Rapid City SD – The City of Rapid City is preparing to go to court over more than $643,000 in unpaid utility bills owed by five LLCs tied to embattled landlord Adam Hendry’s Tzadik real estate portfolio — money that, in several cases, is attached to properties already moving through court-ordered liquidation.
The request is Item LF091626-06 on the consent calendar for the Sept. 16, 2026 Legal and Finance Committee meeting, 12:30 p.m. at Rapid City Hall.
In a Sept. 11 memo to the committee, City Attorney Carla Cushman asks Council to authorize hiring outside counsel to file collection actions against five Tzadik-affiliated entities over unpaid water, sewer, and garbage bills (LF091626-06 memo, Sept. 11, 2026).
The Balances on Record
As of Aug. 28, 2026, the outstanding balances Cushman cited were:
- Tzadik Rapid City Portfolio I LLC — $390,070.59. This is the entity that owns Star Village and Aspen Park, currently headed to a Ten-X online auction Oct. 26–28, 2026, with a final sale hearing on or about Oct. 29 (Doc. 812, filed 8/14/26).
- Tzadik Lacrosse Apartments LLC — $141,950.67. Owner of LaCrosse Estates Apartments (761 E. Anamosa St.), a Fourth Tranche property under Hendry’s confirmed reorganization plan (Doc. 444, filed 3/13/26).
- Its sale timeline has since been accelerated by a separate agreement between Hendry and judgment creditor Alejandro Arguelles/Gatoralex Consulting LLC: a sale contract for the property must be secured by Feb. 1, 2028, with closing to follow within 30 days — and only if that deadline is missed does the property fall back to the standard auction procedures under the Hendry Plan (Doc. 840, filed 9/11/26).
- Mountain View Estates LLC — $83,814.05. A Second Tranche property under the same plan, and separately the entity behind the disputed “Mountain View Property” at the center of judgment creditor Gatoralex Consulting’s objection to a proposed $66.5 million Morgan Stanley refinancing in the Sioux Falls bankruptcy case (Doc. 831, filed 8/30/26).
- Oxford Apartments LLC — $24,649.07. A First Tranche property now headed to auction after its private-sale deadline expired Sept. 3 with no buyer under contract (Doc. 602, filed 9/4/26; Doc. 604, filed 9/8/26).
- Dakota Flats LLC — $2,721.83. Also a First Tranche property, doing business as the Town House Motel, likewise moving toward auction under the same process.
- Tzadik Mount Rushmore Hotel LLC — no amount currently outstanding. Cushman is including the hotel on the agenda item preemptively, “to avoid having to seek separate Council approval” if its bills fall behind — while the hotel operates current on its utilities, it’s fighting its own separately filed, contested bankruptcy case (26-20751-MAM), which secured creditor BankWest has argued in a motion to dismiss was itself an attempt to dodge the tranche-sale process governing the other four entities.
That’s $643,206.21 combined across the four entities with active balances, plus Portfolio I.
Doc. 840 — filed the same week as this collection request, alongside a still-pending motion to approve the broader $66.5 million Morgan Stanley recapitalization (Dkt. 822) — accelerates sale deadlines for two other Hendry-controlled Fourth Tranche properties under the same Arguelles/Gatoralex settlement, though neither owes the city money under this agenda item: Raza Ranch LLC (a contract for the land surrounding the Raza Ranch parcel due June 1, 2027, and a separate contract for the parcel holding the Raza Ranch building due Dec. 1, 2027) and L’Chaim Farm LLC (contract due Sept. 1, 2027).
All three accelerated deadlines run only “until the Arguelles Creditors’ Judgment is satisfied” — one more sign of how directly Arguelles’ objection is now dictating the pace of Hendry’s asset sales.
Water, Sewer, and Who Actually Pays
Cushman’s memo notes that, with the exception of the hotel, these accounts serve duplexes or multi-family residential buildings and are billed to the property owner — not the tenants living there.
By ordinance, the city can shut off water and other utility service when an owner doesn’t pay, and normally turns delinquent accounts over to Credit Collections Bureau. But Cushman writes that disconnection “is a difficult decision when the residential property owner is the account holder, because turning off the water will significantly burden the tenants, not the person responsible for paying the utility bills” — language that echoes concerns raised publicly about conditions at Star Village.
City staff are separately evaluating whether to pursue disconnection for some or all of the five properties, in addition to any collection lawsuit.
The Bankruptcy Wrinkle
Portfolio I is treated differently in the memo than the other four entities.
It’s already mid-bankruptcy, jointly administered under the Sioux Falls-based lead case that’s sending Star Village and Aspen Park to auction next month.
Cushman doesn’t spell out why that changes her approach, but she writes separately that she has “made attempts within the context of the bankruptcy of Tzadik Rapid City Portfolio I LLC to obtain payment for this entity’s outstanding utility bills,” and will continue those efforts — language suggesting the city is pursuing this specific debt as a creditor inside the bankruptcy case itself, alongside whatever collection authority Council grants this week.
Whatever the city eventually collects from Portfolio I would come from an entity whose real estate is already spoken for.
Merchants Bank of Indiana holds a blanket secured mortgage across all of Portfolio I’s roughly 96 Star Village parcels and two Aspen Park parcels, with a secured claim of $11,473,991 — and the properties are set to sell “AS-IS/WHERE-IS” and free of junior liens at the October auction (Doc. 812).
Unsecured debt like an unpaid utility bill typically sits well behind a secured mortgage holder in that kind of liquidation.
A Debt that’s Grown, not Shrunk
The $390,070.59 now attributed to Portfolio I is worth comparing to what Council President Stephen Tamang said publicly two months ago.
At the July 20, 2026 Council meeting, Tamang stated Tzadik had accumulated “close to half a million dollars” in delinquent utility obligations portfolio-wide, including $344,000 specifically at Star Village.
The two figures aren’t a clean apples-to-apples comparison — Tamang’s number was for Star Village alone, while Portfolio I’s current balance also covers the much smaller Aspen Park complex under the same ownership entity.
But the trajectory is hard to miss: two months after a City Council meeting where officials publicly weighed the tradeoffs of cutting off water to Tzadik’s tenants, the specific balance tied to Star Village has grown, not shrunk — even as the property itself heads toward a new owner at auction.
What Happens Next
Cushman writes that she solicited proposals for outside legal services over the summer and selected Thomas Braun Bernard & Burke to represent the city in these collection actions.
She won’t be at Wednesday’s meeting; questions are directed to Finance Director Daniel Ainslie instead.
LF091626-06 is item 4 of 8 on the meeting’s consent calendar, meaning it will pass without discussion unless a committee member pulls it for a separate vote.
Sourcing
Financial figures, quotes, and details of the city’s collection strategy are drawn from a Sept. 11, 2026 memorandum from City Attorney Carla Cushman to the Legal and Finance Committee, part of the public agenda packet for Item LF091626-06 on the committee’s Sept. 16, 2026 agenda. Bankruptcy case details are drawn from primary-source court filings, cited above by document number and filing date. Council President Stephen Tamang’s remarks are from the Rapid City Council’s July 20, 2026 meeting.
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