Work continued Tuesday on a parking garage at Fifth Avenue and Walnut Street in downtown Des Moines. On Monday, Bankers Trust Co. filed a foreclosure petition on the property. Photo by John Retzlaff

A foreclosure petition filed this week in Polk County District Court on a downtown Des Moines parking garage under construction at Fifth Avenue and Walnut Street puts the future of the $200 million multipiece development called the Fifth in jeopardy. 

The petition, filed by Bankers Trust Co., claims that 5th and Walnut Parking LLC and developers Justin Mandelbaum and Sean Mandelbaum are in default on a $48 million note on which payments were to begin being made on Aug. 31.

The petition names the city of Des Moines, which has a development agreement with 5th and Walnut Parking and the Mandelbaums, as a junior lien holder.

“The city is reviewing the petition and has no further comment,” city officials said in a prepared statement.

The defendants received a 10-day notice on Sept. 1 that payment was due on the note, according to the petition filed on Monday. Payment was not received and Bankers Trust moved forward with foreclosure proceedings. 

The petition said the property would be sold as soon as a judgment was entered in the matter.  

Redevelopment plans for the southeast corner of Fifth and Walnut began moving forward in mid-2015 when the Des Moines City Council selected West Des Moines-based Mandelbaum Properties as the preferred developer for the city-owned land where a dilapidated parking garage once stood.

Over the next two years, the development team gained various city approvals to move forward with the project, which includes an 11-story parking garage, a 40-story tower with luxury apartments and a hotel, and a five-story commercial building with a multiscreen movie theater and restaurant.

A development agreement between the city and the development group was approved in September 2017. The agreement, which has been twice updated, required construction of the parking garage to be completed by Aug. 16, 2020, and construction of one of the two other buildings to have started by late 2019.

While work is progressing on the parking garage, construction has not begun on the tower or the commercial building.

If the development team doesn’t meet the requirements of the agreement, the city can take control of the parcels where the tower and commercial building are planned. It’s not clear whether the city would also be able to take over ownership of the parking garage property.

Justin Mandelbaum and Des Moines city officials have been negotiating for about a year an amendment to a development agreement that would have extended deadlines for completion of the garage and other parts of the high-profile development.

Last spring, city officials gave Mandelbaum until April 24 to accept proposed changes to the development agreement. At the time, they said they hadn’t received a formal reply from him. Officials in May said they would decide their next steps, which included notifying Mandelbaum that he was in default of the original development agreement. 

Mandelbaum, in an email to the Business Record, wrote that if city officials had granted extensions to the project, the foreclosure petition could have been avoided.

Construction of the garage is now scheduled to be completed in December, wrote Mandelbaum, who has retained an attorney. “This is good news, and further good news is that there is still a path forward for the rest of the project.”

Wrote Mandelbaum: “Clearly the pandemic has created an environment where few are thinking about high-rises and bold projects like this one, but we know there will come a time when it will be a competitive advantage for our community to have moved forward while other cities and developers could not or would not. We believe City Council and other key players recognize this, as well as the fact that they have nothing to lose, and everything to gain by granting the extension.”

Originally, Mandelbaum had until 2028 to complete the entire project. That deadline changed when another developer submitted a competing proposal for the site and said he could complete the project at a quicker pace. That developer dropped his proposal; at the same time, Mandelbaum agreed to more aggressive construction timelines.

Mandelbaum wrote that the aggressive timelines provided “little room for the unexpected.”

“While I acknowledge the complexity of this project, tight timeframes and the pandemic have provided challenges and strained some of our relationships, ultimately we all want the same thing – to see the tower built and realize all the ancillary benefits that come with it,” Mandelbaum wrote.

Mandelbaum wrote that the project’s construction documents are completed and ready to go out for bid. He also wrote that 21c, the hotel planned for the tower, “remains excited and is under contract.” Plans for the movie theater are on hold for pandemic-related reasons, he wrote.

Follow the Business Record for updates on this developing story.

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