Bankruptcy trustee recommends McQuillen Place be sold to bank
By Bob Steenson, email@example.com
The trustee in the McQuillen Place Co. bankruptcy has recommended that the unfinished Charles City building be sold to First Security Bank & Trust, which holds the construction loan on the project and which previously started foreclosure proceedings.
Kurt Herbrechtsmeyer, the bank president and CEO, said the bank’s goal would be to sell the property to a developer who can finish, rent and manage the combination residential and commercial building, and he said the bank had been in contact with developers who are interested.
But Charles Thomson, the current majority equity security holder in McQuillen Place Co. LLC, is questioning the latest sale proposal process, and charging that there are serious due process concerns with the way it is being handled.
Thomson has also filed or helped file more than a dozen lawsuits in U.S. District Court and in Iowa District Court for Floyd County, alleging that the bank and/or various of its directors acted to thwart the completion or refinancing of the project in order to take it over and be the community’s “hero” by finishing it.
Herbrechtsmeyer has declined to comment on those lawsuits in the past, and did so again last week.
“I had probably better not,” he said, adding that it’s important to keep those other lawsuits separate from the bankruptcy proceedings, “because legally they are separate.”
The focus now should be on finishing the McQuillen Place project, Herbrechtsmeyer said.
“We really would like to see this part get resolved so we can find a buyer and get somebody in there who will complete it and market it and lease it as it was intended,” he said.
A hearing has been set in bankruptcy court for April 8 that could provide some answers as to what happens next.
Bankruptcy trustee Charles Smith, a Council Bluffs attorney appointed by the bankruptcy court, has entered a motion and potential purchase agreement to sell the assets to the bank. It lists a possible closing date of April 17.
Early in March, Smith, with the help of the Iowa Economic Development Authority, sent out notices to about 20 development firms, seeking proposals on purchasing the McQuillen Place assets through the bankruptcy court, with the intent of completing the Main Street project.
The IEDA originally helped provide part of the funding for the project, and indicated it could also help a new developer with up to $1 million in Community Development Block Grant funds if the new developer meets the requirements for the grant.
Smith received two proposals. One was from the bank, for $1.1 million, which Herbrechtsmeyer called a “protective bid … to keep somebody from getting it for next to nothing.”
The other proposal was from Binstock Development LLC of Columbus, Minnesota, owned by Steve Binstock, for $470,000 for the building and items located within the building.
Binstock proposed spending almost $597,000 to complete construction of the residential units in the building, and more than $858,000 to complete the ground floor commercial construction.
Binstock’s proposal relied on receiving the $1 million in grants from the Iowa Economic Development Authority, and a property tax abatement incentive from the city of Charles City spread over 18 years, but it also offers six different options depending on which combination of incentives and project requirements is agreed to.
The Binstock proposal said it is “ready, willing and able to submit a competitive bid, complete construction, lease-up the residential units and the commercial space, and operate the completed project” based on any of those options.
In a footnote, Binstock said he worked on the proposal with Thomson.
“I know him,” Thomson said about Binstock. “I have helped him in making suggestions for what would be appropriate. What they submitted there was something that, in my view, complied with what the trustee had requested.”
Thomson said the proposal by the bank did not meet the requirements set out in Trustee Smith’s request, and he questioned why Smith is recommending to the bankruptcy court that the assets be allowed to be sold to the bank.
In his motion to sell the assets to the bank, Smith wrote that he had “concluded the bid submitted by the bank is the highest and best offer.”
When asked why he made that determination, Smith told the Press, “That’s something that I’ll be presenting to the court, my thoughts on that, and so I don’t want to get out in front of this and be discussing this with others first.”
Smith also filed a motion last week asking the bankruptcy judge to shorten the usual length of time for people to object to his proposal to sell the property.
In his motion, Smith said the property taxes on the property continue to accrue “at the rate of approximately $18,000 per month,” so “time is of the essence.”
Thomson filed a motion resisting the effort to shorten the objection period.
“There are a lot of peculiar things going on here that merit the court’s attention,” Thomson said.
With the current coronavirus situation and many people working from their homes and other delays, the length of time to object should be increased, not shortened, he said.
He also questioned the process to seek proposals on the project, saying they were sent out “with very limited notice, to a few select people.”
First Security Bank’s attorney filed a “memorandum” supporting the motion to reduce the comment period, arguing that all the parties involved had ample notice of the trustee’s intent to sell the assets.
The bank also argued that Thomson wouldn’t be able to make any arguments against the sale in the usual 21-day period for objections that he couldn’t also make in a 10-day period.
Bankruptcy Judge Thad Collins ruled Thursday that the objection period would be reduced, to no later than Monday, April 6, and that a hearing on the motion to sell would be held by telephone on Wednesday, April 8.
The bank’s bid of $1.1 million would include a “carve-out” of $150,000, that would be used to pay some of the other creditors in the bankruptcy, as well as some of the costs.
Trustee Smith said that most of the bank’s bid would likely go back to the bank, since it has a secured lien against the property for its construction loan of more than $4 million, including interest and penalties.
Herbrechtsmeyer said the bank was likely to continue to pursue foreclosure for assets Thomson and his companies put up for collateral on the construction loan.
“Simply put, yes, that would be our intention, to collect the deficiency on the loan,” he said.
Ann Schmid, the disaster recovery team leader and historic preservation specialist with the Iowa Economic Development Authority, said in a declaration entered into the bankruptcy proceedings, that neither of the two purchase proposals, from the bank or from Binstock, would qualify for the $1 million in CDBG funds as they were presented, mostly because of missing information.
She said the eventual purchaser of the McQuillen Place Co. assets could still file the appropriate forms to be considered for the $1 million.
Schmid also said IEDA worked with Smith in soliciting project proposals “to facilitate an active and competitive bidding process,” and that the state agency “took no position and made no recommendation with regards to which bid was the highest and best bid or with regards to how ultimate ownership of the project should be decided.”
Thomson has also filed suit against the IEDA, arguing that the state failed to provide promised funding for the project through a different state tax credit program. The state says the project failed to meet the project completion deadline requirement to qualify for the credits.
Thomson’s suits against First Security Bank & Trust and various groups of directors have been filed on behalf of McQuillen Place Co. LLC; on behalf of Amelia Management LLC, the property management company owned by Thomson and his brothers that started the McQuillen Place project (McQuillen is their mother’s maiden name); on behalf of Umbrella Realty Co., another property company controlled by Thomson; on behalf of Cornice & Rose International, the Chicago-area firm that did the design work and much of the construction on McQuillen Place; and on behalf of Thomson personally.
The lawsuits, which are similar in their wording, accuse the bank and its directors of “a pattern of conduct which is odious, overreaching and abhorrent,” and claim the bank and/or groups of bank directors abused their power, breached their agreements with the various Thomson-related groups, did not represent their client’s financial interests, and acted directly to interfere with Thomson’s ability to finish the project or to get other financing.
Most of the lawsuits filed by Thomson include many pages of transcripts from First Security board of directors meetings that Thomson says prove his allegations. Thomson received the transcripts through the discovery process in the lawsuits.
“The individual defendants concocted, supported and evangelized on behalf of a scheme for First Security Bank to seize control of McQuillen Place in order to, among other things, advance their own public relations agenda,” one of the lawsuits says.