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City authorizes legal action against developer

Posted by: Eric Roper Updated: August 15, 2014 - 4:44 PM

The city is preparing for possible legal action against a developer it says reneged on a loan from 2008.

Following a closed-door session Friday, the City Council took the unusual step of authorizing the city attorney to initiate a lawsuit or foreclosure action against entities headed by developer Don Gerberding. The loan relates to Gerberding's redevelopment of a parcel at 2nd Street and West Broadway that now houses his company, Master.

Precisely what the city intends to do remains unclear. A city spokesman said he would inquire about the city attorney's preference following today's vote.

Unrelated to the loan dispute, Gerberding is currently trying to develop a property a Franklin and Lyndale Avenues -- a project that has garnered a lot of attention.

The city granted Gerberding a ten-year, $350,000 loan in 2008 to transform a site once occupied by Irv's Bar, which had attracted many police calls. Gerberding developed the parcel -- though not to the city's original specifications -- but soon fell into default on the loan, according to city documents.

The city agreed to a forbearance, reducing the minimum monthly payments on the loan. The city says Gerberding then failed to meet one of the conditions of that new agreement: paying property taxes when they are due.

As a result, the city put the loan back into default and accelerated the repayment requirements in November 2013, according to a letter sent to Gerberding that month. The letter requested a payment of $405,500, which accounted for interest on the loan.

“We are a patient lender," said the city's community development chair, council member Lisa Goodman, following Friday's meeting. "We believe in the community development objectives. But a complete disregard for us as a lending institution is not acceptable."

Gerberding expressed suprise at the City Council's action when contacted Friday, saying he was complying with the terms of the renegotiated agreement. "[The company] has been making it’s monthly payments and is current," Gerberding said.

He said he did not recall receiving the November letter removing the renegotiated agreement, adding that he has entered into a payment plan with Hennepin County to pay off delinquent taxes over three years.

After contacting the city Friday, Gerberding later said he does not expect legal action to be taken. "It seems as if there's some miscommunication," Gerberding said. "There will be a resolution."

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