Watertown City Manager Provides Update on Legal Challenge Over “The Ruins” Bankruptcy Case

Northeast Radio SD News – Watertown, SD - City Manager Alan Stager provided a detailed update during Tuesday’s media briefing regarding a legal challenge facing the city in a North Dakota bankruptcy court. The dispute centers on “The Ruins,” an unfinished 63-unit apartment complex in downtown Watertown that has become entangled in the bankruptcy liquidation of its developer.

The legal battle involves a 99-year lease agreement for 1,200 square feet of space on the building’s ground floor. This space was designated for city-operated public restrooms and storage to support the adjacent Foundation Plaza. However, the bankruptcy trustee—a lawyer representing the developer’s estate—has moved to cancel the lease to make the property more marketable to potential buyers.

“Typically, bankruptcy trustees have pretty wide latitude on canceling all contracts and lease agreements that exist in the bankruptcy,” Stager explained. “The trustee thought that would happen in this case, too.” Stager noted that from the trustee’s perspective, removing the long-term lease would allow a third party to “buy the building because then they have the freedom to do what they want to with it”.

Accompanied by Mayor Ried Holien and Community Development Manager Hanten, Stager traveled to Fargo to oppose the trustee’s motion. The city’s defense relied on the development’s unique “non-traditional” nature. Unlike a standard commercial lease, the city argued that this agreement was part of a larger public-private partnership in which the city provided the land and made a multi-million-dollar investment in the surrounding infrastructure.

“The city did throw him with a bit of a curveball and made a real good argument with Community Development Manager Hanten providing testimony as well as Mayor Holien,” Stager said. “The city’s argument was: this isn’t just a one-dollar, 99-year lease for property. This was in exchange for some rather significant contributions made on behalf of the project”.

Specifically, the city highlighted its $3 million investment in developing Foundation Plaza, the park directly connected to the building’s designated restroom space.

The city’s testimony effectively stalled the trustee’s motion. According to Stager, the judge was unable to issue an immediate ruling due to the specific statutes and arguments raised by the city.

“The next step is for the parties to issue briefs so that the judge can make a determination later in the month,” Stager added.