Less than one-month after receiving from the City a one-year extension to exercise its special permit (see Fig City News article), Mark Development has filed an action against its partner, SRG Holdco Investments, to rescind its contract and claim damages.
In the complaint, Mark Development contends that SRG Holdco breached its Cost Allocation Agreement (CAG). The CAG outlined each of the parties’ roles and interests in the project — with Mark Development the master developer of the project to obtain the land and permitting ,and SRG to operate the senior living facility. The two parties were to enter into an LLC agreement that included a General Partner Joint Venture (the entity holding the general partner interest) and a Vertical Joint Venture (the development entity that would include the general partner and investors who would provide more capital to fund the project).
After the Vertical Joint Venture was formed, Mark Development was to contribute the land at a cost of $28 million, giving Mark Development a priority position plus a profit on its investment. The agreement would also outline the pre-development project expenses on an equal shared basis, up to a cap of $2,712,060 per party. (To date, Mark and SRG each funded $1,079,648 in project expenses, with Mark spending another $6.2 million in land acquisition costs.) In addition, the Agreement provided SRG with a 5-year exclusive right through 2029 to provide senior housing on the land if Mark were to develop it for senior housing.
The complaint alleges that after Mark Development received approvals in 2022, SRG was obligated but refused to sign the agreement — and that SRG slowed down the project, claiming economic conditions as the reason.
Mark Development claims that in April 2023, SRG informed Mark Development that it wanted to put the project on hold unless Mark would make economic concessions in SRG’s favor to keep the project moving forward, but both parties rejected each other’s proposals.
- SRG proposed that Mark would reduce the agreed value of Mark’s land contribution from $28 million to $20 million, which would have significantly reduced Mark’s equity in the project with no effect on SRG’s equity. Mark offered to do that if SRG would pay some of Mark’s carrying costs on the land and agree to some other equitable changes in the deal terms. SRG refused
- Mark Development proposed to reduce the project budget by about $13 million, consisting of an $8 million reduction on Mark’s land contribution plus an additional $5 million in savings on both construction costs and other costs. SRG rejected that plan.
By September 2023, Mark Development had informed SRG that the current stalemate was not acceptable and suggested rescinding the Cost Allocation Agreement. SRG disputed Mark Development’s right to rescind and said that given market conditions, each party should “figure out together how to make the Project work in the long term.” Mark then responded to SRG, confirming its right to rescind and offering to give SRG its money back to rescind the Cost Allocation Agreement and terminate any rights or claim it might otherwise have under that agreement or in the Crafts Street project. To date, SRG has not responded.
At the Land Use Committee meeting on October 4 (see Fig City News Land Use 10-3-2023 Report), Mark Development’s attorney said the request was made due to market dynamics and this is similar to other larger projects in the city, adding that project budgets have increased 50% and high interest rates have made investors reluctant. No mention was made about trouble between the partners.
Land Use Chair Rick Lipof said of his committee’s role, “The permits we give run with the land, and the business of the petitioner is not our business. We have safeguards in place to give no more than 3 years of extensions. This leeway is given just for times like these when a pandemic occurs and leads to inflation and higher interest rates. The petitioner’s legal wrangling’s are not legally our concern and can be rectified in various time frames and ways. For all of these reasons it is not part of our consideration.”
Ellen Ishkanian, Director of Community Communications, added: “Councilor Lipof is correct that special permits run with the land and not petitioners. As a general rule, special permit decisions do not take into account considerations that relate to petitioners personally rather than to the land and the proposed project. The City does not have any involvement in this private dispute and does not know the details of the lawsuit beyond what is publicly available. The City’s role moving forward is to ensure that all building permits issued for this project are in accordance with the approved plans and the terms and conditions of the special permit.”
The complaint also has a second count against SRG, regarding a proposed development of the Pope St. John XXIII National Seminary, Inc. (“Seminary”) in Weston, Massachusetts. The complaint alleges that Mark Development sustained damages from SRG’s termination of Mark Development’s partnership on the project and the termination was an unfair or deceptive act or practice in violation of G.L. c. 93 A § 11.
Ed. Note: Fig City News also reached out to Ward 7 Councilor Marc Laredo (who had initially expressed concerns about approving the two-year extension), and Mark Development CEO Robert Korff. We will update this article upon receiving responses regarding our inquiries .
