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Arbitration Panel Orders Developer of the Ivy Hotel + Residence in Downtown
 Minneapolis to Pay $7.1 million to General Contractor and Sub-contractors Who
 Were Wrongfully Terminated from the Project

By Susan Feyder, Star Tribune, MinneapolisMcClatchy-Tribune Regional News

February 20, 2010 - --An arbitration panel has ordered the developers of the upscale Ivy Hotel + Residence in downtown Minneapolis to pay $7.1 million to Bor-Son Construction and five other firms that claimed they were wrongfully terminated from the project.

Bloomington-based Bor-Son, the general contractor for the $88 million development, was awarded $5.2 million, according to president Gary Heppelman. In discussing the dispute last December, Heppelman said Bor-Son billed about $60 million on the project.

The other $1.9 million was awarded to five firms that were subcontractors, Heppelman said. The money represents unpaid costs and fees the firms claimed they were owed after being terminated in July 2008 in violation of Bor-Son's contract for the project.

Bor-Son began work late in 2005 on the development, which included renovating the historic Ivy Tower and constructing a 25-story condominium tower and a 19-story Starwood Luxury Collection Hotel. The developers and contractors agreed to binding arbitration after disagreeing on which one was responsible for delays and cost overruns.

"We are happy to have this issue behind us," Heppelman said Friday.

The developers, Jeff Laux and Gary Benson, could not be reached for comment.

The arbitration award comes as lenders for the Ivy continue to seek to foreclose on the property. Built less than two years ago, the high-profile project fell victim to the depressed condominium and hotel market.

In suits filed in November in Hennepin County District Court, Dougherty Funding LLC said the developers owed more than $56 million on $69 million in loans for the project at 11th Street and 2nd Avenue S. The amount doesn't include interest or late fees, the suits said.

Dougherty said it wants to foreclose so it can recoup some of what it is owed by selling the property. The foreclosure would include the 136-room hotel and unsold condo units. Court documents said that as of mid-November, only 21 of 92 condo units had been sold.

The foreclosure does not include the Ivy Spa, which is a separate business entity with a different owner that merely subleases space in the hotel.

Dougherty's suit said the city of Minneapolis may also have unspecified claims against the Ivy. The city had a development agreement with Laux and Benson that included tax-increment financing, which allows future property taxes to repay some construction-related costs.

Susan Feyder --612-673-1723

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Copyright (c) 2010, Star Tribune, Minneapolis

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