Westchester developer Louis R. Cappelli said he expects “a war” with an equity partner and lender in his development projects in Westchester and the Catskills following the partner”™s recent lawsuit seeking more than $163 million from Cappelli in payment on defaulted loans. The head of Cappelli Enterprises Inc. in Valhalla said he wants to end the partnership and hasten his new legal foe”™s exit from New York.
“It”™s just a tactic ”“ a meek shot across the bow,” Cappelli said of the lawsuit by Entertainment Properties Trust, a publicly traded real estate investment trust based in Kansas City, Mo., with more than $2.7 billion invested nationwide in megaplex theaters, entertainment retail centers, ski parks, vineyards and wineries and public charter schools. EPT since 2003 has been a major equity investor and a lender in Cappelli”™s downtown redevelopment projects, the retail and entertainment complexes New Roc City in New Rochelle and City Center in White Plains.
At the center of the business dispute is the developer”™s stalled Catskills resort and gaming project on the former Concord Hotel property in Sullivan County. In the lawsuit pending in Missouri Western Federal District Court, EPT claims a Cappelli-controlled company, Concord Resort L.L.C., defaulted on a $133.1 million loan when it failed to make interest payments starting in January 2009. That sum was an advance on a $225 million loan for the resort development. The loans were personally guaranteed by Cappelli.
Cappelli said he has invested $125 million in the Concord project, which came to a halt in late 2008 after demolition and site preparation work when the developer was unable to obtain construction financing. He said EPT holds a $165 million mortgage on the 1,500-acre resort property. EPT in June 2009 committed to a $75 million equity investment in the casino and racetrack facility planned on a nearby 60-acre site. Its loan on the resort property was to be converted to a Class A equity interest, with Cappelli holding a Class B equity interest.
The commitment agreement, though, expired Dec. 31. EPT has asked the court to be released from any equity payments for the Concord project because it claims Cappelli did not meet the conditions set for the company”™s investment.
At issue is a $283 million credit agreement the developer reached in July 2009 with three lenders ”“ CIBC Inc., Union Labor Life Insurance Co. (ULLICO) and Siemens Financial Services ”“ to provide construction financing for the Concord hotel, racetrack and casino. Cappelli said the construction financing has been scaled back to $275 million.
EPT contends the developer was required to identify funding sources for the project”™s total $585 million construction budget, and the credit agreement fell short of that by $302 million.
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The company in its recent year-end and fourth-quarter report listed $28 million in write-offs in 2009 for bad loans to Cappelli”™s Concord Resorts L.L.C.
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EPT also is seeking payment for $10 million loans to Cappelli at both New Roc City and City Center. The Concord commitment agreement extended those loans for two years.
The Kansas City company also claims the developer has not repaid a 2-year-old, $10 million loan for retail projects connected to his company”™s stalled LeCount Square development in New Rochelle and a planned repositioning of New Roc City that would bring in Kohl”™s and Target as anchor retail tenants there. Cappelli said those retailers have signed lease agreements.
“EPT didn”™t want to do the Kohl”™s and Target leases,” he said. He said EPT has balked at putting up its $10 million investment share in the repositioning, in which Cappelli Enterprises would invest about $3 million.
An attorney at Entertainment Properties Trust said the company will not comment on its dispute with Cappelli.
Cappelli said the lawsuit is a tactic by EPT to get out of the Concord project. Cappelli”™s attorney, Alfred E. Donnellan of the White Plains law firm of DelBello Donnellan Weingarten Wise & Wiederkehr L.L.P., noted the company could have foreclosed on the resort property rather than seeking a judgment on promissory notes signed by Cappelli. A foreclosure petition would have to be filed in New York, and Cappelli suggested his feuding partner feared a legal battle here. His attorneys seek to have the EPT suit moved to U.S. Southern District Court in White Plains.
The developer said he expected EPT to file for bankruptcy last year as its stock values plummeted in the recession. “In these times, they have not had the money or they have not had the desire to put the equity up” for the Concord development, he said.
Cappelli said EPT also wants to be rid of its City Center investment in White Plains. The company recently reported an impairment charge of $35.8 million in 2009 for its devalued White Plains property.
“They want out of there (City Center) and I want them out,” Cappelli said. “They don”™t want out of New Roc, but I want them out.”
The developer said he worries about his reputation here and wants to dissolve the partnership. “I live here and I”™m in bed with a REIT that has no soul,” he said. “They have no ties to the community. They”™re just numbers guys.”
The Concord project could get back on track if Cappelli closes on a pending partnership deal with Penn National Gaming Inc., a NASDAQ-traded casino and racetrack operator based in Wyomissing, Pa. Penn Gaming would replace Entertainment Properties Trust as an equity partner. Cappelli said the deal is only “a day or two” away.
“It might be settled, but right now it looks like it”™s going to be a war,” he said of his business dispute with EPT. “They”™ve damaged me for hundreds of millions of dollars.”
“Just because they fired the first shot at me in Missouri doesn”™t mean we don”™t have a cannon to fire back.”
