Deal: Penn Plymouth

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Both sides in the Penn Plymouth Corporation/NRP settlement say the agreement they reached last month to settle a loan default might be fair enough. But while NRP Director Bob Miller describes it as best for all parties involved and protects the city’s interests, Northside Residents Redevelopment Council (NRRC) Executive Director Sherrie Pugh Sullivan said that City of Minneapolis staff wronged NRRC, with misleading statements and bad advice.

The background
In 1991, NRRC (under then-Executive Director Matthew Ramadan) agreed to take over the Penn Plymouth Shopping Center at Penn and Plymouth avenues N., after the City of Minneapolis had acquired it through a foreclosure. NRRC formed a for-profit subsidiary company, Penn Plymouth Corporation (PPC), to run the shopping center.

The NRP (Neighborhood Revitalization Program) Policy Board agreed to lend PPC $1.45 million for renovation and redevelopment at the shopping center. The loan was repayable in three increments. If payments were made on time and as agreed, the second part of the loan–$502,000–would be forgiven.

But there were problems from the start. It turned out that drug dealers hung out at the shopping center, scaring off or harassing shoppers. An anchor, and the best-known tenant, Lucille’s Kitchen, went out of business. The shopping center fell into bad financial trouble.

When, in 2001, PPC had trouble making payments under the original agreement, NRP restructured the agreement. That didn’t seem to help, though, and PPC ended up owing three different loans to NRP: one for $36,967.16, the “deferred” loan for $502,000 and a third for $120,819.

NRRC also owed two non-profit developers money for help on other projects: GMHC (Greater Metropolitan Housing Corporation), for preparatory work on its proposed Karamu West development, and Local Initiatives Support Corporation (LISC), for North Side housing rehabilitation.

When University of Minnesota officials started talking to NRRC two years ago about buying the Penn Plymouth Shopping Center, NRRC officials thought they could repay GMHC and LISC with the sale proceeds. Once it became clear that the University’s intentions were serious, NRRC staff and board members met with Fifth Ward City Council Member Don Samuels and some city staff members in July, 2007 to talk about the sale.

According to NRRC, city staffers led them to believe, in that meeting, that the “forgivable” NRP loan for $502,000 would be forgiven.

However, NRP Director Bob Miller wasn’t included in that meeting. He strongly objected to city staffers telling NRRC that the loan might be forgiven, saying they didn’t have the authority to make any promises on behalf of NRP. (NRP was established by the state, not the city.) Miller also said that PPC had been consistently late with payments and other loans were in default. If the University bought the shopping center, he said, he wanted the money from the sale to come back to NRP to repay PPC’s debts.

(Samuels told NorthNews, in an interview printed Oct. 3, that he could understand how NRRC thought the loan would be forgiven, from what was said at the July meeting. “That’s where the sense of betrayal comes in,” he said.)

Ultimately, NRRC, LISC, and GMHC ended up agreeing to Miller’s terms. In a “Memorandum of Understanding” document signed Oct. 18, 2007, by Miller, Pugh Sullivan (as PPC secretary and NRRC executive director), Carolyn Olson, GMHC president, and Deanna Foster, LISC Executive Director, PPC agreed to “pay off the accumulated and current debt owed for principal and interest on the first and third loans from the City of Minneapolis (for the NRP)” and the defaulted second loan of $502,000, from the proceeds of the sale of the Penn Plymouth Shopping Center to the University of Minnesota.

NRRC will also repay GMHC $185,000 from its NRP 1991 Transition Funds, and LISC $75,000 from money in NRRC’s NRP Phase I physical environment strategy.

Miller said that NRRC still owes Hennepin County about $60,000 in back taxes and the federal government about $100,000; closing costs on the shopping center will likely run about $25,000. The University of Minnesota is paying $1.125 million for the shopping center. Although it might seem like NRRC is getting little back from the sale, he said, “What’s in their favor is that they have removed most of PPC’s debts. I basically feel we’ve reached a settlement that is in the best interest of all the parties and protects the public interest.”

Pugh Sullivan wasn’t as pleased. “It was the best [settlement] they were going to give us,” she said. “But the city screwed us, dating back to 2006. That was when our accountant advised us to transfer ownership to an LLC to avoid tax liability. We went to the city staff, but they said we couldn’t because it would take city council action and the council wouldn’t approve it. I asked, ‘How do you would know that? Why not take a chance?’ but they refused. That ensured we’d have a tax consequence.”

She said, “The settlement is the best of what was set up as a bad scenario. Bob Miller keeps $500,000 for NRP, NRRC’s creditors get about $300,000. It doesn’t look like the best deal for us, but nobody wanted us to get the best deal. That’s okay. We’re tough, and we’re still here.”

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