Deadbeats, Inc.

Minneapolis swallows another developer's debts

If Brookfield defaults on the loans, the city should quit doing business with the corporation, Goodman opines. "I don't think we should be in the business of making loans to anyone who has shown an inability to repay them. No bank would do that. No private financing organization. I don't think we should be in a position of working with an organization that clearly has assets, and that sets up shell corporations to avoid paying off their debts."

Mayor R.T. Rybak, who was a reporter for the Star Tribune covering downtown development when the Gaviidae loan was made, is less critical of Brookfield--and less inclined to put the company on a city blacklist. "We obviously want them to perform, and obviously there will be consequences if they don't. But I liken the situation to a separation in which you have joint custody of the kid," Rybak says. "We need to have a professional solution that takes some of the emotion out of the game and make sure we're making smart decisions because there are millions of [public] dollars involved."

As it happens, the city is bound to be dealing with Brookfield for the foreseeable future. Not only is the company a minority partner in the much-ballyhooed (and much-criticized) Block E retail-entertainment complex; it also has an additional outstanding $37 million loan due to the city in 2008. (Both finance director Born and the MCDA's Kissinger say they are confident that that loan, for a third component of the Gaviidae project that includes the Dain Tower and Neiman Marcus department store, is better secured than the other two loans at issue.)

And even if the city takes possession of the Saks building, Brookfield may play a continued role in--and earn profits from--that property, says Kissinger. "We will need to make some sort of property-management arrangements, and Brookfield has said they will cooperate," he adds. "So it's possible there may be a deal where some small fees are involved, and they'll manage the property."

Those are not the hardball tactics critics like Victoria Heller are hoping for. Rather, she believes responsibility for the Gaviidae loan failure ought to be subjected to intense public scrutiny--and that hard public-policy decisions need to be made. Brookfield, she opines, has employed "Enron-like smoke and mirrors" to avoid paying its debts. But in her book the MCDA deserves plenty of blame as well for being all too willing to dole out loans while applying far too little skepticism to its partners.

"I just think the city should get out of the lending business," she adds. "If a business can't borrow money from a conventional lender, then the deal must not make much sense." How many other outstanding MCDA loans are at risk for default? she asks. How many have already defaulted?

That, as it turns out, is a question to which no one seems to know the answer. "I don't have any reports saying, 'Here's the number of loan defaults over the last 30 years,'" says finance director Born. "We tend to deal with these things on a one-by-one basis."

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