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2015 Top Business Stories

SIOUX CITY | The Promenade Cinema 14 flung open its doors on Nov. 5, 2005, marking the return of first-run movies to downtown Sioux City.

The 14-screen theater was the centerpiece of a $13 million entertainment complex constructed at Fourth and Virginia streets by a California-based developer, with the aid of millions of dollars in tax incentives and loan guarantees from the city.

The developer, Civic Partners Sioux City LLC, promised to quickly fill the retail space that wrapped around the theater with a mixture of restaurants, bars and shops that would appeal not only to theater-goers but also visitors to the adjacent Historic Fourth District.

A decade later, nearly all the 12,000 square feet of retail space remains vacant. Not for a lack of trying by local commercial real estate officials, though.

United Commercial’s Beau Braunger said he has had offers on the space for months, but a protracted legal fight over the property has made it virtually impossible to close a deal.

“It’s very frustrating,” Braunger said earlier this month. “The way it’s listed, it’s a full-price offer. The bank and the courts are just sitting on it. It’s been a complete stalemate it seems.”

The legal dispute recently moved a step closer to a potential resolution.

PLAN NOT FEASIBLE

A three-judge panel of the Eighth Circuit Court of Appeals on March 3 dismissed Civic Partners’ appeal related to the company’s 2011 Chapter 11 bankruptcy filing.

The appeals court found it lacked jurisdiction to review the appeal because the U.S. Bankruptcy Court Court in Sioux City had not issued a final order, judgment, decree or decision in the underlying Chapter 11 petition.

The case is now back in the hands of Chief Bankruptcy Judge Thad Collins, who in October 2013 denied Civic Partners’ reorganization plan, saying the projected cash flow made the plan not feasible and “there is no realistic projected path forward on the vacant retail space.”

Two months after the ruling, First National Bank of Sioux City, which holds the first mortgage on the building and has proceeded to foreclosure, filed a motion asking Collins to dismiss the bankruptcy petition or convert it to a Chapter 7 liquidation. The city and the Promenade owner, Omaha-based Main Street Theatres, joined the bank’s motion.

Collins is now expected to rule on the motion.

Still, lawyers familiar with the case said Civic Partners or even another group likely will have an opportunity to present a different reorganization plan. Because the Eighth Circuit Court ruled on procedural grounds, rather the merits of the case, more appeals also are possible, if not probable.

“The potential exists that this will continue on for some time,” Jeff Wright, a Sioux City attorney who has represented the city in the case, said Thursday.

M. Mark Rice, a Des Moines attorney representing First National Bank, declined to comment following the appeals court ruling. Frank Baron, a Sioux City attorney who has represented Civic Partners, did not immediately return a call to the Journal.

In its earlier plan to restructure its debt, Civic Partners sought to significantly reduce the secured claim of the bank, its primary lender, and leave the city, which guaranteed a portion of the bank loan, entirely unsecured. The plan also attempted to satisfy smaller debts that Civic Partners principal Steve Semingson personally owed as a guarantor, according to court documents.

Civic Partners also tried unsuccessfully to get Collins to reinstate the company’s original 2004 lease with Main Street Theaters, which called for $1.2 million in annual rent. Unbeknownst to the theater owners, the original lease covered virtually all of Civic Partners’ debt service payment, according to court documents. Due to significant water problems identified shortly after the facility opened, Main Street was not able to make even one full payment at that rate, court documents said.

As part of mediation between the developer, theater owner and bank in 2009, the yearly rent was lowered to $900,000.

DEFAULTS ON LOAN

The city, which was not represented at the mediation talks, did not ratify or approve the settlement, though. The bank then canceled the agreement and filed for foreclosure in December 2010, accusing Civic Partners of defaulting on a $5.63 million loan for the project. At the time of the foreclosure filing, Civic Partners’ debt, including interest, had reached more than $6.1 million.

Civic Partners then filed for Chapter 11 protection in December 2010. The company has argued the court should subordinate the interests of the bank and the city because they “defrauded Civic into accepting the amended lease.”

The City Council in 2001 voted to guarantee a portion of the Civic Partners loans, seeing the development as a key component to rejuvenating a sagging downtown entertainment district. At the time, the Tyson Events Center wouldn’t open for another three-plus years, and the Orpheum Theatre remained closed in the midst of fundraising to remodel the historic theater to its former glory.

The city’s unprecedented backing of a loan for a private development came back to bite local taxpayers. A Woodbury County District Court judge in August 2013 ordered the city to pay $1.2 million to First National for defaulted payments for the bank loan. Thus far, the city has made $600,000 in payments, with two more installments of $300,000 each to go.

City officials said they will attempt to recoup the funds through separate litigation to enforce Semingson’s personal guarantee of the loan.

“We’re in a position of waiting until the bankruptcy is settled until we can aggressively pursue that,” Wright said.

NOT READY TO RENT

Leasing the remaining retail space in the complex also will continue to be challenging, at best, until the bankruptcy runs its course. Other than the theater, the only other tenant is 6 South Designs, a women’s clothing and event-planning store. According to court documents, it’s not the type of complementary entertainment business that Main Street Theaters was originally promised.

With dirt floors and bare studs, the vacant retail space has not been finished to a “vanilla shell” or “vanilla box,” industry terms for ready-to-rent conditions.

Despite all the challenges thrown its way over the years, the Promenade Cinema 14 has more than lived up to expectations. Nearly two-thirds of all movie-goers in Sioux City are choosing the downtown theater, said Bill Barstow, president of Main Street Theatres, a family owned and operated chain with eight locations in Iowa and Nebraska.

The only other first-run theater in town, the Southern Hills 12, is part of the Carmike Cinema national chain.

While confident Main Street will prevail, the lengthy legal dispute involving the Civic Partners property “hasn’t been good for Sioux City,” Barstow said in a statement.

“We have big ideas for the Promenade, and we hope to move forward soon,” he said. “We hope to broaden our connection to Sioux City as soon as the courts rule in our favor… We’re convinced we will have the opportunity to entertain Sioux City in the heart of their community for years to come.”

Article source: http://siouxcityjournal.com/business/top-business-stories/collection_813be36e-931c-11e5-9fd7-a39b1e05aa3f.html

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