Developer Randy Nichols’ company has filed a breach of contract lawsuit against Hypo Real Estate Capital Corp. for failing to fund a $160 million loan for Nichols’ 41-story Spire condo building across from the Colorado Convention Center.Construction was halted on the 503-condo unit when Hypo pulled the plug on the loan in August.
“Construction, which had been paid for through investor equity dollars, is on the verge of being suspended and the entire project is in jeopardy,” according to the lawsuit, which was filed in Denver District Court, but is being transferred to federal court.
Although potential damages aren’t stated in the lawsuit, people familiar with the situation estimate they could exceed $10 million. J.E. Dunn stopped construction in August, after completing more than $8.3 million in work.
“Spire is confident that it will be able to obtain alternative financing, so this project will go forward, but we have not entered into a new construction finance agreement as of yet,” said Timothy Beyer, an attorney with Brownstein Hyatt Farber Schreck, who is representing Nichols.
Beyer added: “The project is going to happen and it is going to be wonderful.”
Ken Schroeppel, author of the Denverinfill.com blog and an urban planner with Matrix Design Group, agreed.
“The Nichols Partnership is a pretty sophisticated development firm, and I believe they will be able to resolve the financial issues and resume construction of the Spire relatively soon,” Schroeppel said.
He said the Spire is a “very exciting project,” not only for its size and and its number of units, but because “once it is successful, it opens the door to similar projects,” by other developer. That has been a trend in other cities, he said.
Schroeppel said he thinks the Spire could do for the central business district what the Glass House did for the Central Platte Valley.
The Spire is aimed at young working professionals downtown, who are priced out of many other downtown condos. Units, which would range from about 700 square feet to 1,600 square feet, would be priced from about $200,000.
The lawsuit said that Nichols’ group had been negotiating exclusively with the New York office of Hypo since May. Nichols already was working with a “third-party lender” at the time, but Hypo said it had a “more compelling financing package for Spire,” according to the court documents. Hypo has more than $22 billion in loans in the U.S., according to the lawsuit.
The contract was signed on Aug. 22, according to the lawsuit.
Shortly after it was signed, a Hypo director, David McNeil, said that the documents did not mean that Hypo would fund the loan and that it was awaiting final signatures from its corporate parent in Germany. That was the first time that Hypo had ever said it needed approval from its German parent, according to the lawsuit.
The next day, according to the lawsuit, McNeil wrote: “We are having difficulty on the deal with final approval from Europe. We have never had a deal get approved in NY and then not get approved in Germany.”
On Aug. 28, Hypo informed Spire that it would not fund the loan.
“Germany had refused the loan,” McNeil stated, according the lawsuit “New York was on board to the end. New York continued to be convinced of the viability of the project.”
The lawsuit said that McNeil admitted “The German position defied logic and explanation.” McNeil said telling Spire that it would not fund the loan was the “worst thing he has had to do in his career,” and that “he could not be giving worse news to better people.”
Hypo’s attorney, James Nesland, of Cooley, Godward Kronish, was out of his office in the Interlocken Business Park in Broomfieldtoday and did not respond to two messages left on his voice mail.
In 1990, Nesland represented Neil Bush, the younger brother of President Bush, for his role in the $1 billion failure of the Denver-based Silverado Savings and Loan. The younger Bush was an outside director on Silverado’s board, and settled a suit with the government by paying $50,000.
By By John Rebchook, Rocky Mountain News