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Hotel developer’s attorney threatens Mason City with lawsuit over default notice

From the North Iowa's 90 most popular stories in 2018: Mason City series
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Courtyard by Marriott

A rendering of G8 Development plans for a Courtyard by Marriott hotel in downtown Mason City.

MASON CITY | An attorney representing Philip Chodur, the city’s hotel developer for the downtown River City Renaissance Project, is threatening legal action against Mason City for “unacceptable” conduct.

That’s what Stephen Fitch of Fitch Law Firm in San Diego, California, said in a letter dated Oct. 5 to Mason City Administrator Aaron Burnett, which the Globe Gazette received a copy Friday.

“Any continued action of the city as to declaring G8 in default under the (Purchase, Sale and Development Agreement) would constitute a breach by the city of its obligation under the (agreement),” he wrote. “Demand is hereby made that the city immediately rescind the notice of default.”

The letter was received nearly a month after Mason City provided G8 Development, Chodur’s San Diego-based company, written and electronic notice of default after it failed to show full proof of financing for its hotel.

The city’s notice to G8 Development gave 45 days — or until Monday — to remedy the default.

Fitch said Mason City’s request for proof of financing for the hotel is “outside the scope” of its agreement with G8; therefore, the developer is not in default by not providing it.

“As the city is certainly aware, G8 has provided the city with a term sheet issued by a Byline Bank as well as city officials have met with bank officials,” he wrote. “There is no requirement under the (Purchase, Sale and Development Agreement) that requires G8 to provide the city with final financing commitments, especially when the city has not even approved building plans or completed the agreement with the foundation.”

The city’s written notice of default and G8 Development’s full proof of financing were two contingencies approved by the Iowa Economic Development Authority, or IEDA, in August for Mason City to retain about $9.1 million in state funding for its $39 million project.

Fitch said G8 Development doesn’t have an agreement with the IEDA, and the IEDA isn’t a party in the Purchase, Sale and Development agreement between the developer and the city, so the developer doesn’t have to meet its demands.

“The IEDA also does not have the right to direct the city to take any action against the G8 under the (agreement),” he wrote, adding any attempt by the state to impose requirements on the city related to its agreement with G8 constitutes as interference with the developer’s contractual rights. “The city by allowing a non-party to its agreement with G8 to interfere is unacceptable.”

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G8 Development was selected to build a hotel in the Southbridge Mall parking lot that would connect via skywalk to The Music Man Square, which would be remodeled into a conference center.

The hotel is a key component in the city's project that also includes a performing arts pavilion and an ice arena and multipurpose center. One of the state requirements is $10 million in private investment. The hotel is valued at $15 million.

Fitch said G8 Development is required to pursue a firm commitment of financing in order to complete construction of the minimum improvements by Dec. 31, 2019, but there is no other deadline under its contract with the city.

“The actions to date by the city and IEDA including the issuance of a notice of default constitutes a breach of the (Purchase, Sale and Development Agreement) by the city and severely hinders G8’s ability to obtain permanent financing,” he wrote.

An email to Burnett requesting comment on the letter was not returned by 5 p.m. Friday. 

Chodur originally pitched a downtown hotel in 2013. When he failed to meet several construction deadlines to build next to City Hall, the city found him in default and the deal fell through. At the time, city officials said Chodur could not get financing.

That delay led the city to work with another developer, Gatehouse Capital. Local opponents forced a referendum on the overall project in November 2017, but voters overwhelming approved the plan. About the same time, Chodur filed a lawsuit against Mason City and the Chamber of Commerce Foundation, claiming a breach in contract.

But the plan's changes in the contract negotiations between Gatehouse and Mason City forced the city to open the project for bid. G8 submitted a bid the Mason City Council found more favorable and accepted.

As a condition of the new agreement, G8 dropped its lawsuit against the city and the Chamber.

Photos: Southbridge Mall in its heyday

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Reach Reporter Ashley Stewart at 641-421-0533. Follow her on Twitter at GGastewart.

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