Xanadu project taken over by lenders

Colony, Dune and Kan Am claimed lenders 'refused' to renegotiate the New Jersey project’s construction loans. The group of five lenders is currently talking to new operators to take over and finish the retail and entertainment complex.

Colony Capital and Dune Real Estate Partners have criticised the lenders behind the failed Meadowlands Xanadu project, saying the group of five “refused” to renegotiate constructions loans.

Colony and Dune, together with Kan Am, were forced to hand over the $2 billion retail and entertainment project to lenders today after construction stalled and creditors refused to extend a forbearance agreement.


Earlier this year, the lender group, believed to include Credit Suisse, Lehman Brothers, Capmark Financial and Fortress Investment Group, entered into restructuring talks with Colony, Dune and Kan Am. The owners were expected to inject fresh equity into the project, as well as bring on board a new financial partner – developer The Related Companies – to help finish the project.

As a result, the groups entered into a forbearance agreement where control of the project would transfer to the lender group “if marked progress on the development was not made”.

However, according to a joint statement from Colony and Dune, after allowing lenders to “terminate their initial loan obligations in exchange for pursuing good faith efforts to restructure the project's financing”, a solution could not be found.

Rather Colony and Dune claimed the lenders “for reasons that are not clear to us … refused to engage with us, ignored our proposed business plan, and were unsupportive of a restructuring that would keep the project going.

For reasons that are not clear to us … refused to engage with us, ignored our proposed business plan, and were unsupportive of a restructuring that would keep the project going.

Colony, Dune and Kan Am statement

“Despite being in the worst economic downturn in decades, which has affected Meadowlands Xanadu and many other major real estate projects in the United States and throughout the world, we remained confident in the potential of Xanadu and expressed our willingness to invest significant new capital,” Colony and Dune said in the statement. “But the continued commitment of these lenders was critical to the completion of the project.”

Lenders are now talking with several operators to take over the project – which includes an indoor ski slope, more than 500,000-square-feet of retail space and the new Meadowlands Stadium, where the professional football New York Giants and Jets will play their games – and refinish the complex’s exterior, which the lenders said had been “widely criticised”.

Spokesman Michael Beckerman added in the statement the takeover would allow for a transfer of ownership “in order to complete this project as quickly as possible so that it is open and flourishing as an established visitor destination in advance of the 2014 Super Bowl”.

In June, Colony Capital chairman Thomas Barrack told Bloomberg Markets that he called the Xanadu project “Xana-don’t”, adding that the failure of lender Lehman Brothers “killed us”.
“We had a great team together and started leasing,” Barrack said. “Even the downturn was OK. What killed us is, Lehman went broke. We never envisioned our bank going bankrupt.”

This action creates a strong foundation to effect the seamless transfer of ownership in order to complete this project as quickly as possible.

Lender group statement

In 2006, Colony Capital led a $1.5 billion recapitalisation of the project when the original partner, the Mills Corporation, sold its stake following a series of financial difficulties. The Meadowlands Xanadu project has faced a raft of problems in the past four years, with former New Jersey Governor Jon Corzine’s team in January saying the project “appears to be a failed business model” and an “abandoned project”, calling on the state – and the new governor, Chris Christie – to “engage the owners to open or surrender the property”.

Christie’s office said it was working with all sides to move the Xanadu project forward.

In April, Dune co-founder Daniel Neidich told PERE Xanadu’s strategy – that entertainment can drive retail and retail sales – was correct.  “We got that right, and we had a lot of momentum before the world stopped. The bet we were making, we made the right bet. But that doesn’t change the fact that you have a problem.”