The developer behind a troubled $500 million real estate venture in Duluth is blaming a St. Cloud-based bank for its shaky start.

The city of Duluth last week declared that Lazar "Luzy" Ostreicher's companies had breached a development contract for a megaproject that's supposed to transform a Duluth hilltop overlooking Lake Superior.

But construction contracts were in default; key financial information was missing; and little work had been done on the site, according to the city.

In a response to the city this week, Ostreicher's Duluth attorney William Burns wrote that a $45 million cash infusion into the Incline Village project fell apart because Stearns Bank did not come through with a critical financing guarantee.

Stearns Bank did not respond to requests for comment.

Ostreicher's agreement with the city will be severed if problems are not addressed in 45 days, potentially killing the project, which includes 1,180 apartments, 120 condominiums and retail space on a 53-acre site once occupied by Duluth Central High School.

Meanwhile, Ostreicher has put Endi Plaza, a separate venture that owns a Duluth apartment building, back into bankruptcy after an adverse court ruling on Friday.

The ruling was to put Endi Plaza into receivership. Fannie Mae, which sought the receivership, says Endi Plaza defaulted on a $52 million loan.

Ostreicher of Monsey, N.Y., also owns the Kenwood Village apartment building in Duluth. Through his companies, he and his family have invested about $85 million in the city in recent years. They bought the Incline Village property from the Duluth school district for $8 million in 2022.

The City Council has granted millions of dollars in tax increment financing to Incline Village for the first of its three planned phases — although no money has yet been awarded.

The city says Ostreicher's Incline Plaza Development and related companies have breached eight parts of an agreement with the Duluth Economic Development Authority (DEDA).

Among the breaches, the city claims that financing information submitted for the project "no longer accurately reflects the developer's source of funds."

Burns, in a letter to the city, wrote that Incline Village's funding information was "100% accurate at the time," and that Ostreicher provided "evidence of equity contribution to the project."

With the project facing "profoundly high construction costs and high interest rates," Incline Village developed a new financing plan involving a $45 million cash infusion, wrote Burns, a lawyer with the Duluth firm Hanft Fride.

The investor appears to be a company called SGGI Holdings Ltd.

The equity infusion pivoted on a standby letter of credit intended to secure the completion of construction, Burns wrote. Letters of credit are typically used in international trade, but they also can be used in domestic financing arrangements.

On behalf of Ostreicher's Incline Development, Stearns Bank would have issued the letter of credit to SGGI, basically to backstop the latter's financial contributions to the project. The letter of credit would have been transmitted through SWIFT, a global communications system for banks.

But Stearns was not able to make the transaction, Burns wrote, and Incline Development "submits that the bank deliberately or negligently misrepresented" that it was connected to SWIFT and could send the letter of credit.

"The developer sees that failure as the central reason that the project was unable to be timely funded and commence construction last fall," Burns continued.

On it website, SGGI Holdings says its "activities include investing in industry-leading project endeavors," but little more. The company, which appears to be incorporated in Wyoming and based in Florida, could not be reached for comment.

Ostreicher and Duluth city officials celebrated a groundbreaking for the Incline development on Dec. 10. The day before, Endi Plaza filed for Chapter 11 bankruptcy reorganization after Fannie Mae said it falsified financial statements and defaulted on a nearly $52 million loan.

The December bankruptcy was aimed at forestalling Fannie Mae's attempt to get a state court order installing a receiver to run Endi Plaza. Chapter 11 allows a company to be temporarily shielded from state and federal litigation.

But in February, Endi asked the bankruptcy court to dismiss its Chapter 11 filing. Endi was negotiating with Fannie Mae, and the government-sponsored mortgage lender had required the dismissal for any negotiations.

The talks failed. On Friday, St. Louis County District Court Judge Eric Hylden appointed Friedman Real Estate Management as Endi's receiver. Endi promptly refiled for Chapter 11 bankruptcy in New York to freeze the receivership action.

This story includes reporting from Star Tribune reporter Jana Hollingsworth.