(Bloomberg) — Since its debut nearly two decades ago, the Megamall in Meadowlands, New Jersey, has done little except hemorrhage cash. Now, less than two years after its much-delayed opening, the complex known as the American Dream is threatening to dash another developer’s lofty ambitions.
The Germazian family, which runs some of the largest and most successful malls in North America, could not keep the bills on the shopping and entertainment megaplex that helped propel its original developer to the brink of bankruptcy and was later confiscated by lenders. . From the next team.
Revenue from stores has plummeted so much amid the growing pandemic that homemakers have hired legal and financial advisors to help ease their crushing $3 billion debt load, and perhaps those with knowledge of the matter Maintain some role in running the project, according to people. ,
Family members are not the only ones who stand to lose big money. Lenders including JPMorgan Chase & Co., Goldman Sachs Group Inc., Soros Fund Management and Starwood Property Trust Inc. could lose $1.7 billion in construction loans. A municipal loan of about $1.1 billion is also supporting the project.
“It’s like watching a train wreck that’s gone forever,” said Neil Shapiro, a New York real estate attorney and senior partner at Herrick Feinstein. “There aren’t a lot of projects that do at least $3 billion in damages that we’re still talking about as projects,” Shapiro said.
Externally, the 3-million-square-foot shopping and entertainment complex on nearly 90 acres in Meadowlands, New Jersey is almost fully open, catering to the weekend crowd for $115 for DreamWorks Water Park and $80 for Big Snow indoor skis. Charges as. slope. Luxury stores including Herms, Tiffany & Co., and Dolce & Gabbana are coming in September.
But all this may be too little, too late for the Ghermezians and their company, Triple Five Group. He has hired financial advisors Houlihan Loki Inc. and the law firm of Weil Gottshal & Mainz to represent him in the restructuring talks, said the people, who asked not to be identified, to discuss private talks. This month, American Dream dipped into reserves to make $9.3 million of municipal bond payments.
Public disclosures show that the pandemic is still making wary buyers, with American Dream sales at just $139 million in the first two quarters of the year. At that pace, the mall is poised to fall far short of the nearly $2 billion that a 2017 study estimated it would bring in during its first year of operation.
This is jeopardizing the family’s hold on their $548 million equity stake. And they’ve already seized a 49% stake in two other megamalls — the Mall of America outside Minneapolis and Canada’s West Edmonton Mall — that they have pledged as collateral to lenders of the American Dream. Those holdings, worth $680 million in bond documents, were seized back in March when the loans defaulted.
Representatives for American Dream and Triple Five declined to comment.
Some people with knowledge of the situation said that given their experience with giant retail and entertainment complexes, a likely outcome would be that the Ghermezians would surrender ownership of American Dream while continuing to operate it. After all, there are few others qualified to run the behemoth venture, said Anji Solanki, director of retail sales for real estate services company Colliers.
“It’s a beast of a project,” Solanki said.
One possible scenario is if Triple Five kicks in hundreds of millions of dollars of its own cash or acquires it from a new equity partner, lenders grant another 18 to 24 months to increase sales, according to Shapiro. accordingly.
The saga began in 1993 when Mills Corp. was seeking to build a sprawling shopping, office and hotel complex on 200 acres of wetland a few miles outside of Manhattan. Environmental protests killed that effort. But Mills’ plans were revived a decade later when New Jersey flagged a proposal to redevelop another piece of land—the vast parking lot known as the Continental Airlines Arena. .
Mills, called Project Xanadu, broke ground in 2004; Two years later, it was close to bankruptcy. Colony Capital Inc., led by Trump ally Tom Barracks, took control in 2007 and fared slightly better: Lenders seized assets in 2010.
By the time Triple Five took over a year later, the unfinished project had already consumed $2 billion, bond documents show. Germezian, who immigrated to Canada from Iran in 1960, came up with his vision of a tourist hub that would attract 40 million visitors a year. It didn’t matter that malls were constantly losing shoppers to online rivals, or that it would have to compete with Manhattan for tourists. Their plan included an indoor water park with year-round ski slopes and slides, wave pools, and tube rides. They added a trampoline park, go-karts and virtual reality entertainment.
“All attractions are positioned to move traffic through retail, which is what we specialize in,” American Dream president Don Germezian said in a July phone interview.
Financially, however, Ghermezians require a different kind of expertise as they grapple with the folds of malls and powerful lenders.
According to a 2017 American Dream statement, construction loans included $1.2 billion in senior debt and $475 million in mezzanine loans from lenders led by JPMorgan. Barry Sternlich’s Starwood advanced $175 million of 2017 senior construction financing. Other lenders include Goldman Sachs, CIM Group and iStar Inc, people familiar with the matter said.
At the top of the debt pile are municipal bonds that include about $800 million in so-called pilot notes – backed by payments developers make to bondholders in lieu of paying property taxes. A $290 million muni bond is backed by a pledge of 75% of sales tax receipts on the purchase of the mall. Both were sold by JP Morgan and Goldman.
According to John Miller, chief of municipal investments at Nuvain, the largest holder of American Dream muni bonds, pilot bonds are senior to construction loans, and holders can foreclose on the property if the pilot payment is not made. That makes it likely that senior and mezzanine construction lenders will step in and pay off their holdings to keep them from being wiped out, said Miller, whose firm owes $685 million in debt.
Discussions between Triple Five and its creditors could result in an extension or extension of the terms to give the developer breathing space, said Miller, who is not involved in the talks. “It’s in everyone’s interest to keep those pilots running,” Miller said, “and find a way to solve the problem by fixing the mall’s operations.”
Whether this will work or not is not clear. Andy Grazer, co-president of advisory firm A&G Real Estate Partners, suspects the American Dream can compete as a tourist mecca with Manhattan just eight miles away. “You’re not usually coming to New York and the American Dream is in your top three or four things you want to do before you leave,” Greser said.
Lenders and financial advisors either declined to comment or did not respond to messages. Starwood CEO Sternlich is confident that his company will emerge as a whole. “We were the first mortgage lender with some of the largest money-center banks in the country,” he said during Aug. 5 earnings call. “I’m sure our investment is good.”
Despite the setbacks and Covid disruptions, the Ghermezhis are finding tenants. There are about 100 retailers open this year and another 100 more to come, according to Nuveen, which said in July that the American Dream is “gaining momentum.”
State Senate Majority Leader Loretta Weinberg, who has long expressed concern about public investment in the project, said the Ghermezis “have done everything they can against all kinds of odds.” This involved scrapping and replacing the exterior of the Xanadu, which was widely ridiculed as an eyesore. The New Jersey Democrat said it looked like a 4-year-old made of Lego.
“It’s not nearly as attacking the eyes as before,” Weinberg says now. “It’s a much better view from the turnpike.”
– With assistance from Alice Young, Gillian Tan and Rachel Butt.
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