Developers of the $515 million Augustalee mixed-use project off Statesville Road in Cornelius have apparently lost control of the project after the project’s mezzanine lender carried out a foreclosure sale Thursday. But a lawsuit over the foreclosure is continuing and it’s uncertain exactly how or whether the project might proceed.

The sale, by the Building Union Investment and Local Development Fund of America Trust, of Detroit, throws into question the future role of developer Cornelius Bromont LLC.

The Build Fund said in a press release Friday it acquired membership interests in a slew of limited liability companies (LLCs) that control 104 acres off I-77 where the project is planned. The Build Fund, as it is called, is a labor pension investment fund. The investors provided mezzanine funding that helped Cornelius Bromont acquire the land. They had given notice of plans to foreclose, saying the project was in “technical default.”

The fund is represented by the Charlotte office of the law firm Katten Muchin Rosenman LLP.

A spokesman for Cornelius Bromont declined to comment Friday, other than to say “discussions are continuing” with the fund.

Cornelius Bromont said Wednesday it had filed a lawsuit over the planned foreclosure sale. The developers said they were current on debt payments. The suit does not seek to stop the sale, but seeks damages over the lender’s decision to foreclose.

The developers have faced a tough economic climate as they try to sign tenants for the planned project. They also have been working with local and county officials to work out a complex financing package to pay for promised infrastructure improvements.

In Friday’s press release, the Build Fund said, “While the foreclosure resulted from the borrowers’ failure to satisfy certain milestones and inability to raise additional capital needed to complete the project, including the financing of certain infrastructure and required off-site improvements, the Build Fund is optimistic that it will be able to find new capital and can bring in additional development expertise in order to move the project forward.”

The fund said it “looks forward to working with officials for Cornelius, other state and local officials, and Fifth Third Bank, which is the senior lender for the Augustalee project, on a plan to move Augustalee forward.”

Cornelius Town Manager Anthony Roberts said Friday no meetings are scheduled. “We’re sort of in limbo on that,” he said. He thinks the dispute will push back the project, but he remained optimistic about its prospects.

“At the end of the day, we’re going to move ahead with whoever it is. … The plan was approved for the project, not the developer,” Mr. Roberts said.

Cornelius Bromont, a partnership of local developers and Phoenix-based Bromont Investments, had won Cornelius approval last year to develop a massive project of condos, shops and two hotels on property they acquired from the Cook family.

The project came with a long list of conditions, including a pledge by the developers to pay the upfront costs for $90 million of road improvements. Those improvements were to have included widening of I-77, construction of a new Exit 27, and local street work.

Cornelius Bromont has been in the midst of trying to line up tenants for retail spaces in the project. And it has been pursuing approvals for the road improvements and a complex financing package to pay for them.

PREVIOUS COVERAGE

See our previous coverage of the Augustalee project at tag “Augustalee.”

TEXT OF PRESS RELEASE

Here’s the text of a press release issued Friday, Aug. 28, by Katten Muchin Rosenman LLP, lawyers for The BUILD Fund of Detroit.

On August 27, 2009, the Building Union Investment and Local Development Fund of America Trust, acquired membership interests in each of the limited liability companies (VLN Retail LLC, VLN Office LLC, VLN Hotel LLC and VLN Residential LLC, each a Delaware limited liability company) that collectively own all of the beneficial interests in VLN Beneficial Trust, a Delaware statutory trust, which is the owner of the land that is in the process of being developed as a mixed use real estate development located in Cornelius (Mecklenburg County), North Carolina.  The development project is known as “Augustalee” (which prior to its name change was known as the “Villages at Lake Norman”).  The BUILD Fund also acquired the membership interests in VLN Trustee LLC, a Delaware limited liability company, which is the trustee of the trust.

The BUILD Fund was the lender of a mezzanine loan which it had made to the trust and the trust’s beneficiaries for the purpose of funding the acquisition and land development phase of Augustalee.   The BUILD Fund acquired its interests in the Augustalee project through a UCC foreclosure sale, which was conducted on August 27, 2009 by Katten Muchin Rosenman LLP, counsel to the BUILD Fund, at Katten’s Charlotte office.   While the foreclosure resulted from the borrowers’ failure to satisfy certain milestones and inability to raise additional capital needed to complete the project, including the financing of certain infrastructure and required offsite improvements, the BUILD Fund is optimistic that it will be able to find new capital and can bring in additional development expertise in order to move the project forward.

The BUILD Fund, as the indirect owner of the Augustalee project, looks forward to working with officials for Cornelius, other state and local officials, and Fifth Third Bank, which is the senior lender for the Augustalee project, to develop a plan to move Augustalee forward.

The BUILD Fund is a commingled real estate fund that provides, among other things, equity and mezzanine debt financing for various real estate developments and projects around the country.  The BUILD Fund’s investment advisor is Labor Management Fund Advisors, LLC, which is a full service real estate investment advisory firm, which provides a range of consulting services designed to optimize the benefits of mezzanine debt and equity investments involving real estate.