With a recent out-of-court settlement, developer Louis R. Cappelli has parted ways in Westchester with a partner he no longer wanted and who apparently was equally eager to part with him and their losing entertainment retail venture.
Having ended their legal battles in state and federal courts, Cappelli and Entertainment Properties Trust, a publicly traded real estate investment trust based in Kansas City, Mo., could do business together again at the developer”™s stalled Concord hotel and casino project in the Catskills in Sullivan County.
In a settlement announced June 18, Cappelli swapped his minority ownership stake in New Roc City in downtown New Rochelle in exchange for all of EPT”™s debt and equity interests in the entertainment retail portion of City Center in White Plains. A Cappelli spokesman said the Valhalla-based developer did not relinquish control of The Lofts at New Roc, a luxury residential complex, and the Residence Inn by Marriott in the New Roc City complex.
EPT, which held 70 percent ownership at New Roc City and at City Center, paid $3.7 million in cash and assumed liabilities in the property exchange.
EPT executives told investors last month the company lost $1.6 million in the first quarter at City Center, which they said was “dragging down” the REIT”™s national portfolio of entertainment retail properties. EPT was prepared to surrender the property to the mortgage lender, Union Labor Life Insurance Co. (ULLICO), when a $112.5 million loan comes due in October. That publicly stated intention led Cappelli this spring to seek EPT”™s removal by a state Supreme Court judge as managing member of their City Center partnership.
The exchange of properties ends Cappelli”™s plans to renovate and reposition New Roc City as a retail shopping center anchored by Target and Kohl”™s department stores. EPT officials opposed that plan. After a Cappelli-controlled company allegedly made an unauthorized $700,000 loan to itself that was said to be linked to the costs of New Roc City”™s redesign and retail conversion, EPT in May wrested management of New Roc City from Cappelli and turned over day-to-day operations to CB Richard Ellis.
Ending the partners”™ respective legal claims over financing for the stalled Catskills resort and casino project, Cappelli agreed to transfer the 1,500-acre Concord Resort property to EPT, which will repay its $56.25 million project loan from Canadian Imperial Bank of Commerce. Cappelli in exchange for handing over the resort property was freed from repaying an outstanding $133.1 million loan from EPT.
The agreement allows Cappelli to keep control of the 200-acre site of his stalled $600 million casino and hotel development at the Concord. EPT also gave a Cappelli affiliate a two-year option to reacquire the resort property at a price of $143 million.
EPT also effectively forgave an additional $30 million in loans to Cappelli in exchange for up to $15 million in casino-generated cash taken in by Cappelli”™s company as a minority owner in the gaming venture.
Cappelli had argued both in and out of court that EPT wanted to back out of the Concord project in 2009 when it balked at lenders”™ terms and certain provisions of its financing deal with Cappelli and effectively killed a construction loan package. Yet in the settlement, EPT gave a binding commitment to ULLICO to acquire $30 million of the first mortgage construction loan for the casino project, provided a major gaming company puts at least $100 million of equity in the project.
Cappelli in February said Penn National Gaming Co. was interested in taking over the Concord casino and racetrack operation. The developer has until Dec. 31 to bring in a gaming partner or lose EPT”™s $30-million commitment.
Geoffrey Thompson, Cappelli”™s spokesman, said it “behooves” Entertainment Properties to support the casino development in order to realize a return on its investment in the adjacent resort site. “To develop the resort, you”™ve really got to get that hotel and casino up,” he said.
At City Center, a property EPT was eager to be rid of after losing Circuit City and Filene”™s Basement as tenants, retailers are showing “a lot of interest” in leasing there, Thompson said.
“There have been some really positive signs in the retail and restaurant markets,” he said. “The restaurant companies and the retail companies in general seem to be showing some confidence again.”
As for Cappelli, against whom EPT had marshaled $1 million to cover its legal fees this year, “He was very pleased” with the settlement, Thompson said. “It”™s been a very difficult time. It”™s all a function of the deep, deep recession” and the financial stresses it brought on companies dealing in real estate.
