An escalating legal battle and war of words between a leading Westchester developer and his Midwest partner in three multimillion-dollar projects was about to be settled as the disputing parties and their lawyers met in lengthy negotiating sessions in White Plains this week.
In downtown New Rochelle, developer Louis R. Cappelli”™s company has been forced out of day-to-day management at New Roc City, the entertainment retail center in which Cappelli”™s legal foe this year in both state and federal courts, Entertainment Properties Trust, is a general partner.
EPT, a publicly traded real estate investment trust headquartered in Kansas City, Mo., in May turned over management operations at New Roc City to CB Richard Ellis. A CBRE manager temporarily has occupied New Roc office space vacated at the start of 2009 by Steiner Sports Marketing and Memorabilia Inc.
EPT executives told investors in a conference call last month that Cappelli”™s management company at New Roc City had given an unauthorized $700,000 loan to itself. That action, said EPT Chief Operating Officer Greg Silvers, led EPT to seize all bank funds related to the project and bring in new management.
“They didn”™t seize any bank assets,” said Alfred E. Donnellan, Cappelli”™s attorney and managing partner at DelBello, Donnellan, Weingarten, Wise & Wiederkehr L.L.P. in White Plains. “That”™s an outright lie.”
In downtown White Plains, EPT wants to be rid of its ownership stake as a joint-venture partner with Cappelli in the retail and entertainment portion of City Center. Cappelli in turn this spring filed a lawsuit in state Supreme Court seeking EPT”™s removal as managing member of their City Center partnership. The developer”™s attorneys in court papers claimed the partnership, LC White Plains Retail L.L.C., “will be forced out of business by the unscrupulous acts of its managing member, which are not motivated by a proper business purpose, but rather by the individual motives and self-interested desires” of the Kansas City company.
Entertainment Properties Trust CEO David Brain told investors last month the City Center property, whose chief cash-flow source for EPT is the 15-theater Cinema Delux complex, is “dragging down” the company”™s credit statistics and reported funds from operations “and looks to continue doing so.” The closings of Circuit City and Filene”™s Basement have made the project “uneconomical” and have lowered its carrying value to that of the partners”™ outstanding debt there, he said.
EPT reported a $1.6 million loss at City Center in the first quarter this year.
Though it is still carrying the highly leveraged project on its books, “We are not supporting the project with any further cash investment or expense,” Brain said.
EPT officials in their first-quarter report said $112.5 million of the total $118.2 million debt on City Center is due to mature in October. Silvers and Brain told investors the company at that time might wipe the nonrecourse loan off its books by surrendering the property to the mortgage lender, Union Labor Life Insurance Co. (ULLICO).
Cappelli in court papers said EPT”™s publicly stated intentions have damaged the partners”™ ability to attract tenants to City Center. He is seeking a judgment of at least $115 million against EPT for the loan.
The Valhalla-based developer also wants his exit-seeking partner to reimburse his City Center management company for its costs and expenses there and to pay him a $1,135,000 fee he claims he is owed for negotiating an extension on the ULLICO loan that EPT failed to pursue. Cappelli also claims that EPT as managing member has failed to pay $2.5 million in property tax payments to municipalities, “further jeopardizing the viability of the shopping center and putting ULLICO loan in default.”
The fallen-out partners also have engaged in legal battles over their Concord resort and casino project in the Catskills in Sullivan County. Cappelli”™s attorneys in state court claimed EPT effectively killed the planned $600 million casino, racetrack and hotel development when it balked at lenders”™ terms in 2009 as a way to back out of its $133 million equity commitment in the project.
Cappelli”™s action in state Supreme Court in Westchester was a counteroffensive to a lawsuit filed last winter by EPT in U.S. District Court in Missouri. The federal lawsuit claims Cappelli owes EPT more than $163 million as payment on defaulted loans. The REIT described approximately $133 million advanced to Cappelli for the Concord project as a loan rather than an equity investment and asked the court to release EPT from any equity payments for the long-delayed Catskills development.
Silvers told EPT investors the company has budgeted about $1 million to cover legal fees this year in its fight with Cappelli. “The company intends to vigorously pursue its claims against Mr. Cappelli and his related entities and to vigorously defend the claims” brought by the developer, he said.
That hard-line stance apparently has eased. EPT officers were said to have arrived Monday in White Plains for settlement talks with the developer. Donnellan told the Business Journal on Wednesday that a “global settlement” was imminent that would end all lawsuits between the parties. There are four in all, he said.
Cappelli”™s attorney said he could not disclose agreement terms, which were still being hammered out.
