Lawsuit over $7M in unpaid work delayed South Downtown foreclosures

Lender delayed foreclosure Tuesday on 18 properties, including 222 Mitchell Street and buildings within historic Hotel Row
This centerpiece of South Downtown is a century-old bank building that was owned by Newport in Atlanta on Tuesday, August 1, 2023. (Katelyn Myrick/katelyn.myrick@ajc.com)

Credit: Katelyn Myrick

Credit: Katelyn Myrick

This centerpiece of South Downtown is a century-old bank building that was owned by Newport in Atlanta on Tuesday, August 1, 2023. (Katelyn Myrick/katelyn.myrick@ajc.com)

A scorned contractor’s lawsuit played a critical role in the delayed foreclosure of several prominent downtown Atlanta buildings and parking lots that were slated for revitalization.

Balfour Beatty Construction filed an emergency motion in Gwinnett County Superior Court last week to try to stop Tuesday’s scheduled public auction of 18 properties within German developer Newport’s South Downtown project. The international construction contractor, whose Georgia office is based in Gwinnett, said foreclosure would allow Newport to avoid paying more than $7 million for restoration work on the 222 Mitchell Street building.

Newport defaulted on its $75 million loan with Miami-based lender BridgeInvest, which prompted 18 properties — including 222 Mitchell and buildings within downtown’s historic Hotel Row — to be advertised for foreclosure on the Fulton County Courthouse steps.

A local judge granted Balfour’s request for a temporary restraining order last Friday, barring BridgeInvest from completing aspects of the foreclosure process. BridgeInvest confirmed Tuesday that the public auction had been postponed and likely would not take place until January, but its representatives did not provide a reason for the delay.

The lawsuit over unpaid construction work adds a new wrinkle to the recent troubles plaguing the South Downtown project, one of Atlanta’s most ambitious revitalization efforts. It also further clouds the future of 222 Mitchell, a former C&S Bank headquarters that takes up an entire city block and remains incomplete after its restoration work halted.

Aerial photo shows the 200 block of Mitchell St SW, Wednesday, Aug. 9, 2023, in Atlanta. (Hyosub Shin / Hyosub.Shin@ajc.com)

Credit: HYOSUB SHIN / AJC

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Credit: HYOSUB SHIN / AJC

Newport declined to comment about the lawsuit, and BridgeInvest did not respond to a request for comment. April Stammel, a Newport executive in Atlanta, told The Atlanta Journal-Constitution on Monday that she was disappointed the foreclosure would lead to some unpaid invoices.

“We hope that we could have gotten them paid, and it doesn’t look like that is going to happen,” she said. “So we’re disappointed for that reason.”

A Balfour spokesperson said in a statement that the company, its subcontractors and vendors would continue to pursue restitution for unpaid work through the courts.

“We remain committed to finding a solution with the owner, the lender and the parties involved,” the statement said.

In its legal complaint, Balfour alleged that Newport’s loan agreement with BridgeInvest required the developer to establish a construction reserve account to pay contractors. But in the event of a foreclosure, control over the construction reserve account would revert to the entities that set up the account, which would be Newport executives in Germany.

“These entities have no contractual relationship with Balfour; they would not pay Balfour in the event of a foreclosure,” the legal complaint said. “Instead, they would simply retain funds that were specifically identified as necessary to fund construction services and use those funds for their own purposes.”

Balfour claimed Newport CEO Olaf Kunkat would end up in control of the funds once the foreclosure auction took place, adding that “the funds will be beyond Balfour’s reach” if they were transferred overseas.

Kunkat told the AJC in August that global factors, including the pandemic, war in Ukraine and interest-rate hikes led Newport and its investors to “reprioritize capital investments.” South Downtown was Newport’s only U.S. project, and the foreclosure has prompted the firm’s U.S. operations to begin winding down.

Balfour’s complaint alleges that Newport executives knew in early 2023 that they would no longer fund the project but were told “to lie to Balfour” to keep the contractor working on the project without receiving payment. In that time, the construction firm amassed $7,061,363.05 in unpaid invoices for work on 222 Mitchell.

“Balfour continued to work on the project, despite not being paid, thus increasing the value of the project and (unwittingly) assisting Newport South and its affiliated entities in protecting the value of their collateral,” the legal complaint said.

A rendering of South Downtown's 222 Mitchell building.

Credit: Handout

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Credit: Handout

In 2016, Newport caught Atlanta’s real estate world by surprise when it began to buy dozens of empty and boarded-up buildings near the Five Points MARTA station. The German developer eventually amassed a portfolio of more than 50 properties across 10 blocks south of Marietta Street, which were dubbed South Downtown.

The mid-rise at 222 Mitchell was among Newport’s first revitalization projects, aiming to convert it into refurbished offices and a rooftop lounge. Plans later changed to transform the building into residences, but all restoration work stalled earlier this year.

In July, Newport announced it had agreed to sell the entire South Downtown portfolio to Braden Fellman Group, a Decatur developer best-known for residential adaptive reuse projects. But the deal was terminated by the buyer in October. Andrew Braden, principal of Braden Fellman, declined to comment.

Newport’s South Downtown holdings were split among multiple loans, with those backed by BridgeInvest being the largest portion. On Tuesday, eight properties backed by two other loans were advertised for foreclosure in December. The additional foreclosures were first reported by the Atlanta Business Chronicle.

Both loans, worth a combined $8.1 million, were financed by Salzufer Holding Inc., an LLC registered in Delaware, and covered buildings and vacant lots along Peachtree, Broad and Forsyth streets.

Aerial photo shows the Gulch, which is unbuilt but envisioned as the site of major development, Wednesday, Aug. 9, 2023, in Atlanta. (Hyosub Shin / Hyosub.Shin@ajc.com)

Credit: HYOSUB SHIN / AJC

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Credit: HYOSUB SHIN / AJC

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