Updated Wednesday, Aug. 26, 9:15 a.m.
The developers of the $515 million mixed-use Augustalee project in Cornelius said Tuesday they have filed suit against their mezzanine lender in a dispute over progress on the project.
The lender, the Build Fund, of Detroit, has said it planned to foreclose on the 104 acres off Stateville Road/Hwy 21 in Cornelius, and sell the developers’ stake at a sale planned this Thursday, Aug. 27.
Cornelius Bromont and Bromont Investments said in a press release they filed suit at Superior Court in Charlotte seeking to recover unspecified damages. The suit alleges breach of contract and unfair and deceptive trade practices, the developers said in a press release.
One option for Cornelius Bromont would be to seek an injunction stopping Thursday’s planned sale. But it says in the lawsuit it decided not to do so because of fears Build might hold the developers responsible for any additional costs.
A spokeswoman for Labor-Management Fund Advisers, which is the real estate adviser to the Build Fund, declined to comment on the lawsuit Wednesday morning.
The legal wrangling is expected at least to delay the Augustalee project. The Build Fund is expected to bid for the land at the foreclosure, and if it gains control, that could throw the project into limbo by removing Cornelius Bromont from the picture.
Josh Rector, senior vice president of Cornelius Bromont, said the developers were “on track” to getting necessary approvals for the project and felt they were making progress.
“We are of course very disappointed that the Build Fund chose this course of action, and we feel that throwing away the tremendous amount of vision, expertise and hard work we have brought to this project is very short-sighted,” Mr. Rector said in the press release.
In the lawsuit, Cornelius Bromont says the Build Fund agreed in May 2008 to loan it $23.5 million. But it says the fund delivered only $19.5 million by an agreed deadline of May 13, 2009. By failing to provide the additional $4 million, Cornelius Bromont alleges, the Build Fund caused it to default on a senior loan provided by Fifth Third Bank.
Cornelius Bromont says it has tried to find $4 million from other investors or lenders, “however due to current market conditions, this effort has not been successful.”
Thursday’s foreclosure sale is scheduled at 11 a.m. in Charlotte, at the offices of Build Fund’s lawyers.
FULL TEXT OF PRESS RELEASE
Cornelius Bromont and Bromont Investments File Suit Against Mezzanine Lender For Augustalee
Cornelius Bromont/Bromont Investments press release
Cornelius Bromont and Bromont Investments, the developers of the planned $515-million Augustalee mixed-use center in Cornelius, filed a lawsuit in Superior Court Tuesday (Aug. 25) seeking to recover damages from their mezzanine lender.
The BUILD Fund of Detroit, Mich., filed a notice of foreclosure against the developers to take effect Thursday, Aug. 27. At the sale, BUILD would auction off the developers’ ownership interest in the project, and has said it expects to be the high bidder at the auction.
The lawsuit asserts claims for breach of contract and unfair and deceptive trade practices.
Amy Williams of K&L Gates LLP, the developers’ attorney, explained that the developers “seek to recover damages caused by BUILD, or, in the alternative, to get the lender to do what it promised but failed to do – fund the remaining $4 million amount of the mezzanine loan”
Cornelius Bromont and Bromont Investments initially invested substantial funds in the project and created an ownership entity known as VLN Beneficial Trust. Through a foreclosure proceeding, BUILD intends to remove the developers from the project, causing a substantial financial loss.
“A lot of careful planning went into figuring out the mezzanine financing needed to carry us through the land acquisition and planning phase of Augustalee,” said Josh Rector, senior vice president of Cornelius Bromont. “We were on track getting all the necessary government approvals for this complex project, which included widening Interstate-77 and Highway 21, adding a new Exit 27, and making many other offsite transportation improvements which would have benefited the entire region.
“We are of course very disappointed that the BUILD Fund chose this course of action, and we feel that throwing away the tremendous amount of vision, expertise and hard work we have brought to this project is very short-sighted,” Rector added.
See our previous coverage of the Augustalee project at tag “Augustalee.”