the hands of Minneapolis police in May 2020 kicked off civil unrest that at times spilled into downtown. Downtown building owners boarded up again this spring for the murder trial of former Minneapolis police officer Derek Chauvin.
To date, The Dayton’s Project remains 98% vacant. Just one significant lease, a 30,000-square-foot space for accounting firm Ernst & Young, has been announced so far.
In their proposed order, attorneys for 601W Cos. also suggest Burke should block Monarch from enforcing the leasing provisions, arguing they are unreasonable given the circumstances.
Monarch is expected to submit a response to the proposed restraining order next week.
