The 801 8th Ave. property in Lincoln Park on Thursday, March 21, 2024. (Justin Wingerter/BusinessDen)
A developer said that it has been forced out of its first Denver project — an unbuilt complex of so-called micro studio apartments in Lincoln Park — by a scheming hedge fund.
Madelon Group, of New York, specializes in modular homes and prefabricated buildings. It developed and operates four small apartment buildings in New York City. One of its investors is Minyoung Sohn, founder of the Denver hedge fund Blue Room.
In October 2020, Madelon and Blue Room decided to partner on a project at 801 W. 8th Ave. that they called Blue Room House One. Above ground-floor retail would be four floors of micro studio apartments, each 400 square feet, that would lease for $900-$1,000.
The plan was for Blue Room to find investors for the project, own it and pay Madelon $1.7 million to develop it, according to a lawsuit the latter has filed in Denver District Court.
The companies began by buying 801 8th Ave. and an adjacent property at 813 Inca St. for a combined $1.3 million in 2022. When the first $1 million was raised that September, the project appeared on its way to breaking ground in 2023 and opening in 2024, as planned.
Then came a $500,000 grant from the Colorado Health Foundation and a $450,000 grant from the Kaiser Foundation, two nonprofits looking to fund affordable housing here. But rather than put that money into the project, Blue Room used it for payroll, Madelon alleged.
“Blue Room unconditionally denies the allegations in the complaint,” the hedge fund said last week. “Upon advice of counsel, we will not comment further on the pending litigation.”
While Madelon was lining up construction companies last year, Blue Room was refusing to transfer 801 8th Ave. and 813 Inca St. to a joint LLC, according to Madelon. It then refused to pay Madelon and ended its contract with Madelon in September, the developer said.
“Blue Room continued to use the grant money that was earmarked for the project to pay its executives and employees,” Madelon alleged in its lawsuit, which was filed March 19.
A spokesman for the Kaiser Foundation said it is looking into the allegation that its grant money was misused. A spokeswoman for the Colorado Health Foundation confirmed that it gave $450,000 to the project but had no information about how the money was spent.
Madelon’s lawsuit uses the term “shell game” 14 times to describe how Sohn and his firm kept control of what was, according to Madelon, supposed to be a joint real estate venture. Madelon is suing the hedge fund for fraud, breach of contract and unjust enrichment.
“Through his arsenal of entities, Sohn is able to shuffle and cloak assets from business partners and creditors,” the developer alleged. “…Blue Room plays shell games with the intention of defrauding business partners.”
Madelon is represented by attorneys Blake Gansborg and Corey Neversare, with Nelson Mullins Riley & Scarborough in Denver, who declined offers to discuss the case.
The 801 8th Ave. property in Lincoln Park on Thursday, March 21, 2024. (Justin Wingerter/BusinessDen)
A developer said that it has been forced out of its first Denver project — an unbuilt complex of so-called micro studio apartments in Lincoln Park — by a scheming hedge fund.
Madelon Group, of New York, specializes in modular homes and prefabricated buildings. It developed and operates four small apartment buildings in New York City. One of its investors is Minyoung Sohn, founder of the Denver hedge fund Blue Room.
In October 2020, Madelon and Blue Room decided to partner on a project at 801 W. 8th Ave. that they called Blue Room House One. Above ground-floor retail would be four floors of micro studio apartments, each 400 square feet, that would lease for $900-$1,000.
The plan was for Blue Room to find investors for the project, own it and pay Madelon $1.7 million to develop it, according to a lawsuit the latter has filed in Denver District Court.
The companies began by buying 801 8th Ave. and an adjacent property at 813 Inca St. for a combined $1.3 million in 2022. When the first $1 million was raised that September, the project appeared on its way to breaking ground in 2023 and opening in 2024, as planned.
Then came a $500,000 grant from the Colorado Health Foundation and a $450,000 grant from the Kaiser Foundation, two nonprofits looking to fund affordable housing here. But rather than put that money into the project, Blue Room used it for payroll, Madelon alleged.
“Blue Room unconditionally denies the allegations in the complaint,” the hedge fund said last week. “Upon advice of counsel, we will not comment further on the pending litigation.”
While Madelon was lining up construction companies last year, Blue Room was refusing to transfer 801 8th Ave. and 813 Inca St. to a joint LLC, according to Madelon. It then refused to pay Madelon and ended its contract with Madelon in September, the developer said.
“Blue Room continued to use the grant money that was earmarked for the project to pay its executives and employees,” Madelon alleged in its lawsuit, which was filed March 19.
A spokesman for the Kaiser Foundation said it is looking into the allegation that its grant money was misused. A spokeswoman for the Colorado Health Foundation confirmed that it gave $450,000 to the project but had no information about how the money was spent.
Madelon’s lawsuit uses the term “shell game” 14 times to describe how Sohn and his firm kept control of what was, according to Madelon, supposed to be a joint real estate venture. Madelon is suing the hedge fund for fraud, breach of contract and unjust enrichment.
“Through his arsenal of entities, Sohn is able to shuffle and cloak assets from business partners and creditors,” the developer alleged. “…Blue Room plays shell games with the intention of defrauding business partners.”
Madelon is represented by attorneys Blake Gansborg and Corey Neversare, with Nelson Mullins Riley & Scarborough in Denver, who declined offers to discuss the case.
