The city of Fayetteville is suing the developer of a downtown project for allegedly breaching contract to build a mixed-use hotel, office and apartment building and completing a parking garage, according to a lawsuit filed last week.
The July 12 lawsuit filed by the city in Cumberland County Superior Court against Hay Street Development Pad LLC and PCH Development Co. LLC and its registered agent Roderick Anthony Dowling Jr., states the developers were supposed to have the mixed-use building “substantially completed” by Oct. 31.
Secretary of State records show Hay Street Development Pad LLC and affiliated companies were administratively dissolved in March 2023.
Attempts to reach Dowling and Jordan Jones, the project manager of PCH Holdings, which owns the Prince Charles Hotel, were unsuccessful as of press time. A representative from a marketing firm who contacted the Observer on Wednesday evening said they did not have a statement as of press time because they were still reviewing the lawsuit.
Jones told The Fayetteville Observer in 2021 and in 2023 that the COVID-19 pandemic and rising construction costs stalled the projects.
Last year, developers announced that they would no longer build a hotel and office space above the parking deck at 466 Hay St. in downtown Fayetteville and instead proposed a 212-unit apartment complex.
Nearby, the developer has renovated the former Prince Charles Hotel building into the Residences at Prince Charles, which opened in March 2021, and Coffee Scene is open at the ground level of that building, but the city is suing for projects are incomplete or haven't started.
Breach of contract
The city is attempting to block Hay Street Development Pad and PCH Development Co. from selling assets it says the companies received as a benefit of a public-private partnership with the city.
In the 237-page lawsuit, the city says it has performed all of its obligations under the downtown development agreement and garage contract, while Hay Street Development Pad and PCH Development Co. “have materially breached,” the agreement and contract.
“PCH has informed the city that it is unable to complete its contract and lacks the resources to do so without substantial funds from city finance construction, which the city is neither obligated nor willing to provide,” the lawsuit stated.
The city said it issued a notice of default to Hay Street Development Pad and PCH Development Co., which have “failed and refused to cure their default.”
The lawsuit states that the city agreed to convey the hotel and garage parcels to PCH Development Co. and Hay Street Development Pad with the promise that the hotel, office and apartments would be built.
“Defendants understood at the time of accepting these benefits that they were not provided gratuitously,” the lawsuit states.
Agreements and changes
According to the lawsuit, the city entered into a downtown development agreement with PCH Development Co. and Prince Charles Holdings LLC on March 28, 2017, “to create a public/private partnership for the development of a portion” of downtown Fayetteville.
Property for the development includes the area where Segra Stadium is now built, the Festival Park Plaza building and a nearby parcel where a hotel and garage were to be built.
Pursuant to the agreement, the city agreed to convey the hotel and garage parcel to PCH Development Co., while PCH “promised to construct upon this parcel a new hotel and parking garage along Hay Street,” the lawsuit stated.
One of the reasons for the agreement was “to promote economic development in the central business district” in Fayetteville with a developer experienced in mixed-use development “in an urban setting,” to provide assurance and contribute to downtown revitalization, the suit states.
The lawsuit details a series of amendments made to the agreement, starting with the first on July 14, 2017, which stated that PCH Development Co. would build a hotel, garage, retail space and office space and be responsible for the design and construction of the infrastructure to support the same, the lawsuit states.
A second amendment made Oct. 10, 2017, stated the city would convey the hotel and garage parcel to PCH Development Co. by Dec. 17, 2017, and that PCH Development Co. would construct the parking garage and sell it back to the city, while retaining the land, the parking garage, hotel and apartments and a mixed-use building.
The second amendment also stated that PCH Development Co. would be required to pay a minimum assessed value for taxes for the hotel and garage parcel and the other parcels in the agreement owned by the company.
It also agreed to pay the difference, or “gap contribution,” if the ad valorem tax value was less than the agreed minimum assessed value, which was an estimated $37 million for the private development, the lawsuit states.
In a third amendment made Dec. 15, 2017, the city agreed to assign the contract and purchase of the hotel and garage land to Hay Street Development Pad LLC, which is a subsidiary of PCH Development Co., the lawsuit states.
The amendment also stated the parking garage would be completed by March 15, 2019, and purchased for an amount not to exceed $14.46 million.
The third amendment also required PCH Development Co. to pay for increased amenities, like an elevator, shared between the parking garage, hotel and apartments and “additional load bearing qualities” for the parking garage to accommodate the hotel and apartments being built on top of it.
PCH Development Co. agreed to pay all architectural, design and engineering plans for the mixed-use building, while the city would pay for costs associated with the parking garage, the lawsuit stated.
PCH Development Co. also agreed to lease to the city a minimum of 120 parking spaces in the parking garage for the hotel, and a minimum of 155 spaces for the apartments and retail units in the mixed-use building for at least 15 years from the date of the certificate of occupancy for each unit at a rate of at least $50 per month.
A separate garage development between the city, PCH Development Co. and Hay Street Development Pad on Dec. 28, 2017, stated Hay Street Development Pad would purchase the garage parcel, build the parking garage by March 15, 2019, and sell it to the city.
The lawsuit states that Hay Street Development Pad’s obligations under the garage contract were guaranteed by PCH Development Co., and both companies were required to prepare a condominium declaration for the mixed-use building.
A fourth amendment signed by all parties stated to the downtown development agreement adjusted the terms of the minimum assessed tax value, assigning an estimated value of $10.66 million for the hotel and $16.84 million for offices, which would be located on the hotel and garage parcel.
The lawsuit alleges that by July 12, 2019, Hay Street Development Pad and PCH Development Co. were in default of the downtown development agreement because “they had failed to meet the agreed upon substantial completion date for the parking garage and exceeded the agreed upon construction price."
Meanwhile, a fifth amendment to the downtown development agreement increased the parking garage price to not exceed $15.96 million and increased the hotel minimum assessed value for taxes to $13 million and minimum assessed value for taxes of the office and apartment building to $20.6 million.
The fifth amendment also clarified that the multi-use building would include the parking garage, a hotel and seven floors of “Class A’ office space, with 105,000 square feet for offices and 6,000 square feet for retail space.
“These promises were made by PCH Development Co. to induce the City to withhold from declaring PCH Development Co. in default of the (downtown development agreement) and grant PCH Development CO. additional time and money for the construction of the parking garage, and the City relied upon these promises in agreeing to do so,” the lawsuit alleges.
The lawsuit alleges PCH Development Co. further “induced” the city to hold off on declaring it in default by promising in the fifth amendment that the hotel would have a minimum taxable value of $13 million, and office and apartments would have a minimum taxable value of $20.6 million.
PCH Development Co. promised to complete the exterior facade of the parking garage by Oct. 1, 2019, and start construction of the hotel and office condominiums by the same date, the lawsuit states.
An amendment to the garage contract on Aug. 1, 2019, stated the parking garage would be complete Oct. 1, 2018, and the purchase price was increased to $15.46 million.
On Feb. 5, 2020, Hay Street Development Pad issued a declaration for the mixed-use building, known as Stadium View Condominium.
By the time a second amendment was made to the garage contract Aug. 7, 2020, the lawsuit stated, Hay Street Development Pad and PCH Development Co. were in default of the garage contract by:
• Not completing the garage.
• Granting the garage to a third party for an undisclosed deed of trust lien for $1 million on the parking garage “that purported to supersede the City's interest," and
• Incurring claims of lien on the hotel and parking garage parcel by the general contractor hired by Hay Street Development Pad to build the parking garage, the lawsuit states.
A second amendment to the parking garage contract increased the purchase price to $550,000 and obligated Hay Street Development Pad to convey additional units in the hotel and parking garage condominium to the city, while Hay Street Development Pad and PCH Development Co. agreed to install an elevator in the parking garage by Aug. 10, 2021, the lawsuit states.
The lawsuit says that while the defendants later paid the city $150,000 to be released from the promissory note and deed of trust, the companies have failed to install the elevator, which it says the companies “remain liable” for.
The lawsuit states that Hay Street Development Pad conveyed its interest in Stadium View Condominium to PCH Development Co., on Oct. 6, 2020.
Two years later, the city and PCH Development Co. added a sixth amendment to the downtown development agreement, which allowed PCH Development Co. to develop Stadium View Condominium for office, hotel, and/or residential use, and required PCH Development Co. to substantially complete the project by Oct. 31 of this year, the lawsuit states.
PCH Development Co. and the city entered into a parking lease agreement on Sept. 9, 2022, which stated PCH Development Co. agreed to lease 250 parking spaces in the parking garage and pay the city $150,000 annually for 33 years once the apartment units were built on top of the garage.
Projects still not started
According to the lawsuit, as of the date of the filing last week, PCH Development Co. had not started construction for the mixed-use building above the parking garage, had not installed the elevator, had left the roof of the parking garage incomplete and had not made any payments under the parking lease agreement.
In May, the city notified PCH Development Co. and Hay Street Development Pad that they were in default of the downtown development agreement and parking garage contract.
According to the lawsuit, the breach of the downtown development agreement and garage contract will cost the city in excess of $25,000 to complete construction of the parking garage with an elevator and permanent roof; loss of income from economic impact created by the hotel, apartment and office building; loss of income from the parking lease agreement; design, engineer and construction costs for the projects; finding other revenue sources to pay for the stadium debt; loss of minimum assessed value for taxes of the projects; and costs to remove existing liens that have a priority over the city’s interest.
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What the city is asking the court to do
The city is asking for a court order for specific performance of the agreement and the garage contract and judgment against Hay Street Development Pad and PCH Development Co.
Hay Street Development Pad and PCH Development Co. “have informed the City that they are unwilling or unable to construct the hotel, office and apartments” mixed-used building, and will not be building them by Oct. 31, “or at all,” the lawsuit states.
The lawsuit states that if the defendants were allowed to retain any interest in Stadium View Condominium, “the city will be damaged and defendants will be unjustly enriched by holding title to interests.”
The city is asking for an order that would place an equitable lien against the defendants’ interest in Stadium View Condominium and convey the interests to the city.
The lawsuit alleges that without approval from the city, Hay Street Development Pad and PCH Development Co. has already encumbered the hotel and parking garage parcel with an unauthorized $1 million deed of trust, causing the property to go into foreclosure and the city’s property rights to be subject in the deed of trust.
The city is seeking a temporary restraining order, preliminary injunction and permanent injunction to prevent Hay Street Development Pad and PCH Development Co. from transferring, selling or encumbering the assets associated with the projects to a third party and is asking the court to impose a constructive trust or equitable lien against the companies.
“No substitution of real estate nor money judgment can satisfy the economic impact, nor the promises and obligations of defendants,” the lawsuit states. “In order to grant the City the benefit of its bargain and avoid irreparable harm, the City is entitled to a permanent injunction enjoining defendants from transferring, conveying, selling, diminishing, or encumbering their interests in Stadium View unless such transfer is made to the City or the City's designee.”
Staff writer Rachael Riley can be reached at rriley@fayobserver.com or 910-486-3528.
This article originally appeared on The Fayetteville Observer: Fayetteville sues Stadium View Apartments, parking garage developers
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