A developer selected by Virginia officials to build its now-dormant hotel project could face more than $680,000 in repayment and foreclosure on a Duluth property by the end of the month.
Apurva G. Patel and 117 Investments were sued by Frandsen Bank and Trust in February after failing to make payment on a loan that originated in 2021 for the company’s 117 W. Superior Street property in downtown Duluth.
The bank sought full repayment and foreclosure on the building, and following a no-show by Patel, his associates and attorney William Burns on Tuesday, Sixth District Judge Theresa Neo granted the bank a summary judgement against them. Execution of the judgement was stayed until Aug. 25 to allow for settlement talks.
“Bill Burns called me and asked for additional time. He has not appeared or filed any sort of answer,” said Paul Loraas, an attorney for Fryberger Law Firm representing Frandsen, during the virtual hearing. “His client said he has some things in the works that would be helpful in this situation. We’re willing to give him some time, but we’re not inclined to continue.”
It was the latest in a series of legal actions surrounding Patel’s businesses dating back to the late 2000s, two of which were summary judgements issued in lawsuits after he and his associates failed to appear or mount a defense, which also occurred in this case.
Patel told Iron Range Today last month, when discussing the Frandsen suit, that he has “differences” with the bank, but he had “a different source of funding, and now we’re good to go.”
Tuesday’s judgement raises more questions about the viability of Virginia’s hotel project under Patel and Virginia Hospitality. The original timeline called for the hotel to be operating by July 2022, but five years since he was selected by the city, only a fence sits around the property next to the Iron Trail Motors Event Center.
Patel said last month that financing the hotel was an issue, blaming high interest rates and economic development in general. But details in the original loan agreement between 117 Investments and Frandsen in Duluth seem to undermine that claim to an extent.
In October 2021, according to the loan agreement, Patel signed off on a $722,000 loan at a 4.25% interest rate. Virginia had a draft development agreement in place in August 2021, which was officially signed in May 2022, when Federal Reserve data showed interest rates around 3.5% by the end of that year before spiking in 2023.
Frandsen would agree to a construction loan of $9.2 million with Patel and Virginia Hospitality in 2023, and the reworked deal on the Duluth property for $634,000 in 2025 was based on a variable interest rate. He was also gathering public funding commitments in 2021 and 2022 for the Virginia project.
Notably, the original development agreement with Virginia and Patel was handled by Fryberger Law Firm, which also represents bond counsel for the city on the event center loan.
What’s at stake for Virginia is the potential failure of one of its most ambitious projects and a potential anchor for events at the ITMEC. City officials conveyed the land for the hotel to Virginia Hospitality for $1, though it was valued at $685,000 at the time.
The theory was that a $4 million tax-increment finance district could recoup the funds, but the TIF agreement notes it was unlikely the city would. One protection the city did put in place through the TIF was that it would not enact the terms of it until the hotel was completed, and rights to cancel the TIF deal in the event of a default.
Still, the land sale to Patel featured no claw back option for the city should the project fail. Instead, should Frandsen declare an early default on the Virginia loan and foreclose — the loan matures in 2050 — it would take control of the land through collateral.
It is unclear how current Virginia Hospitality is on the hotel loan, but it is in at least one state of default per the terms. The business is delinquent on its property taxes, now totaling more than $7,700.
About the investigation
This story is part of Iron Range Today’s ongoing investigation into Virginia’s proposed hotel development next to the Iron Trail Motors Event Center. The reporting is based on hundreds of pages of court filings, development agreements, mortgage records, business filings, and other public records spanning more than two decades.
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