MOORHEAD - The developers of south Moorhead’s Holiday Mall are suing the city and its economic development authority, claiming that the city breached its agreements to repay the cost of building infrastructure and remediating asbestos and contaminated soils on the site.
The lawsuit seeks more than $50,000 in damages, the creation of a new financing agreement, court costs and lawyers’ fees.
The losses are high and mounting, says a lawyer representing Moorhead Holiday Associates and developer Richard Jordahl (the trustee for the Krantz Family Trust).
Igor Lenzner said the city’s abrupt ending in 2019 of part of the tax increment financing deal for the project has already resulted in his clients losing $140,000 a year the last two years. If this year’s payment is not made, the developers will have lost $420,000 used to pay off bonds used to finance the cleanup and remediation.
If the Hazardous Substance Subdistrict is not somehow restarted, $1 million or more in missed payments could accrue by the time the project’s overall TIF district is ended, Lenzner said Wednesday, Feb. 10
All of that money will then have to come out of the city’s general fund, and taxpayers’ pockets, if the Seventh Judicial District Court finds the city erred, Lenzner said.
For its part, the city in its answer to the lawsuit filed in district court says it has followed state law and the agreements it signed to the letter. It adds that the developer’s problems are, in some measure, of their own making.
“For instance, the developer has failed to timely develop the property as promised and has underperformed in its obligations, which caused the loss of several years of (tax) increment (funds). The defendants further deny they breached any obligation to reimburse a portion of the developer’s expenses related to the redevelopment agreement,” the city said in its court filing.
- Fargo Billiards & Gastropub to reopen at the end of February under new ownership
The lawsuit was filed in late summer 2020, and is now in the discovery phase, with information and witnesses being shared between the two sides.
Attorneys for Ohnstad Twitchell Law Firm, which represents the city of Moorhead and the Moorhead Economic Development Authority, have replied to the allegations.
A final pretrial hearing is currently set for mid-June.
Lenzner said he and his clients offered to sit down with city officials to see if a deal can be reached. He said the city has declined to do so.
The mall has seen its ups and downs since it was first developed in the early 1960s.
Currently it has a Courtyard by Marriott hotel and conference center, a large retail/commercial building on the north side of the development, a bank, a Village Inn restaurant and several fast food outlets,
In the late 1990s, Moorhead had been pursuing the idea of developing a hotel and conference center in the city’s downtown.
Rick Jordahl, who had successfully developed the Fairmont Creamery Building and the Brookdale Shopping Center just west of the Holiday Mall, proposed redeveloping the Holiday Mall, which at the time included the closed Regency Motel and other office buildings and apartments. A conference center and hotel was part of the plan.
That plan called for a $43 million project (though it later climbed to more than $44 million.)
According to court documents:
In March 2001, the city, EDA and the developers Moorhead Holiday Mall Associates, and Rick Jordahl and the Kranz Family Trust, agreed to the redevelopment plan and a tax increment financing district was created to help build infrastructure, demolish dilapidated buildings and remove and dispose of hazardous materials, including asbestos and contaminated soil.
(With TIF financing, the city determines the starting or original tax capacity of the district. After a building or buildings are built, the market value of the property rises and for a set period of time, the increase in tax capacity over the original tax capacity, known as the tax increment, is used to pay the direct city costs, bonds used to pay for improvements, and reimburse developers.)
That TIF district was designed to expire in 2028.
In addition, the city later created a hazardous substance subdistrict, or HSS, to use some of the project’s property taxes to issue bonds to pay for additional environmental remediation.
The city initially issued $7 million in Series A tax increment bonds, another $1.6 million in Series B bonds, and about $1.6 million in Series C bonds, with the bonds split between the city and EDA.
The series C bonds covered environmental remediation and are sometimes called HSS bonds.
In addition on Feb. 27, 2003, the EDA issued a pay as you go tax increment note to Moorhead Holiday Mall LLP for $1.4 million and a similar note for $1.1 million to the Krantz Family Trust II.
To cover cleanup costs that could not be met by the HSS, the city also authorized a $1 million interfund loan to the project, which was documented in early 2003.
Then the state Legislature changed the property tax system, which dramatically reduced the tax increment money available to pay for the project, the developers said in their court filing.
The developers said the city and EDA then refused to pay toward the notes for the redevelopment. That dispute dragged on for years, and was resolved with a settlement agreement in 2009, which allowed the city to refinance the bonds for the project at lower interest rates and pay some past due interest on the TIF notes.
The developers contend in their lawsuit that the 2009 agreement set a schedule for the TIF and HSS monies to pay off bonds, an interfund loan, and pay as you go notes to reimburse the developers for some costs. The developers contend that the TIF and HSS monies had been pooled and annual financial statements indicated that was to continue through 2028.
However, in 2019, without notice, the HSS was ended, Lenzner said.
“The city’s position is that when they repaid the HSS bonds and the interfund loans, is that they had to end the district,” Lenzner said.
However, the blending of funds ended up taking tax dollars that would have helped pay off the developers’ notes and used them to pay off the HSS bonds and the interfund loan, he said.
Ending the HSS left other development costs unpaid, Lenzner said, breaching the 2009 agreement and leaving the developers holding the bag for unpaid development and environmental cleanup costs.
“In 2009, … the belief was that once the interfund loan and HSS money paid, then the developer can start getting paid,” Lenzner said.
Ending the HSS was “really kind of the kick in the teeth for the whole thing,” he said.
“In 2019, had the HSS been open, it would have produced about $140,000 of revenue. If you think about what that means to the project. That was $140,000 not in the kitty in 2019, and 2020, and it will happen in 2021. Through 2028 If you add that up, it’s in excess of $1 million,” Lenzner said.
“There’s in excess of $1 million of the city’s general funds at risk if they don’t start up (another HSS) district,” Lenzner said. “I just wish that they would sit down at the table with us and try to find a solution.”
However, the city says it has followed the law and the development agreements. And that the developers had been given notice that the HSS was ending.
“The Hazardous Substance Subdistrict (HSS) was terminated in accordance with the parties’ contracts and Minnesota law. By law, tax increment generated by the HSS can only be used to pay or reimburse specific costs associated with the HSS. Because the city made final payments on the debt associated with the environmental remediation costs, no eligible costs remained outstanding and the HSS was properly closed,” the city’s Government Affairs Director Lisa Bode said in an email to The Forum.
Bode said the TIF district will remain open until 2028.
She wrote that the city has kept up its end of the deal.
“It is the City of Moorhead’s position that the obligations to the developer regarding the HSS have been fulfilled and the other obligations of the TIF agreement are being properly fulfilled,” Bode wrote.
The city in its filing contends that many of the developers’ complaints are items that fall under the normal risks that can come with development, and that it has not breached any of its repayment obligations. It adds that it had gotten the Minnesota Legislature to authorize a special tax levy for the project and took other actions to reduce the debt service payments for the project.
The city is asking that the lawsuit be dismissed and that it be awarded its costs and attorney’s fees.
Once a popular shopping stop
The Holiday Mall has seen its ups and downs over nearly 60 years.
According to Forum files, development in the area started in 1961 as the Mayfair Shopping Center, with the first store, a Piggly Wiggly grocery, under construction in late summer 1962 as part of an overall plan to create a $1.7 million shopping and business center.
By 1963, the 23-acre tract in the northeast corner of the intersection of 8th Street South and Interstate 94 had become known as the Holiday Mall Shopping Center, and included a Holiday Inn Motel. At that point, it was estimated that the fully built out project, including an office park, would cost about $2.5 million by the time it was finished in early 1965.
Other additions to the center followed, including a Tempo Department Store in November 1966 .
By 1968, one article described the Holiday Mall and Brookdale Mall on the west side of 8th Street South/U.S. Highway 75 as a bustling city within a city.
In 1978, the parking lots of those malls and the businesses south of Interstate 94 were thriving, parking lots reportedly “choked with cars.”
An ALCO discount store took over the Tempo spot in 1979, though by the end of 1983, it, too, had closed.
At that point, there were worries about the vitality of the mall, and a study was commissioned to determine how to revitalize it, with the city footing the $7,000 bill.
A $2.75 million renovation and redevelopment of the mall plan proposed by B.S.M. Associates came together in August 1985. The city council later approved nearly $600,000 in tax increment financing bonding for the project. That was the same year that the mall signed electronics dealer Best Buy to a lease. Best Buy, at the time, had but nine stores in the Twin Cities area.
The moves were seen as sparking a rebirth of the southside mall, which had suffered with the popularity of the newer downtown Center Mall and the West Acres Shopping Center in Fargo.
But by 1993, Best Buy was considering moving and closed in late 1994, moving its operations to the West Acres campus. Other stores were closing or moving as well, including Ethan Allen Home Interiors.
Discount store Jacob’s Trading Co., survived as the mall’s anchor for several years before it, too, closed in 1999.
The model on the site, which had become the Regency Inn, was closed and vacant. The development was in decline.
In spring of 2000, Moorhead Holiday Associates unveiled a plan to clean up the mall site and bring the city its coveted hotel and conference center. The project, which eventually topped $44 million, was also to include a large anchor store, a strip mall, a food court and a bank.
The hotel and conference center ended up being the three-story Courtyard by Marriott.
In March 2001, the city, the economic development authority, and the developers Moorhead Holiday Mall Associates, and Rick Jordahl and the Kranz Family Trust, agreed to the redevelopment plan and a tax increment financing district was created to help build infrastructure, demolish dilapidated buildings and remove and dispose of hazardous materials, including asbestos and contaminated soil.
In 2019, part of the complex financing cobbled together for the project was ended. The result, the developers say, has cost them $140,000 a year. They filed a lawsuit against the city of Moorhead and the EDA that is now wending its way through district court.