Dayton’s Project developer fights takeover attempt by lender

An office-and-retail makeover of the historic Dayton Dry Goods building in downtown Minneapolis has turned into a takeover—and the project’s developer intends to fight it.

Over the past four years, 601 Minnesota Mezz executed a $350 million remake of the 1.2 million-sq.-ft. office building that’s fronted by 300,000 sq. ft. of retail on the first three floors. It was scheduled to open later this year, but retail leasing took a gut-punch from the pandemic and primary lender Monarch Alternative Capital is attempting to repossess the structure that dates back to the start of the 20th Century.

Monarch acquired the mezzanine debt position of what is now called The Dayton’s Project just four months ago when the retail portion remained largely unleased. 601 Minnesota claims that Monarch is engaged in a “predatory loan-to-own scheme” and has filed a complaint in Minnesota state court contending that leasing activity is picking up as the pandemic subsides.

"This will be the first space of its kind in Minnesota," said Mark Karasick, one of two managing partners of 601 Minnesota Mezz. "We will be supporting the local business community with a designated area for small retail shops and kiosks, specializing in products made here in Minnesota, including those made by local artisans and minority-owned businesses."

Though the renovation was mostly completed at the beginning of the pandemic in early 2020, and 601 Minnesota claimed to have two lease commitments from significant retail tenants, no leases were signed after the outbreak of civil unrest caused by the death of George Floyd in Minneapolis.

Though the developer is not in monetary default on its loan, Monarch claimed that 601 Minnesota Mezz was in technical default for not meeting various “leasing hurdle” dates. 

601 Minnesota Mezz’s complaint seeks declaratory and injunctive relief and $270 million in damages from Monarch and states that "a predatory lender...is seeking to drive the owner-developer of a local Minneapolis real estate project out of business and take over the project for itself."