DDA nixes default for Gallery on Fulton loan
Although the lead guarantor of a promissory note made with the Grand Rapids Downtown Development Authority has filed for personal bankruptcy, board members unanimously agreed not to put Two West Fulton LLC into default last week for a loan they made to the firm nearly four years ago for the Gallery on Fulton project at Division Avenue and Fulton Street.
“The value of the property was secured by the promissory note,” said DDA Executive Director Jay Fowler. “It wouldn’t be productive to go after a guarantor when there is nothing there.”
The guarantor is Richard Curto, a Chicago-area developer who joined Sam Cummings of CWD Real Estate Investment in Two West for the $30 million development that includes 56 apartments, the Urban Institute for Contemporary Arts and a parking ramp. Curto guaranteed 70 percent of the note, while Cummings did the same for 30 percent.
“We still have a lien against the LLC. You’re not going to collect anything from Mr. Curto. I’ve seen his bankruptcy papers,” said DDA counsel Dick Wendt. “What we’re stating is the LLC is financially sound, and Mr. Curto is going through a personal bankruptcy,” said Jane Gietzen, a DDA board member.
“The value isn’t in the LLC; it’s in the property,” said Mayor George Heartwell, also a board member. “We still have a strong local developer.”
Cummings told the DDA that there really isn’t a material default on the note, only a technical one, and Two West is still a going concern.
“The project is performing,” he said, noting that 54 of the 56 units are filled. “Given our financial performance, there is no reason to believe that we won’t honor the note.”
Cummings told the Business Journal that Curto has handled his dire financial situation very well and is a “bright and talented guy” who is still adding value to the firm. Wendt said changes wouldn’t be made to the promissory agreement, and Curto will remain as a guarantor because the LLC is responsible for the note. Curto signed the DDA note as a “member and manager” of Two West Fulton LLC.
Curto is the founder and CEO of RSC & Associates, a commercial development firm based in Oak Park, Ill., which he started in 2002. In May, Curto filed for Chapter 7 bankruptcy and reportedly listed debt of $5.9 million owed to roughly 50 different parties.
RSC & Associates is also the management company for 1120 Club LLC, which put up a condominium building with 44 units in downtown Oak Park in 2007. RSC & Associates has been sued multiple times since the building opened, including by the structure’s condominium association, which alleged shoddy construction on one of the floors. A California investor who bought the building’s retail space also has filed a lawsuit against the firm.
“Village (officials) also sued RSC & Associates in 2009 over poor construction, hoping to get the developer to fix issues with the property. Part of the project was built on village-owned land, so Oak Park entered into a legally binding redevelopment agreement in March 2004, requiring RSC to meet certain guidelines. Oak Park gave the property to RSC, and reimbursed the developer for demolition and remediation costs at the site,” read a story published at oakpark.com, an online service of The Journal of Oak Park and River Forest.
In February 2008, the DDA essentially agreed to purchase the Gallery site on behalf of Two West for $974,400, and then entered into a sales contract with the firm for that amount. The building is located on about half of a 37,000-square-foot parcel owned by the city’s Parking Services Department that was once home to the City Centre parking ramp. The entire site was for sale then and was valued at $2 million. Parking Services retained the west half of the property and paid Two West about $10 million to build a new ramp on it, largely to serve the apartment residents and the UICA.
The DDA, in turn, made a loan to Two West that called for the developer to pay $95,000 in cash as a down payment and agree to a promissory note of $480,000. Two West would make interest payments on the loan from 2009 through 2014, with principal and interest payments starting in 2015 and running through 2024. The latter payments rise annually, beginning at $25,000 in 2015 and going up to $154,400 in 2024. The note carried an interest rate of 4.5 percent per annum.
The loan agreement with the DDA actually called for Two West to make a down payment of $120,000. But the $25,000 the developer paid the city for extensions on a 2006 RFP it filed earlier with the city was included as part of the down payment, which reduced the cash payment to $95,000.
The DDA also agreed then to reimburse Two West up to $724,500 for street and utility improvements the firm would make to the site and for providing barrier-free access throughout the building. The reimbursement was based on 75 percent of the tax-increment revenue the project was expected to generate. The DDA reimbursed Two West $34,940 last week for 2011.