Lenders go after Madison Equities owner’s house, one of few profitable properties

Banks are seeking control of a house and a St. Paul shopping center tied to the widow and business partner of a former titan of downtown real estate after their company, Madison Equities, fell into financial distress.

When Jim Crockarell died a year ago, Rosemary Kortgard was left as St. Paul’s largest property owner. The couple had expanded the Madison Equities portfolio through the decades to include some of the capital city’s most recognizable buildings.

Many of those properties are now embroiled in litigation for defaulting on mortgages and other loans, a number of which Kortgard guaranteed personally. New documents and testimony in a Bankruptcy Court hearing last week provided a glimpse at interactions among the many entities affiliated with the Madison Equities properties.

Earlier this month, Merchants Bank asked a judge to appoint a receiver to manage Kortgard’s North Oaks house through the foreclosure process. The complaint alleged Kortgard defaulted on her mortgage by failing to make timely payments.

Another lender, Minnwest Bank, is fighting for the right to foreclose on Kortgard’s Hillcrest Center subsidiary, which filed for Chapter 11 bankruptcy in December on the eve of a potential receivership order.

The East Side shopping center, on the 1600 block of White Bear Avenue, might be one of Kortgard’s few profitable properties. Unlike many of the others, the building was paying its taxes and making principal and interest payments.

Still, Minnwest claimed Hillcrest’s $6 million in loans were in default for several reasons, including an adverse change in Kortgard’s financial position. The bank is asking a judge to dismiss the bankruptcy case, arguing it is Hillcrest’s sole creditor, so there is no debt to reorganize.

The balance sheet for Hillcrest also lists more than $2 million owed to Kortgard and her other entities, which the attorney for the bank characterized as fraudulent transfers.

“She was using Hillcrest Center, the only solvent company that she had, to plug holes in the debts of the other one as this little empire is crumbling,” Cynthia Hegarty, a lawyer representing Minnwest, said during last week’s hearing. “And I think that’s what’s most concerning, because that’s my client’s collateral.”

In a separate bankruptcy case tied to the Park Square Court Building, a trustee is investigating four banks to determine whether the subsidiary made similar illicit payments. A filing last week alleged the fraudulent movement of $245,000 via TruStone Financial Credit Union.

Kortgard, a certified public accountant, attorney and real estate broker, testified in the Hillcrest hearing she made loans to her affiliated properties at a time when she thought they were repayable. But the pandemic and rise of remote work caused the market value of office buildings to plummet, she said.

Her attorney, Ken Edstrom, also noted the Hillcrest subsidiary has cash collateral, arguing: “This idea that somehow the bankruptcy is filed so that the debtor can keep moving money around is simply not true.”

Kortgard listed the Hillcrest Center for sale in December and testified several parties have toured the property, which has nearly two dozen tenants.

She received an offer of more than $8 million but is hopeful another buyer might be willing to pay $9 million, allowing her to pay off the property’s debt and walk away with $3 million in equity.

Hegarty characterized the wait as greedy. Edstrom said she was keeping the building from being sold for less than what it’s worth. U.S. Bankruptcy Court Judge William Fisher indicated he could set a future deadline for a sale as a compromise.

Whatever profit Kortgard takes would likely be less than what she already owes to banks. On Jan. 8, the lender for the condemned Lowry Apartments secured a $10 million judgment against Kortgard. In the fall, a different judge said she owed $2 million to Pillar Bank for guaranteeing a loan for the Park Square Court Building.

Kim Vu-Dinh, a Mitchell Hamline School of Law professor specializing in real estate and property law, said she thinks Madison Equities' fallout is a sign the company took an unusual amount of risk.

“Frankly, it’s just cavalier management,” she said. “It’s not like this unavoidable market feature. This is overspeculation, overleverage.”

Though Kortgard has already relinquished a few downtown properties to lenders, several others are not in foreclosure.

Or at least, Kortgard testified, for buildings like the landmark First National Bank Building, which is not paying its property taxes: “Not yet.”