Loveland's Independent News Source
Loveland - September 25, 2012

A civil lawsuit filed in District Court last May by Loveland developer McWhinney against its business
partner in the Promenade Shops at Centerra, Poag & McEwen, attempts to blame their partner for the
foreclosure of the shopping center and subsequent sale of the property by the lenders.  Among many
demands, McWhinney seeks court approval to burden its partner with any subsequent liabilities
resulting from the foreclosure of the Promenade Shops at Centerra.

The civil lawsuit was filed on behalf of five McWhinney controlled entities including the Centerra Retail
Sales (CRS) Fee Corporation which collects a 1% fee on retail sales within Centerra.    Revenue from CRS
is committed to repaying public bond debt incurred by Centerra’s Metro Districts.  LovelandPolitics has
learned members of Loveland's City Council are unaware of the lawsuit filed last May as staff have
provided no information to council on the topic and may not be aware of the litigation.

How Promenade Shops Were Developed

McWhinney and P&M formed a jointly owned entity in 2001 to develop and manage the Promenade
Shops at Centerra which is owned 50% by McWhinney and 50% by P&M.  P&M was appointed the
managing partner while McWhinney contributed some 58 acres east of I-25 to the project where the
shopping center is now situated.  

Together (via the joint entity Centerra LLC) the partners borrowed $116 million in 2004 to construct the
Promenade Shops.  Once completed, the joint company Centerra (operated by the managing partner
P&M) intended on converting the 5-year term construction loan into longer-term financing for the
shopping center.  Failure to refinance the construction loan before the balance was due in 2009
ultimately cost both parties their ownership in the project which was foreclosed on by a group of banks
lead by Key Bank in 2010.

According to McWhinney’s complaint, Chad McWhinney sent an email to Josh Poag, P&M’s Chief Financial
Officer, on August 1, 2005 to inquire about the status of their construction loan due in four years and
prospects for longer term financing.  Per McWhinney's complaint, P&M was to place a mortgage debt on
the property to repay the construction loan but also, “
place additional mortgage debt on the SHOPS AT
CENTERRA so this money could be distributed to Centerra LLC’s members

In response to Chad McWhinney's email, McWhinney claims Josh Poag wrote, “
still hedged in case things
go to hell.  We have found that we will be able to stretch dollars a lot further with a little patience.
”  In
the end, this was true.  Key bank and the other holders of the debt allowed multiple delays before finally
following through on official notices by foreclosing the property in 2010.  The inability of the partners
(McWhinney and P&M) to collaborate on a single financing solution combined with a failing national
economy caused the foreclosure.

Partners Couldn't Agree on Refinancing

The lawsuit details a troubled relationship between the two companies beginning in 2007.  According to
McWhinney’s own version, McWhinney tried desperately throughout 2009 to muster enough cash to buy
the property out of foreclosure but with partners other than P&M.  Curiously, McWhinney is arguing that
an unsatisfied request by P&M to have Larimer County re-assess property values (thus taxes owing) on
Promenade Shops crippled McWhinney’s ability to pull cash out of the quasi-municipal corporations of
the Centerra Metro Districts that receive diverted property taxes and special city approved fees from
retail shoppers.

McWhinney's claim of "anticipatory" damages had the property been assessed at a lower value, are moot
according to P&M's response to the court because Larimer County didn't rule on their request thus no
revenue for the Centerra Metro Districts was impacted.  When the matter of whether P&M could seek a
lowering of the property's assessed value (reducing Metro District revenue) went before a judge in early
2009, the court ruled the receiver of the foreclosing property would be authorized to make this decision
instead of the defaulting ownership couldn't agree.

In its own allegations, McWhinney’s narrative contradicts a commonly accepted City of Loveland position
that Centerra Metro District funding has been stable and the some
$10 million McWhinney attempted to
divert from the I-25 and US/34 interchange in late 2009 was to attract a fortune 500 employer to create
more jobs in the city.  Details of the lawsuit reveal McWhinney's agenda in pulling the funds it says were
owed to it by Centerra's public metro districts was not to use the money to attract jobs.

Instead, McWhinney appears to have been working against efforts by P&M to restructure the loan for the
center through negotiations with the lead lender at that time, Key Bank.  According to P&M’s response
filed with the court, McWhinney reneged on a capital call of $4.5 million necessary to get the lenders to
arrange long-term financing for the upside down property (valued between $75 million to $85 million
with a construction loan still owing $113 million).  

Later, McWhinney even planted
local news stories still on its own website indicating McWhinney and
another developer named RED would be buying the Promenade Shops at Centerra out of foreclosure to
build an even bigger project.

For their part, P&M are not taking McWhinney’s accusations lightly and have responded in-kind blaming
McWhinney's alleged unethical business practices along with the U.S. Financial collapse of 2008 as the
primary causes of their inability to get financing that resulted in the foreclosure.  In addition, P&M argues
that McWhinney received over $22 million from the project while Promenade enabled McWhinney to use
public funds (Centerra Metro District Debt) to enhance the values of adjacent undeveloped properties
still owned by McWhinney like the one now slated for the recently announced Bass Pro Shop.

The response filed to McWhinney’s civil action by P&M states,

’s [McWhinney] unjustifiable rejection of its previous proposal to pay down the Construction
Loan by $9 million and false accusations about P&M to Key Bank hurt Centerra [entity that owned
Promenade] and P&M’s credibility with the Construction Loan lenders, including Key Bank, and made
it even more difficult for P&M to obtain reasonable terms for a Permanent Loan (refinancing)

According to Poag’s response, “MCLC
[McWhinney] repeatedly acted in a manner that unreasonably
interfered with P&M’s management of Centerra and with P&M’s efforts to obtain a Permanent Loan
(refinancing), and that such actions were in violation of MCLC’s duties and obligations under the
Operating Agreement.

According to the defendants, a teleconference occurred between representatives of Key Bank, P&M and
McWhinney on September 28, 2009.  During that call, Chad McWhinney, instead of agreeing to the
proposal agreed upon prior to the conference call, raised four partnership points he insisted be resolved
as part of the deal.  The following day, “
Chad McWhinney raised the number of alleged partnership
issues from four to fifteen, which issues he insisted be resolved as part of any refinancing, effectively
killing the deal
” according to P&M’s filing with the court.

Complicating matters was Chad McWhinney’s attempt, at the time, to develop an adjacent competing
shopping center using Centerra Metro District funding called Grand Station.   Despite recruiting the
former manager of the Mall of Georgia, Tom Martin, along with other experienced retail managers and
sales personnel, McWhinney’s only committed tenants for their proposed Grand Station project was a
bowling alley and Mexican restaurant, according to one former McWhinney employee.

Among the “
partnership issues” listed by Chad McWhinney was his desire to apparently poach existing
and prospective tenants away from the Promenade Shops at Centerra managed by P&M.  By this time the
relationship had deteriorated to the point Chad McWhinney was acting to undermine his business
partner by competing against their joint venture according to P&M.

Thus “
partnership issues” (b) and (c) below appeared to P&M as not in the long term interest of the
Promenade Shops, their lenders or the City of Loveland.  McWhinney’s attempts to leverage these
changes by threatening to submarine the refinancing deal was seen as “blackmail” by at least one insider
who spoke with LovelandPolitics.  Prior to former Loveland Mayor Pro Tem Dave Clark pulling his
support of McWhinney's request to gut the I-25/U.S. 34 interchange enhancements, Chad McWhinney
was confident he could buy Promenade Shops out from under P&M and the distressed lenders using new
partners according to our sources for this story.

Below is the early list of “
partnership issues” Chad McWhinney attempted to leverage with P&M by
threatening they would not agree to any subsequent refinancing of Promenade until P&M accepted the
following conditions according to P&M's filing with the court;

a. That P&M acknowledge that all of its previously Permanent Loan (refinancing) proposals did not
constitute the proposal for a Permanent Loan as contemplated by the Operating Agreement;

b. That P&M acknowledge that the exclusivity agreement with respect to certain
tenants in the Promenade Shops had expired;

c. That P&M execute an amendment to the Operating Agreement to narrow what is
considered a “prospective tenant” which would have reduced the restrictions on
NCC and McWhinney from diverting tenants away from the Promenade Shops and
putting them in a competing shopping center owned by MCLC and/or McWhinney
or their affiliates or related entities, thereby resulting in a deteriorated value of the
Promenade Shops;

d. That P&M reduce its management fee from 5% to 3.5%;

e. That P&M guaranty and indemnify MCLC with respect to the damage it claimed it
incurred as a result of the inability to obtain Permanent Loan (refinancing); and

f. That P&M grant MCLC a right of first refusal on any proposed sale of the
Promenade Shops by either Centerra or its lender

Once McWhinney shared these demands with the lenders, the banks concluded an amicable agreement
that could allow the two partners to close longer-term financing in an already distressed market
(following the financial collapse of 2008) was no longer feasible.  The lenders proceeded with the

Unable to refinance more public bonds from Centerra's Metro Districts or access the "
repayment of
" by McWhinney to Centerra, McWhinney ultimately failed to rescue Promenade Shops from
foreclosure.  Later the new owners hired P&M to continue managing Promenade Shops at Centerra.
McWhinney "Wrongful Conduct" Alleged In
Lawsuit over Promenade Foreclosure

Poag & McEwen Accuse
McWhinney of Bad Faith

Responses to McWhinney lawsuit

65.  MCLC [McWhinney] further
obstructed P&M efforts to salvage the
parties’ joint venture and acted in bad
faith by failing to consider or
reasonably discuss possible outside
investors for the project who could
contribute the necessary capital MCLC
was refusing to contribute and instead
accusing P&M of self-dealing because
P&M was searching for possible
alternatives that would enable P&M
and MCLC to retain some ownership of
the Promenade Shops.

66. MCLC and McWhinney further
acted in bad faith by contending, on
the one hand, that the
Centerra property had dropped
significantly in value because rents,
taxes and extra were too
high and/or because of the market
collapse, and also objecting, on the
hand, to efforts taken by P&M, with
MCLC’s assistance and consent, to
appeal the tax assessments.

67. Upon information and belief, MCLC
and McWhinney took these, and other,
inconsistent and contrary positions
because after taking one position or
making one claim, it discovered
that position or claim hurt its overall
goals of squeezing P&M out, obtaining
title to the Centerra property by
purchasing it at a foreclosure sale,
competing with the Promenade
Shops at Centerra by developing their
own competing shopping center site on
adjacent property, and/or to increase
revenues to the metropolitan district so
inter-company loans made by and
between the Plaintiffs, and potentially
others, could be repaid.

68. In other words, MCLC and
McWhinney routinely contradicted
themselves when it suited their own
needs or when necessary to obtain a
personal advantage to P&M’s or
Centerra’s detriment or without regard
for the affect upon P&M or Centerra.
Chad McWhinney