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Belly Up Investors Go To Court Over Leases, Loans

Belly Up Investors Go To Court Over Leases, Loans

An original investor in the Belly Up Aspen venture has taken the nightclub’s majority ownership to court over the management of its business and corporate affairs.

Through an entity called Gitlitz Grantor LLLP, Aspen resident David Gitlitz has filed a lawsuit in Pitkin County District Court, claiming that he and business partner Michael Goldberg are deadlocked over money and business affairs at the popular concert venue in downtown Aspen. 

Gitlitz is asking the court to settle the dispute through one of three means: order the closure of Belly Up and the sale of 450 S. Galena St. location from where it operates; require Belly Up to a pay fair-market rent to its landlord; or terminate the Belly Up lease and find another tenant. 

“This case involves valuable commercial real estate in Aspen’s core, acquired by friends Michael A. Goldberg and David A. Gitlitz in 2006,” the suit states. “Plaintiff (Gitlitz Grantor) has been forced to resort to the courts because this transaction has devolved into a one-sided deal, where one member, Mr. Goldberg, has engaged in self-dealing and reaping benefits for his and his own family’s interests to the detriment of Mr. Gitlitz and his family.”

Reached last week, both Gitlitz and Goldberg declined to comment about the dispute. Goldberg, who is being sued in addition to his three sons, had not filed an answer to the suit as of Tuesday. 

Web of LLCs and loans

Leading up to the property purchase and opening of Belly Up some 17 years ago, Goldberg created a corporate entity called Belly Up Aspen LLC in December 2005 after Gitlitz identified the subgrade location at 450 S. Galena St. as a place to operate a nightclub and concert venue, according to the suit’s allegations. 

At the time, Aspen’s music scene for hip and popular national acts was limited to the Wheeler Opera House and some scattered locations, but it wasn’t regularly landing the type of talent the Double Diamond, which had operated from 450 S. Galena St., had drawn before closing in 2003. Belly Up was intended to fill that void and broaden its audience in a made-over space where the build-out process started in 2005 and finished in 2006. Gitlitz personally invested $1.4 million in the location’s makeover, the suit says, but he didn’t put any more money into the endeavor. 

“After this initial investment in Belly Up LLC, Mr. Gitlitz declined to personally invest more in the Belly Up LLC, in light of Mr. Goldberg’s large and expensive plans for the club, the suit states.

The partners created an LLC in March 2006 called 450 South Galena Investors, which was used to buy the 5,500-plus-square-foot, condominium-sized nightclub space (Unit 2) for $1.8 million that April. The acquisition was financed by Community Holdings Corp, which was owned and operated by Gitlitz, the suit says. 

Under the arrangement, Belly Up was a paying tenant of 450 South Galena. 

“Gitlitz and Goldberg agreed that 450 LLC would lease Unit 2 to Belly Up LLC for up to a period of 10 years and that the initial lease payments would be equal to the monthly installment payments (interest) under the Acquisition Loan, which would then be refinanced with a bank as soon as possible, i.e., within two years,” the suit said.

Gitlitz, however, did not see the original lease that Goldberg prepared in April 2006 for the landlord and tenant LLCs, the suit contends. That lease included a 10-year renewal option for Belly Up after its expiration in March 2016, the suit says. Gitlitz did not agree to the extension option, according to the suit.

The agreement also said the South Galena space was pledged as collateral for the refinanced loan, which would be paid off within the 10-year lease period. The loan was refinanced for $1.85 million through Alpine Bank in March 2008, with Gitlitz’s Community Holdings paid back in full and $38,912 disbursed to 450 South Galena, the suit says. 

Gitlitz provided a guarantee for the Alpine Bank loan, but Goldberg would not agree to do the same, the suit continues.

When the Alpine Bank loan became due in April 2013, Goldberg “primarily” arranged a refinance through ANB Bank, signing loan documents that bore his name as “managing member” though “there were two managers,” the suit states. 

The ANB loan of $1.875 million to 450 South Galena was for 10 years, with Goldberg providing a guarantee of up to 60% of the debt, the suit says. 

Also in April 2013, Goldberg brokered a new lease agreement between the property landlord and nightclub tenant with a new initial 10-year term that would expire in April 2023 and included a 10-year option. 

“Under no circumstances was there to be a lease term of 20 years,” the suit says. 

The lease came with favorable terms to Belly Up, which was paying “below-market rents” that amounted to interest-only payments on the refinanced loan, the suit states. 

“Those terms were never discussed with Mr. Gitlitz,” the suit adds. “They were never agreed to by Mr. Gitlitz or (Gitlitz Grantor).”

Earlier this year, Gitlitz learned that Belly Up wasn’t making substantial payments toward the principal of the ANB loan and that Goldberg had executed the second lease without the proper authority requiring Gitlitz’s blessing, the suit claims. 

Paying below-market value in rent would lead to an unfairly low property evaluation of the 450 South Galena property, the suit argues, adding that Goldberg this year placed a $700,000 value on the property. 

“Placing a valuation of $700,000 on an Aspen asset for which they paid $1,800,000 over 17 years ago sent a clear message to Mr. Gitlitz and (Gitlitz Grantor) that Mr. Goldberg had no intention of dealing fairly with them,” the suit states. 

Gitlitz sought an independent valuation of the property and hired a local appraiser who determined its fair-market value was between $18 million and $27 million, the suit says, alleging that Goldberg maintained the property wasn’t with more than $700,000.

The suit alleges that Goldberg is refusing to have Belly Up pay market rent to 450 South Galena, and by doing so is benefiting to the detriment of 450 South Galena and Gitlitz. 

The suit asks the court to intervene by ending Belly Up’s tenancy and ordering the sale of the 450 South Galena space. An alternative option would be for the court to order Belly Up to enter a lease reflecting the current Aspen commercial real estate market and terms. A third option would be for the court to terminate the Belly Up lease and lease the space to a tenant approved by Gitlitz and Goldenberg. 

The Belly Up LLC was and still is managed by Goldberg, who also is the entity’s majority member, while at least two of his sons and a possibly Goldberg-controlled trust also might own interest, the suit said. 

Gitlitz, who is a minority owner in the Belly Up LLC, over the years “has not been provided with any meaningful accounting records or reports from Belly Up LLC other than to purportedly show that his interests have been significantly diluted in that entity,” the suit said.  

At the time of the formation of 450 South Galena, Gitlitz assigned his membership interest in the new entity to Gitlitz Grantor. Gitlitz Grantor had a “sharing ratio” of 40% and a voting interest of 40% of 450 South Galena under the LLC’s operating agreement, the suit said. The Goldberg Trust owns the remaining 60%, the suit said. At the same time, Gitlitz and Goldberg, as the LLC’s designated managers, are not allowed compensation from the LLC, the suit said. 

The operating agreement also said that any action taken by the LLC required the approval of both managers. Gitlitz Grantor is 99% owned by a trust Gitlitz established for his children, the suit said. Gitlitz personally owns the other 1% of Gitlitz Grantor.

Meanwhile, in June 2020, Goldberg assigned all of his membership interest in 450 South Galena to a trust he created for his children, the suit said. 

Aspen-based Ferguson Schindler Law Firm PC entered the lawsuit on Nov. 20.

“Belly Up LLC has become an established Aspen entertainment institution, featuring both well-known, established as well as up and coming musicians, solo artists, bands, and musical performers acts performing blues, rock, rap, techno, country, house, DJ, tribute, and other popular music forms. By all outward appearances, Belly Up LLC is a successful venture,” the suit said. 


By: Rick Carroll I Aspen Daily News I December 13, 2023

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