Ciminelli Real Estate Corp. is under legal fire over a major abandoned project in the Elmwood Village, as former property owner Donald J. and Lori Leone are suing to force the developer to finish paying off a property purchase.
The Leones, who live in Florida, are accusing Ciminelli of fraud and breach of trust, claiming the firm refuses to complete the payments that are owed on the developer's September 2016 purchase of 11 properties on Elmwood, Potomac and Ashland avenues. The suit claims the couple are owed $2 million on an extra promissory note that was signed as part of the transaction.
But Ciminelli rejected the arguments, saying the Leones went through with the transaction as it was laid out – including an unsecured debt with normal credit risk – and haven't proven that they were harmed.
Ciminelli acquired those properties, near Elmwood and Bidwell Parkway, to allow it to construct its planned Arbor + Reverie residential project, which was supposed to include nearly 100 condominiums and apartments, plus ground-floor residential space and parking.
Under the original purchase contract signed in July 2015, the developer agreed to pay $5.5 million in cash immediately upon closing of the deal, and assigned the property and the agreement to a limited-liability company called Elmwood Bidwell Redevelopment Company.
But Ciminelli and the Leones later amended the purchase contract twice in April and July 2016, adding the promissory note for another $2.4 million, with interest-only payments of $11,000 per month until the outstanding balance was due 60 months after closing. That increased the total purchase price to $7.9 million.
Ciminelli unveiled its mixed-use plan for the properties – including demolition of the existing buildings – with significant hype, projecting a transformation of that neighborhood. But instead, the project immediately sparked major opposition from neighbors and other Elmwood Village residents, who asserted that it violated the Green Code and was out of scale with the area. The resistance grew, prompting Ciminelli to withdraw one of the two proposed buildings and scale back the other.
Eventually, however, the entire plan was shelved.
Ciminelli then turned its attention to reselling the properties, leasing space to new tenants in the short term. One property, at 588 Potomac, was sold to M&V Ventures LLC for $250,000, while M2 Acquisitions LLC bought 584 Potomac and 721 Ashland for about $1 million. Whitesand Family LP is buying four more properties, and is planning its own redevelopment project.
Meanwhile, according to the lawsuit, "plaintiffs have been notified orally by representatives of defendants that upon the final sale of all the parcels comprising the properties, defendants have no intention of paying the balance due on the promissory note."
And, they say, Ciminelli has "embarked on an intentional strategy to defraud creditors," including the Leones, by improperly transferring the proceeds from the property sales to related entities and reducing the total rent roll of the properties so that the Elmwood Bidwell company will be insolvent and unable to make payments. They also say Ciminelli's transfer of the property to Elmwood Bidwell Redevelopment was improper because Ciminelli did not provide prior written notice in accordance with the purchase contract.
Ciminelli responded in court papers that the lawsuit seeks to "undo, or at least redo the transaction, without any legal foundation," and it should be dismissed. The company says the original contract terms noted that Ciminelli would be transferring the properties and agreement to "an entity to be formed." It pointed out that the Leones still closed the deal. And it noted that it has not breached the promissory note in the 33 months since the deal closed.
The legal filings "are part of the plaintiffs' attempt to litigate a different transaction than actually took place," Ciminelli's attorneys argued, saying the Leones want to turn a debtor-creditor relationship into a joint-venture and convert an unsecured note into a mortgage.
"Plaintiffs seek to obtain a benefit that they never bargained for," Ciminelli's attorneys wrote.