Hopkins and apartment developer battle over $10.5M parking ramp

Kelly Doran, the apartment developer and manager, and the city of Hopkins have waged a year-plus court fight involving a $50 million-plus luxury apartment building in Hopkins that was celebrated as a signature development in its upticking downtown.

The fight is over who is on the hook for a $10 million 189-stall public parking ramp that Doran built as part of the 2018 project, at the request of the city, to accommodate anticipated park-and-riders at the soon-to-arrive Southwest LRT line.

The parties are in what is described as settlement talks after a no-winner ruling by Hennepin County District Judge Edward Wahl. The only safe bet is that any proposed settlement will not be announced until after City Council elections in November.

To this nonlawyer, Doran has a pretty good case to make for getting stiffed on a ramp he didn't plan, in addition to 255 underground stalls that he built to accommodate tenants and guests.

According to court documents and Doran, he financed what is supposed to be a government transit center with an additional $10.5 million bank loan. When a purchase by the city didn't close in early 2018, Doran had to carry the ramp and pay an additional $1.5 million in interest, management expenses and related costs for more than a year. And his nervous banker demanded a recent, big prepayment.

"The city is in default," Doran asserted last week. "The bank thought this agreement was bulletproof. I had to pay $3.5 million down on the loan. The city was supposed to buy it and they haven't."

Doran blames the Metropolitan Council, which monitored the agreement as it was assembled in 2016 and then started picking it apart before the planned closing in early 2018.

The city has declined to comment, citing the court fight. The Met Council said in a statement Friday:

"Under federal law and guidelines, federally-funded transit assets, like the parking ramp, can only be used for private purposes in very limited circumstances. Doran's proposed use of the ramp did not meet federal guidelines. Doran was unwilling to agree to terms that would have allowed the Council to use federal funds to purchase a portion of the parking structure."

According to a July ruling by Wahl and other court documents, the parties expected the Met Council, which operates the bus and light-rail system, to fund the public garage that is built into the Moline apartment complex, above the private parking.

The expectation was that Hopkins would eventually assign its ownership of the public parking to the Met Council. The council was expected to cover most of the cost for Hopkins with $10 million in federal "congestion mitigation and air quality improvement funds," and as much as $3.5 million in SWLRT funding, a mix of local and state funds. The city was to come up with about $1.5 million as its direct contribution.

Hopkins was supposed to pay for the public ramp by July 2018. Doran sued for breach of contract later that month.

Wahl denied the city's request for summary judgment — or a win — on the grounds that Doran has a valid contract to sell the public ramp that was "negotiated and drafted by experienced attorneys representing the various parties to the development transaction."

And he noted that Doran never proposed the additional ramp. But he was willing to alter the design of the Moline and include the public ramp if he didn't have to own and maintain it.

"Doran maintains that it is essentially stuck with a parking garage it never planned to own, having to pay out-of-pocket to cover the bank loan, and also assume all costs … into the future," Wahl wrote. "Under these circumstances summary judgment in favor of the city on the basis of unconscionability is not appropriate."

Wahl, in also denying Doran's bid for a legal shutout in his July decision, affirmed the city's contention that while negotiating how the ramp would be used with Hopkins and the Met Council, Doran "insisted up to 50 stalls in the garage be set aside for use by Moline's residents" and that Doran sought to have influence over the "use and operation" of the garage even after a sale.

Hopkins officials are sure to be somewhat nervous about a potential $11 million liability.

The city has already invested $5.2 million in the downtown-centerpiece project through its commitment to repay Doran through the incremental increases in taxes that the Moline is projected to generate over several years, through a public-loan program.

It's doubtful that the city wants to take this one to trial, particularly after losing its bid for summary judgment. This deal gets more costly every day.

The best result likely will be a negotiated settlement. We will find out after election season.

Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at nstanthony@startribune.com.