Hotel builder misled municipal bond investors, trustee says

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(Bloomberg) – The developer of a Hard Rock hotel project in a Kansas City, Kansas suburb allegedly defrauded investors who bought about $ 23 million in municipal bonds issued to help fund the project, according to a lawsuit filed in federal court.

Minnesota developer D. Jon Monson said he had a $ 52 million construction loan in place when he sold the bonds, but did not complete that financing, which didn’t. was only $ 48.8 million, UMB Bank NA said in a lawsuit filed Nov. 1. in Kansas City U.S. District Court. UMB is the securities trustee.

Monson was relying on a wholesale lender who in turn relied on third-party lines of credit to fund this loan, the UMB said. The warehouse lender was unable to finance the project, meaning the project could not be completed and left no income to make the required payments for the bonds, UMB said. .

The developer also did not contribute $ 3 million of the down payment prior to issuance of the bonds and “did not intend” to contribute $ 4.2 million for pre-development costs and a capital payment of $ 1.5 million, alleged UMB.

Monson did not immediately return a call for comment.

The developer obtained approval from the City of Edwardsville in 2018 to build the 241-room hotel and conference center near the Kansas Speedway, a NASCAR circuit. Edwardsville issued tax-free debt in 2019 backed by the city’s hotel tax of 4,500 people and the gradual property tax increases generated by the project.

The case is UMB Bank, NA v. D. Jon Monson; Compass Commodities Group III, LLC; 11 Water LLC, One10 Hotel HRKC LLC ‘and One10 Hotel Holding LL, 21-cv-2504, US District Court, District of Kansas.

© 2021 Bloomberg LP


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