Mezzanine Lender Looks to Auction Off Dayton’s Project
The terrace on the Dayton’s Project. Telos Group LLC

Mezzanine Lender Looks to Auction Off Dayton’s Project

The legal battle over the iconic property heats up.

New York-based Monarch Alternative Capital, which holds the $78 million mezzanine loan on The Dayton’s Project in downtown Minneapolis, has fired the latest salvo in the unfolding battle over the property. Monarch is promoting an Aug. 23 auction to sell off the equity interests of New York-based 601W Companies, which is the owner and redeveloper of The Dayton’s Project. Effectively that means that the 1.2-million-square-foot Dayton’s Project would be sold to a new owner.

The fight is complicated. Monarch acquired the mezzanine loan earlier this year. While 601W is current on the loan, it’s in technical default because it has not met leasing hurdles outlined in the loan agreement. Two weeks ago, 601W sued Monarch arguing that under the loan documents, it should be excused from meeting those hurdles due to the extraordinary events of the pandemic and social unrest in Minneapolis.

On Wednesday morning, a spokeswoman for 601W provided a brief statement to Twin Cities Business: “Monarch continues to pursue its loan-to-own strategy without regard to the pending lawsuit or the concerns of the Minneapolis downtown and business communities. We intend to make sure that Monarch has to explain its conduct to the Hennepin County district judge assigned to the case.”

A representative of Monarch Alternative Capital could not immediately be reached for comment.

The former Dayton’s department store is an icon in the heart of downtown Minneapolis. 601W acquired the property, including the adjacent parking ramp, for $59 million in 2017 as the Macy’s store located there was closing. According to details disclosed in the lawsuit filed, 601W has spent more than $350 million overhauling and renovating the building, which includes $105 million in equity from 601W. But the property remains almost entirely empty.

Monarch is billing the auction as a “UCC sale,” in reference to the Uniform Commercial Code. The UCC is a standardized set of laws and regulations governing business transactions. Under the UCC, mezzanine lenders can pursue relatively quick foreclosure sales.

The auction is slated to be held virtually at 11 a.m. Eastern time on Monday, August 23.

Given the litigation involving the project, it is not clear if the auction will proceed as scheduled.

Another unknown is what action, if any, New York-based JPMorgan Chase & Co. plans to take. JPMorgan Chase issued the original $145.6 million construction loan for the Dayton’s Project. Any buyer of 601W’s equity interests would be subject to the terms of the senior loan.