More than five years after Lexington paid off a more than $400,000 loan for the CenterCourt mixed-use development on South Upper Street, the city finally expects to get a portion of the money back.
The Lexington-Fayette Urban County Council is expected to vote as early as Thursday on a settlement agreement between the city and the Lexington Downtown Housing Fund, which was created by a consortium of banks in 2004 to provide financing for developers building downtown housing.
As part of the agreement, the housing fund will repay the city $230,000. In addition, the fund will give the city a $45,000 donation. That money will be split between two programs — a gun violence intervention program and a group developing long-term strategies to tackle opioid and drug addiction.
“We felt that these were the two most pressing needs the city faced,” said Tyler Scott, chief of staff for Mayor Linda Gorton.
The settlement agreement was announced Tuesday during a council work session.
The Lexington Downtown Housing Fund and the city made loans to various developers, including CenterCourt, starting in 2004. The loan to CenterCourt included $400,000 in city money and $600,000 from the housing fund.
In 2013, U.S. Bank told the city it would only continue financing the loan for CenterCourt and another project if the city restructured the loan at a higher interest rate or if the developers repaid some of the principal. For years, CenterCourt had made interest-only payments on the loan.
The loan agreement was with the housing fund, not the city, but the city was responsible for the loans and did not have a repayment agreement with the developers. It had no recourse if the loans defaulted.
In June 2014, the city paid off the more than $1 million loan, which included the $400,000 owed by CenterCourt.
CenterCourt made one payment of $25,000 to the city in May 2016.
CenterCourt went into foreclosure last month after the investor group that bought CenterCourt’s loans asked a Fayette Circuit Court judge to appoint a receiver and sell CenterCourt’s ownership stake in the building, which includes three stories of condominiums and first-floor retail. The foreclosure action is still pending and does not affect individually owned condominiums.
The city was finally able to work out the agreement with the housing fund in part because of the foreclosure action, said David Barberie, a lawyer with the city.
CenterCourt has been mired in other legal problems.
In a previous lawsuit, CentreCourt condo owners alleged that poor construction, negligence and building code violations in the complex cost them millions in repairs, rental income from tenants who had to move, and a loss in the value of their units. That lawsuit was eventually settled for an undisclosed amount in 2017.
CenterCourt was not the only downtown development the city lost money on. Lexington also loaned $600,000 to Artek Lofts and $355,000 for the 500s on Main condominium project across from Rupp Arena. The city lost all of its money on the 500s on Main project after the developers went bankrupt. Artek Lofts repaid $170,000 as part of a 2015 agreement.
When the $230,000 CenterCourt repayment is finalized, the city’s losses on the three market-rate housing projects will be just under $1 million.