Company decries “predatory lending” as bank seeks receiver
Rino’s Zeppelin Station, just 6 years old, is set to be the latest area office building to be overseen by a court-appointed caretaker at the request of a lender.
But the firm that built the structure, Denver-based Zeppelin Development, is pushing back against that lender, banking giant Wells Fargo.
“To be clear, this is not a situation of a loan that’s termed out or substantially un-leased as is the case throughout the office market,” the company told Businessden in an email. “It is a case where Wells Fargo has a well-documented reputation for predatory lending practices irrespective of community interest, or even legal obligations.”
Zeppelin Station, at 3501 Wazee St., is a four-story building with a food hall on the ground floor and the headquarters of Alterra Mountain Co. above, along with other office tenants. Zeppelin Development completed it in 2018.
On Tuesday, Wells Fargo sued the Zeppelin-affiliated LLC that owns the structure, asking Stapleton Group be appointed receiver for the building. Also named as defendants were Zeppelin Development founder Mickey Zeppelin and CEO Kyle Zeppelin, as well as Jason Kaplan of Kaplan Cos.
Zeppelin Development took out a $32 million loan backed by the building from Wells Fargo in 2019, which replaced the project’s original construction loan. The firm said the Wells Fargo loan runs through 2029 and features “a manageable fixed interest rate, along with provisions to pay down principal loan amounts by over $1M per year.”
Wells Fargo said that Zeppelin initially defaulted on the loan agreement on the final day of June in 2021, when the company breached the agreement’s “yield maintenance ratio covenant.”
That covenant specifies that the property’s net operating income divided by the remaining principal of the loan needs to be at least 10% each quarter, per the lawsuit.
Zeppelin has been in default on the building’s loan since that date, according to Wells Fargo — a period of nearly three years.
In August 2022, after several more quarters of too-low yield ratios, Wells Fargo and Zeppelin entered into a forbearance agreement, per the lender. As part of that, Zeppelin agreed to try to sell the building.
Zeppelin did attempt to. Businessden reported in October 2022 that Cushman & Wakefield had the listing, with marketing materials describing the building as 102,000 square feet and 99 percent leased. The property’s food hall, also known as Zeppelin Station, changed ownership around the same time, and a letter Kaplan sent to investors in the food hall business said it had lost $325,000 so far that year.
The property’s marquee tenant, Alterra, also listed its space for sublease in late 2022. The company still operates from the building, and an Alterra spokeswoman declined to comment Wednesday on its future office plans. Alterra takes up 40% of the building and has five years left on its lease, per Zeppelin.
While brokers were hired, Zeppelin Station did not change hands. Both sides agree a potential buyer was found but then backed out.
“We were under contract at a favorable price and prepared to go forward over a year and a half ago … The buyer elected not to go forward based on market conditions.
“With the ongoing challenges to the office market nationally, we resumed our focus on operating the project on the highest level,” Zeppelin Development said.
The forbearance agreement
was terminated in November 2022, according to Wells Fargo. Zeppelin continued to breach the yield ratio and also began to breach a separate “debt service coverage ratio” in the loan agreement, which relates to net operating income over a 12-month period and both principal and interest owed, the lender claims.
In June 2023, Wells Fargo told Zeppelin to pay $2.7 million toward the loan so it would be in compliance with the ratios.
Zeppelin didn’t do that, according to the lender. So in August 2023, Wells Fargo told Zeppelin to pay off the loan in full. That hasn’t happened.
Wells Fargo said in court filings that Zeppelin still owes more than $28 million on the loan, including $27.27 million of principal.
In responses to questions from Businessden, Zeppelin Development indicated that rent concessions made during the pandemic — which would have meant the property had less income coming in — could have contributed to the ratios being off target.
“Any alleged technical breach triggered by pandemic-era concessions has been cured,” the firm said.
“In the meantime, we have remained current on payments throughout the term, including paying down the principal by millions of dollars.”
Zeppelin said the building is currently 93% occupied and still able to attract tenants, with a 9,000-square-foot lease signed in the last two weeks.
Lenders often ask a court to appoint a receiver when a property owner defaults on a loan. A judge had yet to rule on Wells Fargo’s request as of Wednesday afternoon, but such requests are typically perfunctory.
Wells Fargo specifically said in its lawsuit that it wants the receiver to sell Zeppelin Station. The development firm, meanwhile, said it “intends to resume executing under the existing loan.”
“While we won’t rule out a sale, we aren’t contemplating a rushed fire sale to relieve Wells Fargo of their responsibilities,” the firm said.
Zeppelin Station is set to be the second office building in Rino to enter receivership. Industry Denver at 3001 Brighton Blvd. entered receivership in December, also after an unsuccessful attempt to sell the property.
Other local buildings in receivership include the Wells Fargo Center downtown.