New York-based 601W Companies has often been seen as a savior of sorts for downtown Minneapolis since it bought the former Dayton’s/Marshall Field’s/Macy’s department store in downtown Minneapolis in 2017. More than four years later, the building is almost entirely empty and now at the center of litigation between 601W and mezzanine lender Monarch Alternative Capital, also based in New York.

After 601W sued Monarch, the lender began promoting an August 23 foreclosure sale of the developer’s equity interests in the project. At a court hearing last week, 601W argued that it has lined up new financing which would replace both the construction loan and the mezzanine loan on the project.

601W sought a temporary injunction to block the auction. Late Monday, Hennepin County District Judge Susan Burke granted a 30-day temporary injunction, provided 601W posts a $10 million bond. But it remains unclear if 601W will be able to complete the new financing or if Monarch will ultimately hold a foreclosure sale at a later date.

601W has spent $350 million to realize its vision of converting the hulking old building into 750,000 square feet of office space and 250,000 square feet of retail space in the heart of the central business district.

Downtown Minneapolis leaders are backing 601W in the battle. But commercial real estate pros know that there’s one potential upside to a new owner taking control of the property: lower rents.

“Clearly that’s the math. If somebody can drop their basis, they should be able to offer more competitive rates,” said Jim Vos, principal with the Minneapolis office of Washington D.C.-based Cresa, a tenant representation firm.

In commercial real estate terms, “basis” essentially refers to the money invested in a property.

Vos said that the recent trend has been for companies to chase the best available space as one way to help attract and retain staffers.

“Anything that’s not a total Class A building needs to get really aggressive with their rates,” said Vos.

Vos said that commercial real estate experts have different perspectives on whether the Dayton’s Project is now a Class A building.

“I think the Dayton’s Project has Class A amenities, but some would argue not Class A floorplates based on the size of the floors and the amount of windows that they have,” said Vos. “It’s a little bit in eye of the beholder: Is that a Class A building or not? Lowering the basis for sure would give them the opportunity to be more aggressive on rates.”

Vos said that office leasing activity has clearly picked up again. Tenants who were putting off decisions are back looking for space.

“I think people who were sitting on the bench for a long time are back on the field,” said Vos.

But the legal battle creates its own leasing challenges for the Dayton’s Project given the uncertainty about who will ultimately have control of the property.

“We’d be hesitant to bring somebody to the building just because you don’t know who the owner is and who would make the commitment for improvement allowances or lease terms,” said Vos.

At the same time, Vos noted that there’s a good reason why city leadership and the Minneapolis Downtown Council are rallying to support 601W.

“You want to see people who’ve made that kind of investment succeed and be an inspiration to others to make similar investments,” said Vos.