The next phase of a long-struggling development in West Baltimore is imperiled yet again.

La Cité Development was supposed to break ground on an age-restricted apartment complex for older adults this year. Instead, the developer missed a key financing deadline. Now, a Boston-based firm is suing to claw back its $13.1 million investment — and take control of the project.

Citing numerous “badly missed” milestones and a lack of progress, Arctaris Impact Investors alleges that La Cité had broken their contract and triggered a “forced sale” event.

At stake is who controls the money.

According to the lawsuit filed last week in a Massachusetts state court, La Cité refuses to give up control of $8 million that belongs to Arctaris. La Cité called the claims “grossly inaccurate” and said it was Arctaris that violated their deal by refusing to approve payment requests.

The legal fight could have big implications for a neighborhood just west of downtown with acres of vacant land and years of broken promises.

For nearly two decades, La Cité held the exclusive development rights to a swath of city-owned land in Poppleton, one of Baltimore’s oldest Black neighborhoods. La Cité, a New York-based firm, said it could transform the area into a high-density, upscale neighborhood with amenities akin to Manhattan.

The city spent at least $15 million to buy property, displace more than 100 households, demolish buildings and clear the land for La Cité's vision. Despite that effort, La Cité has only ever completed a single apartment complex known as Center\West.

The age-restricted apartment building was supposed to be the next step in the development — made possible by a $13.1 million initial investment from Arctaris and a federal tax incentive.

The development site is located within an Opportunity Zone, a designation created under the Trump Administration to encourage investment in low-income neighborhoods.

In 2020, a local nonprofit worked with an investment fund backed by city money to lure Arctaris, which specializes in these types of investments.

The Abell Foundation put up $4 million, the Neighborhood Impact Investment Fund put up $1 million, and Arctaris pledged $20 million to create a $25 million investment fund.

As part of a November 2022 deal between La Cité and Arctaris, more than $13 million was committed to La Cité for its proposed senior apartment building.

The Neighborhood Impact Investment Fund and the Abell Foundation did not immediately respond to requests for comment. (The Abell Foundation is a financial supporter of The Baltimore Banner).

According to Arctaris, developing, designing and constructing that building would ultimately cost about $70 million, much of which would come from a construction loan.

Obtaining that loan was crucial for the project to move forward, but La Cité never produced any proof — such as a letter or a term sheet — from any lender indicating support, the lawsuit said.

As time went on, La Cité kept requesting further draws of money from Arctaris, the lawsuit said, and Arctaris kept approving them.

This year, something startling happened.

Arctaris claimed La Cité moved $3 million to a newly created bank account, at which point Arctaris realized it was no longer in control of about $8 million spread among multiple accounts at Wells Fargo Bank.

A similar transfer took place in March, the lawsuit alleged, when La Cité deposited $359,000 into an account at JPMorgan Chase and only returned it when Arctaris objected.

In its lawsuit, Arctaris also said La Cité has refused to provide an updated business model for more than a year, and at one point “attempted to bury clearly inappropriate expenses” in a payment request.

The lawsuit is a stark departure for Arctaris, which has previously praised La Cité. In its 2022 annual report, Arctaris devoted six pages to a feature on La Cité’s transformative work in Poppleton, led by La Cité's president, Dan Bythewood Jr., and its executive vice president, Ian Arias.

“Disappointingly, it is now readily apparent that Defendants did not have the wherewithal to successfully manage the Project,” Arctaris said in its lawsuit.

In May, La Cité missed a proof-of-financing deadline with the city, which in June responded by canceling their deal. La Cité blamed Baltimore’s housing officials for delays and has threatened to sue the city.

On July 31, Arctaris said it sent La Cité a notice of default. A month later, the investor filed its lawsuit.

While the lawsuit sheds light on the financial troubles of the proposed West Baltimore development, Arctaris redacted numerous paragraphs throughout the complaint, including details about its operating agreement with La Cité.

Arctaris cited The Baltimore Banner’s coverage in its lawsuit, but the investment firm declined to comment.

In its statement, La Cité claimed it will be better off without Arctaris. The developer said it was negotiating with Arctaris to buy out its stake when Arctaris filed its lawsuit without warning.

According to La Cité, the proposed senior apartment building is “in a strong position and poised to move forward.”

La Cité is not the only project in Poppleton backed by Arctaris.

According to its annual reports, Arctaris also invested nearly $6 million in Market Fresh Gourmet, a proposed grocery store that would be located in the ground-level commercial space of La Cité’s existing apartment complex.

Promises of a neighborhood grocery store reminiscent of Harbor East’s Whole Foods boosted community support for the La Cité development, according to a 2021 Southwest Partnership letter.

Market Fresh Gourmet pitched itself as a grocer familiar with the challenges of operating in food deserts and promised services ranging from cooking classes to a food co-op initiative, where fresh produce would be stationed throughout the community. Three years later, the commercial space in Center\West remains empty.

La Cité has blamed supply chain delays for the lack of progress. Market Fresh did not respond to requests for comment. But according to city officials, the grocer has struggled to bridge a multimillion-dollar funding gap — even with that $5.7 million commitment from Arctaris.

Details of the Arctaris lawsuit were first reported by Law360.