Detroit council OKs proposed Book Cadillac settlement
Detroit — The City Council on Tuesday approved a $22 million settlement proposal tied to litigation over financing for the Westin Book Cadillac Detroit hotel.
The panel voted 8-0 in favor of the tentative deal that stems from a 2013 lawsuit filed on behalf of the city’s two pension funds against another investor in the hotel, alleging that investor made a secret deal to get paid before the project’s other creditors.
The Wayne County Circuit Court lawsuit filed by attorneys for the Detroit Police and Fire Retirement System and General Retirement System stems from a 2006 financing deal with more than $117 million from seven parties to renovate the hotel.
Detroit’s General Retirement System loaned the project $9 million and the city’s Police and Fire Retirement System backed a $15 million loan. The city got an $18 million loan from the U.S. Department of Housing and Urban Development as part of the financing used by the developer to renovate the hotel.
The other investor, the Carpenters Pension Trust Fund, committed $17.2 million to the project, attorneys in the case previously said.
Under the proposed deal with the Carpenters Pension Trust Fund, the city would get at least $10 million to pay down a portion of the city’s remaining obligations to HUD.
“It’s a good settlement,” said Charles Raimi, deputy corporation counsel for Detroit. “It’s recouping a substantial amount of the money and moving on. Book Cadillac is up and running, so that’s a good thing.”
But the two pension funds have not yet voted on the proposed agreement. If it’s approved, settlement proceeds would be distributed among the police and fire and general pension funds, the city and its various entities who invested in the project, said Tina Bassett, a spokeswoman for the General Retirement System.
“Before this settlement can be finalized, we all need to sign off on it,” she said in a released statement.
“We are still in negotiations as to how the settlement proceeds will be distributed among us. None of the parties involved in this settlement are going to be made whole. However, on the bright side, it will give us some cash to be used in other investments and improve our liquidity.”
The original New York-based lender for the project, iStar Financial Inc., sold out to Carpenter’s Pension Trust Fund in 2009.
In the lawsuit, the pension funds claim the Carpenters Pension Trust Fund made a deal with the most senior lender of the project to buy its $42 million loan for $36.5 million.
“Essentially the lowest priority lender, the Carpenter’s Pension Trust Fund, diverted money intended for the benefit of mortgage lenders and the project and used it instead to buy the senior debt to the detriment of all other lenders including the city pension funds,” said Don Wagner, an attorney with Couzens, Lansky, special counsel for the pension funds, in a 2013 statement.
As a result of the alleged deal, the Carpenters Pension Trust Fund and its affiliate, Carpenter’s Pension Trust Book Cadillac LLC, jumped over six levels of mortgage lenders owed $57 million to the position of senior lender, and the project was deprived of more than $16.7 million that was intended to assure payment of the loans, legal counsel for the funds have said.
An attorney for the Carpenters Pension Trust Fund could not be reached for comment Tuesday.
The suit also claims the Carpenters Pension Trust Fund changed the terms of the senior loan agreement, requiring the borrower to apply all of its net cash to repay its affiliate, and waiving the borrower’s obligation to maintain certain reserves that could be used to pay other lenders.
Bruce Babiarz, a spokesman for the city’s police and fire pension fund, declined Tuesday to discuss aspects of the tentative settlement, noting it’s an an ongoing legal matter.