The leader of a planned African American museum in Minneapolis is accusing a local community bank of imperiling the museum's existence by forcing it to rewrite the terms of a $1.2 million mortgage.
But a bank official said that the museum created the dilemma by winning a $1 million state grant that required it to redo the loan.
The dispute erupted as the Minnesota African American Museum and Cultural Center twice postponed its opening, first planned for summer 2011, then May 2012. Now it's scheduled for Sept. 15.
Roxanne Givens, the museum's founder, said the delays have been caused by the slow pace of fundraising.
But in sharply worded e-mails last month, Givens told museum board members that Franklin National Bank and its parent company, St. Paul-based Sunrise Community Banks, had engaged in "unrelenting harassment," treating people of color and black institutions differently than "middle-class" entities despite touting its commitment to communities and diversity.
"It is a sad day in history," Givens said last week. "Why would you place an African American museum, of all institutions, in jeopardy?"
David Reiling, CEO of Sunrise, said it was "completely wrong" to suggest the bank only focuses on the middle class, noting that it embraces community efforts and has increased its branch locations in low- and moderate-income areas that have been abandoned by other banks.
"We literally have hundreds of millions of dollars invested in the urban core of Minneapolis and St. Paul," he said. "These loans are small businesses, nonprofit organizations and affordable housing development."
The bank made the loan to the museum in 2009 to help with its plan to acquire and renovate a 19th century mansion at 1700 3rd Av. S. to display the museum's collection.
In 2011, the Legislature approved a bonding bill that included $1 million for the museum renovation, contingent on the museum's raising an equal amount separately from non-state funds. In May, the state concluded that the museum had met that requirement.
However, the state had another requirement -- that the museum be listed as collateral for the $1 million grant. "There is a statutory requirement that [the state] be in a first position in case there is a default," said Joel Ludwigson, a spokesman for the Minnesota Management and Budget agency. "If the project does not succeed for whatever reason, the state gets to be in the number one position to recover whatever it can."
E-mails show that in August, Franklin National Bank, which had issued a $1.2 million mortgage on the property, told the museum that if it was no longer going to be in first position, it needed a new "source of the collateral" on the outstanding loan balance, either in the form of cash as security or "another piece of real estate."
Reiling said that the crux of the problem is that the museum changed its request. "The museum did not disclose to us the requirements of getting the million dollar state bonding," he said.
He said that while he cannot go into details about the loan, speaking in a "hypothetical situation" if regulators saw that the bank was to move to the second position on a $1 million mortgage, "the loan would be considered unsatisfactory by the bank regulators, and the bank would be required to write it off as a total loss."
Givens declined to disclose what the loan balance is but said it was between $500,000 and $1 million. Givens predicted that the museum, through its capital campaign, can pay off the bank loan by the end of 2013.
The museum has already received $100,000 or more each from the Target Foundation, Wells Fargo, General Mills, 3M and Minnesota Humanities, she said.
The bank should be working as a partner to solve the problem, she said.
"At some point you do take a risk because you believe in that institution," said Givens, who spent decades as a developer of affordable homes, as well as doing extensive work in philanthropy.
Word has gotten around town about the museum's predicament. State Sen. Jeff Hayden, DFL-Minneapolis, said he was aware that the bank does not want to be at a second position on its loan. "Franklin Bank has long been a community-oriented bank," he said. "I will be extremely disappointed with Franklin Bank if we can't work this out."
Renovating the mansion is Tri-Construction, a minority owned firm, working with Knutson Construction as a mentor.
Germain Palmer, 39, a laborer with Tri-Construction, was hard at work Friday, sawing and removing sheet rock from the ceiling of the third floor of the former mansion.
"I am very proud to be working on this project," said Palmer, who is black. "I'm doing this for my kids and my family and other people's families so they can see what we've gone through."
He said he's heard about the problems with the bank but continues working, assuming that he will get paid.
The public had a first glimpse of the museum during a two-day program in June on black baseball in the Upper Midwest.
On Sept. 15, the first and second floors will open to the public, Givens said. The third floor will be completed by the end of the year.
Randy Furst 612-673-4224