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Two Years Behind Schedule, $2 Billion Xanadu Retail Project Near Collapse in New Jersey
Xanadu rendering, East Rutherford, NJ
Big-name financiers and developers have dropped the ball. The state of New Jersey is considering foreclosing on the property.
The venture is reported to be near completion but needs another $1 billion to fund the final work, according to The Wall Street Journal.
A group of investors including Colony Capital LLC, Dune Capital Management LP and KanAm has relinquished control of the project to a group of about a half-dozen lenders led by Capmark Financial Group Inc., Credit Suisse Group and Fortress Investment Group LLC.
Those lenders now must deal with the state of New Jersey, which has a major role in the project and has made it clear that it might try to take control if it isn't completed soon, the WSJ reports.
"For reasons that are not clear to us, when it came time for our existing lenders to support the continuation of Xanadu, they refused to engage with us, ignored our proposed business plan and were unsupportive of a restructuring plan that would keep the project going," according to a statement released by the Colony group.
The group said it is "disappointed that despite its best efforts" it couldn't reach a deal with the Colony group.
The Xanadu project in East Rutherford originally was the brainchild in 2004 of Mills Corp. and was acquired by the Colony-led group in 2006 for $500 million. Mills was later taken over by Simon Property Group Inc. and Farallon Capital Management.
Xanadu was envisioned as one of the top shopping destinations in the country located near sports stadiums and offering such attractions as an 800-foot indoor ski slope and the largest Ferris wheel in North America.
But some industry observers said the development was ill-conceived from the beginning, according to the WSJ.
Since taking office in January, Gov. Chris Christie has made it clear he plans to get tough with the complex that was supposed to open in November 2008.
Chris Christie, NJ governor
Those funds were an advance payment for the first 15 years. Thereafter, the authority was slated to be paid a minimum of $95 million in staggered payments through 2026.
A state commission recently recommended that if the project doesn't move ahead under certain guidelines the state should "move quickly and aggressively to pursue all rights and remedies available to the State, including possible foreclosure and damages," the WSJ reported.
The state also is weighing its role in helping to salvage the project, including providing some tax-exempt financing.
"It really doesn't matter to us who the title holder of the property is. What's most important is that it's an entity ultimately that can handle the project and complete it," Michael Drewniak, a spokesman for Gov. Christie, told the WSJ.
In its statement, the Colony group noted that a Lehman Brothers Holdings Inc. affiliate that was part of the lender group defaulted in March 2009.
"Of the remaining lending syndicate, a substantial majority were in severe financial distress and unable to meet their commitments," the statement said.
"In an effort to save the project, we agreed to allow the lenders to terminate their initial loan obligations in exchange for pursuing good faith efforts to restructure the project's financing."
According to various published histories, Xanadu, also known as Zanadu or Shengdu, is a mythical place that is rooted in an actual area of Inner Mongolia.
Xanadu became popular as the legendary place mentioned in Samuel Taylor Coleridge's poem as the place where Kublai Khan built a giant dome to indulge his every fantasy.
The place was believed to be mythical until the ruins were discovered 270 km (168 miles) north of Beijing and near Dolonnuur city, at the end of the 20th Century.
Xanadu is now believed to have been the capital of Kublai Khan's Empire, which was founded sometime in the 13th century.
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