A New York appeals court has ruled in favor of the former developer of the Meadowlands Xanadu shopping and entertainment project in East Rutherford, N.J., overturning a lower court ruling and giving the former developer the right to recover $600 million in damages against a Lehman Brothers affiliate which cut off the promised construction financing for the project, an attorney for the developer said today.
ERC 16W Limited Partnership, a partnership led by Colony Capital, a private equity firm based in Los Angeles, and including Dune Capital and international real estate financing giant Kan Am, took over the project in 2006 after the Mills Corporation, the developer tapped by the New Jersey Sports and Exposition Authority in 2003 to develop the 104-acre complex, fell into financial trouble. It was forced to abandon the project however, when one of the lenders, an entity formerly associated with Lehman, refused to fund its share of a $1 billion development loan. Other lenders followed suit and the project was ultimately foreclosed upon.
While a lower court held last year that Lehman simply had to find a substitute lender for the project, the appellate court in today’s decision disagreed and reversed that decision, said Sheron Korpus, a partner at Kasowitz who represented the former developer, holding that both the lender and its guarantor are liable under the unambiguous loan agreement for the project.
ERC now intends to seek damages arising from its lost investment on the project that may total $600 million, Korpus said. That’s the entire amount invested by the partnership in the project.
“We are gratified with the Appellate Division’s decision finding the arguments raised by the lenders ‘untenable,’ and we look forward to pursuing the case in New York Supreme Court and recovering the significant damages suffered by our client,” he said.
Jacob Pultman, partner at Allen & Overy, an attorney for the lender, was not immediately available for comment.
All is not lost for the Meadowlands project however. Triple Five Group, the owner of the Mall of America in Minnesota and the West Edmonton Mall in Canada, took over the project last May, and is progressing with the shopping and entertainment development.
In addition to retail, the 3 million-square-foot development, to be called American Dream | Meadowlands, will feature water and theme parks, an indoor ski slope and a skydiving simulator. It is slated to open in two phases starting in the fall of 2013, according to recent reports.