SIOUX CITY | While they said it isn't exactly a "win," City Council members on Monday agreed the timing and terms were right to approve a deal that could end the years-long legal wrangling over a Fourth Street commercial development.
The council unanimously approved a settlement agreement with Civic Partners and its owners regarding the building at 924 Fourth St. The deal will allow the city to recoup some of the $2.5 million that an ill-fated commercial development deal has cost the city.
"These are the kind of deals you plug your nose and vote for them, even though they stink," Mayor Bob Scott said of the settlement.
The settlement also opens the possibility of a sale of the property or for tenants moving into its long-vacant spaces.
Jeff Wright, a private Sioux City attorney representing the city, told the council he believed the deal was "as good as we're going to get."
Civic Partners, a California-based developer, is accused of defaulting on a $5.63 million bank loan for the project, built at a cost of $13 million in 2001. After years of losses, the company filed for Chapter 11 bankruptcy protection in April 2011 in U.S. Bankruptcy Court in Sioux City. That action came five months after Northwest Bank (known as First National Bank at the time) had filed for foreclosure.
Under the agreement, the city will drop all litigation against Civic Partners and its owners, Steve and Rose Semingson. It will also reduce the property's assessment of approximately $10 million to a minimum valuation of $6 million for a five-year period.
In return, Civic Partners will forgive the final $300,000 payment the city owes on the defaulted loan guarantee and reimburse the city for the $300,000 payment made in 2017. Civic Partners also has agreed to pay the city $852,000 within one year of the bankruptcy case dismissal. That could rise to $1 million if paid after one year of the dismissal but within two years.
Councilman Dan Moore applauded the work of the city's legal counsel on the deal and said he believes the city needs to move forward.
"I think it's time to move on and to do what we know is the right thing to do with the development and see good things happen at that location," he said.
Scott said after the meeting that he's hopeful that a developer will acquire the building who will be able attract tenants.
Civic Partners constructed the one-story building in 2004 with millions of dollars in tax incentives and loan guarantees from the city. Promenade Cinema 14 opened in 2005, but nearly all of the remaining 12,000 square feet of retail space remains vacant.
Water problems identified shortly after the facility opened in late 2005 led Main Street Theaters, the Promenade's Omaha-based owner, to seek a renegotiation of rent payments for the movie theater space. A settlement lowering the lease amount paid by Main Street to Civic Partners fell apart in 2010, leading to Northwest Bank's foreclosure filing, which led to Civic Partners' bankruptcy filing.
In 2013, a judge ordered the city to pay the portion of the defaulted loan the city had guaranteed. The city paid $1.3 million in 2013 and has made yearly payments of $300,000 since then, bringing the total paid to $2.5 million. The final $300,000 payment, now forgiven under terms of the settlement, was due in 2018.
A bankruptcy court judge at one point dismissed the bankruptcy case, a ruling that was later overturned on appeal.
Earlier this year, Northwest Bank dismissed its foreclosure action after agreeing to a deal with Iowa Holdings, a California limited liability company that is an affiliate of Civic Partners and Semingson, in which Iowa Holdings bought Civic Partners' loan from the bank for $3.6 million, far less than the $6.3 million in principal and interest court documents showed was still owed.
The action meant Civic Partners was in debt to the new holding company instead of the bank, and also meant that the city would have made the final $300,000 guarantee payment to the same developer who owed the city money.
The settlement cancels that payment and settles the city's lawsuit against Semingson that sought $505,601, the amount the city paid to a bank to settle another defaulted loan the city had guaranteed. Payment of all or a portion of that total is included in the funds Civic Partners will pay to the city.
Next week, the council will be asked to pass a resolution amending the assessment agreement. The settlement and amended assessment agreement then will go before the clerk of bankruptcy court to be submitted for a judge's approval and dismissal.