South Bend loses patience with Matthews, votes to seek $7.5M over unfinished grocery store

SOUTH BEND ― The South Bend Redevelopment Commission voted unanimously Thursday morning to seek a total of $7.5 million from developer Dave Matthews after he failed to open a grocery store in a high-rise mixed-use apartment complex downtown.

And it might not be the only litigation the developer is facing over the project as the Regional Development Authority, which provided $4.9 million in state money for the project, is also considering actions against the developer, according to its attorney Stephen Studer.

Matthews did not attend the Redevelopment Commission meeting.

The dispute over the store stems from an agreement the developer entered into with South Bend. Matthews received nearly $10 million in city and state funds to assist with construction of the 10-story complex at 300 E. LaSalle Ave. In exchange, he was required to open a grocery store and pharmacy on the ground floor of the building, according to the agreement.

What he delivered instead is a room that's still under construction with tables that contain items such as potato chips, crackers and canned soup.

Deadline:'Unkept promises': If no grocery by Dec. 31, South Bend may demand $7.5 million back from developer

"It's not the time to allow this sort of ongoing, problematic developer to walk away from his commitments. It sends the wrong message to others," Mary Ellen O'Connell, a law professor at the University of Notre Dame, said to commissioners at Thursday's meeting. "We want to maintain a high level of commitment and accountability, compliance with our contracts. Otherwise, how do we enforce and maintain those high standards in the future?"

The agreement

In 2019, the Redevelopment Commission outlined what it expected to see in a grocery store and pharmacy after Matthews made comments that he might operate the store on his own. Initially, Martin’s Super Markets seemed prepared to move into the space, but those plans fell through after the local grocer was purchased by Grand Rapids-based SpartanNash.

In the agreements, the commission stipulated that the grocery had to be at least 6,000 square feet and had to include fresh fruits, vegetables, meats and dairy products as well as three of the following: canned foods, frozen foods, dry groceries, baked goods and nonalcoholic beverages.

There also were stipulations regarding the pharmacy, which Matthews said will be placed in the nearby Commerce Center.

Problems:South Bend, neighbors grow impatient with developer's unfinished work in the East Bank

A Tribune photographer who attempted to visit the grocery Wednesday morning was told by Matthews that the store wasn’t open. The photographer observed people working on the entrance and a table with a cash register, another table with food and at least one cooler with milk and other items.

Matthews said Wednesday that the grocery store is indeed closed while construction is still underway. It only opened on Dec. 31 so he could meet the contractual obligations of the agreement with the city, he said.

“It should be completed in the next several weeks,” he said of the grocery space. “It's absolutely our intention to create a delightful shopping experience there. We are committed to the neighborhood and doing great development.”

Not a name brand

But the store won’t have the name of a name-brand grocer.

With the loss of Martin’s and then the opening of Trader Joe’s in the Eddy Street Commons development near Notre Dame, Matthews said, it has been impossible to find another grocer willing to take the space because of the proximity of Trader Joe’s as well as the Martin’s near campus.

Instead, he said, he’s had to hire an experienced operator to run the store in the building.

Matthews told The Tribune on Wednesday that he wouldn't attend the Redevelopment Commission meeting, but that he would like to show members that the $50 million complex is completed, except for the grocery store, and that 75% of the 125 apartments in the complex are occupied.

But Caleb Bauer, South Bend’s executive director of community investment, said the grocery store that was opened on Dec. 31 was “insulting to taxpayers” and didn't have a certificate of occupancy or a retail food permit.

The city provided $5 million to assist in the construction of the 10-story building in downtown, and that money was matched with $4.9 million in state funding. Though the project might have received help with government funding, it likely would have received far less if the city knew Matthews wouldn’t be able to deliver a grocery store to the growing downtown area, Bauer explained.

“At the end of the day, we just want to see the terms of the agreement met,” Bauer said.

Legal options

A provision in the development contract allows the city to seek a so-called clawback of $7.5 million from Matthews for failing to live up to his end of the agreement, which the Redevelopment Commission voted to pursue Thursday.

Bauer said the developer has been given multiple extensions to fulfill his end of the agreement.

“All options are on the table ― including legal action,” he said.

Studer, the attorney for the RDA, said Thursday that the organization decided not to extend Matthews' lease beyond the end of the year and that the board will consider a variety of actions to get the promised grocery store and pharmacy in the building — up to an including legal action.

Such sentiments are shared by others.

Common Councilman and Redevelopment Commissioner Troy Warner said in a release that he and others, including other members of one or both boards, "have expressed concerns for quite some time about Mr. Matthews' 2017commitment to provide a grocery & pharmacy in exchange for $5 million of our city tax dollarsand $5 million state Regional Cities dollars."

He said Matthews has been given two deadline extensions but has shown no progress on a grocery store and has refused to meet with the commission to discuss progress or answer questions. “I was extremely disappointed to see in recent news reports and in photos from residents in the building, that even after having almost 3 extra years Mr. Matthews has not even taken basic steps towards meeting the promises he made in 2017," Warner said in the release.

In the same release, Council President Sharon McBride said it's disappointing that Matthews has failed to deliver on the grocery store even though he's built a development career on getting city assistance for multiple projects in the downtown area over the past decade or so.

"If we do not hold Matthews accountable now after six years of this, when will we?" Warner said in the release.

Staff writer Jordan Smith contributed to this report.

Email Tribune staff writer Ed Semmler at esemmler@sbtinfo.com.

This article originally appeared on South Bend Tribune: South Bend could pursue legal action over downtown high-rise project