CORRECTION, 4 p.m., Sept. 14, 2017: This article has been corrected to restore several dropped paragraphs, including a full response from the Statler's developer and information on earlier investigations into the project's finances.

A partner in the Statler Hotel redevelopment in downtown Dallas has sued the project’s lenders, alleging they were part of a scheme to artificially boost the size of its budget for their own benefit.

Four financial firms coaxed developer Centurion American Development Group into obtaining millions of dollars in financing for additional construction costs that were fraudulent or not justified, according to the lawsuit.

By doing so, they could collect heftier fees and interest payments, the suit says.

Frank Zaccanelli, head of the minority partnership redeveloping the Statler Hotel, is suing the investment banks behind the project's financing. (David Woo/Staff Photographer)

The budget for the Statler Hotel restoration, one of the biggest historic preservation projects in Texas, stands at $233 million, a nearly 50 percent increase over the last three years. The Dallas Morning News has agreed to lease the former Dallas Public Library that is part of the Statler complex for its new headquarters.

The suit was filed by Fiamma Statler L.P., a minority partner that served as the project’s manager until Centurion fired it last year. Fiamma says it was wrongly terminated and is seeking millions of dollars in damages in the case, which was filed in late August in Tarrant County.

The U.S. companies named in the suit —A&J Capital Investments Inc., PNC Investment Co. and Jeffries, LLC — declined to comment. Henry Global Consulting Group of China, based in Beijing, did not respond to a request for comment.

Mehrdad Moayedi, the chief executive of Centurion, denied any wrongdoing in a statement to The News.

Any historic project faces unforeseen changes that result in delays and budget increases, he said, adding that no budget increases were manufactured and no one was wrongfully terminated.

“The developer has not been sued in the lawsuit and denies the false and misleading statements contained in the lawsuit,’’ according to his statement. “The developer is eagerly anticipating the opening of the hotel.’’

The suit is the latest legal snag for the Statler, which has been financed largely through government-related programs including tax credits and a deal that allows foreign investors to qualify for visas.

The Securities and Exchange Commission is investigating the Statler's financing, The News reported last month. The IRS ruled in July that bonds sold last year to raise $26.5 million for the renovation are not tax-exempt, as investors were told. The bonds are backed by future tax incentives that the city of Dallas granted to the developer under what's called tax-increment financing.

The lawsuit highlights a falling out between Moayedi and another veteran developer, Frank Zaccanelli, head of Fiamma. More than three years ago, the two developers teamed up on plans to renovate the 19-story, 700,000-square-foot Statler complex.

A key assertion in the suit is that when Centurion fired Fiamma, it eliminated crucial independent oversight, allowing Centurion, its subcontractors and the four financial firms to pad their profits.

Centurion opted to use its own construction firm, Tri-Arc, to renovate the interior of the building, despite a bid from a more experienced firm, Fiamma says. Fiamma opposed that move, calling it a conflict of interest.

As the dispute dragged into 2016, Centurion terminated Fiamma as property manager.

What resulted, according to the suit, “was a sudden, extraordinary, and unexplained explosion’’ of costs, exceeding $40 million, to finish the building.

Fiamma says Centurion has not provided any underlying documentation such as invoices or bid records to justify or explain in detail the additional costs, despite numerous requests.

Fiamma also says the drive to secure tax credits amounting to tens of millions of dollars depended on landing an anchor tenant for the hotel complex.

To win those credits, the suit alleges, PNC and A&J allowed Centurion to enter into a deal with The News that was "below-market and unprofitable.'' The News is not being sued.

Mehrdad Moayedi, CEO of Centurion American, the Statler's managing partner, says allegations in the lawsuit are "false and misleading.'' (Daniel Burgess/Denton Record-Chronicle)

Matthew Cypher, director of the Steers Center for Global Real Estate at Georgetown University, said the lease rates negotiated by The News — starting at $21 per square foot, increasing 50 cents a year with one year free — do fall below market rates, which have exceeded $30 per square foot.

Cypher, who had no involvement in the deal but reviewed the lease terms at The News' request, said they do not appear to be "out of bounds,'' noting that many details factor into rent calculations.

Katy Murray, chief financial officer for A. H. Belo Corporation, parent company of The News, said the company is not involved in the dispute.

“We heavily negotiated a fair lease,’’ Murray said. “And we’re very excited about moving into our new space.’’