Entertainment Properties Trust, the majority owner of New Roc City, has commenced litigation in federal court against Concord Resorts, LLC, a company controlled by Louis Cappelli. Over $163.1 million in loans owed to Entertainment Properties Trust by Concord Resorts are currently in default, all of them personally guaranteed by Capelli, according documents filed with the U.S. Court in Kansas City, MO.
The litigation all but ends any hope of bringing a Kohhl’s department store — and with it a Target department store — to the New Rochelle retail and entertainment complex. At a City Council meeting on November 10, 2009, a Capelli Enterprises spokesperson told the New Rochelle City Council that Kohl’s Department store would sign an agreement to take space at New Roc City in “a week to ten days away” or no later than November 20th. It has now been 102 days since Joseph Apicella told the City Council that a deal with Kohl’s department store would be signed; a second deal with Target department stores was said to be contingent on a deal’s with Kohl’s.
According to a press release issued last week:
In connection with the Company’s loans to Concord Resorts, LLC (“Concord Resorts”) related to a planned casino and resort development in Sullivan County, New York controlled by Louis Cappelli, and several other loans to Mr. Cappelli and his affiliates, each of which are currently in default, the Company has initiated litigation seeking payment of amounts due and a declaratory judgment that the Company has no obligation to make an additional advance to Concord Resorts under any prior loan commitment. The Company’s loans to Concord Resorts, Mr. Cappelli and his affiliates subject to this litigation total approximately $163.1 million.
According to the Entertainment Properties Trust web site, the company is a real estate investment trust (REIT) that develops, owns, leases and finances properties for consumer-preferred, high-quality businesses with total assets in excess of $2 billion including megaplex movie theatres and entertainment retail centers, as well as other destination recreational and specialty investments.
In it’s 2009 Annual Report filed last year, Entertainment Properties Trust cited Concord Resorts as a “Risk Factor” which must be reported to investors under SEC guidelines. In the report, the company described the many risks associated with Concord Resorts and highlighted the impact on its other loans to Capelli-controlled companies including New Roc City:
Concord Resorts is controlled by Louis Cappelli, a real estate developer with whom we have several investments, including the entertainment retail centers in New Rochelle, New York and White Plains, New York and loans to Mr. Cappelli. There can be no assurance that the cancellation or indefinite delay of the Concord Resorts development would not have a material adverse effect on our other investments with Mr. Cappelli.
The Annual Report’s “Notes to Consolidated Financial Statements December 31, 2008, 2007 and 2006” provides a history of Entertainment Properties Trust business relationship with Capelli as it related to New Roc City:
The Company acquired a 71.4% ownership interest in New Roc Associates, LP (New Roc) on October 27, 2003 in exchange for cash of $25 million. New Roc owns an entertainment retail center encompassing 446 thousand square feet located in New Rochelle, New York. The results of New Roc’s operations have been included in the consolidated financial statements since the date of acquisition.
As detailed in the limited partnership agreement, income or loss is allocated as follows: first, to the Company to allow its capital account to equal its cumulative preferred return of 10.142% of its original limited partnership investment, or $2.5 million per year; second, to the Company’s partner in New Roc, LRC Industries L.T.D. (LRC), to allow its capital account to equal its cumulative preferred return of 8% of its original limited partnership investment, or $800 thousand per year; third, as necessary to cause the capital account balance of the Company to equal the sum of its cumulative preference amount plus its invested capital; fourth, as necessary to cause the capital account balance of LRC to equal the sum of its cumulative preference amount plus its invested capital; fifth, after giving effect to the above, among the partners as necessary to cause the portion of each partner’s capital account balance exceeding such partner’s total preference amount to be in proportion to the partners’ then respective ownership interests; and sixth, any balance among the partners in proportion to their then respective ownership interests. The Company’s consolidated statements of income include net income related to New Roc of $1.8, $1.5 and $1.9 (in millions) for the years ended December 31, 2008, 2007 and 2006, respectively. As described in Note 8, the Company also had a $10 million note receivable from LRC at December 31, 2008 and 2007 and a $5 million note receivable from LRC at December 31, 2006.
As detailed in the limited partnership agreement, cash flow is distributed as follows: first, to the Company to allow for a preferred return of 10.142% of its original limited partnership investment, or $2.5 million per year, less a prorata share of capital expenditures; second, to LRC to allow for a preferred return of 8% of its original limited partnership investment, or $800 thousand per year, less a prorata share of capital expenditures; third, in proportion to the partners’ ownership interests for any undistributed capital expenditures; and fourth, until all current year distributions and the amount of debt service payments equals $8.9 million (the Trigger Level), cash flow shall be distributed 85% to the Company and 15% to LRC. After the Trigger Level has been reached for the applicable fiscal year, cash flow shall be distributed 60% to the Company and 40% to LRC. The Company received distributions from New Roc of $2.4 million, $2.5 million and $2.3 million during 2008, 2007 and 2006, respectively.
At any time after March 8, 2007, LRC has the right to exchange its interest in New Roc for common shares of the Company or the cash value of those shares, at the Company’s option, as long as the net operating income (NOI) of New Roc during the preceding 12 months exceeds $8.9 million, and certain other conditions are met. The number of common shares of the Company issuable to LRC would equal 75% of LRC’s capital in New Roc (up to 100% if New Roc’s NOI is between $8.9 million and $10.0 million), divided by the greater of the Company’s book value per share or the average closing price of the Company’s common shares. New Roc’s NOI was approximately $8.0 million for the year ended December 31, 2008 and LRC’s capital in New Roc was approximately $3.6 million.
Cappelli Is Broke!
Anyone with common sense could have figured out a long time ago that Louis Cappelli was so over-extended on all his development projects that eventually he would go broke. You cant keep robbing Peter to pay Paul, which is what Cappelli has been doing for a long time. He would use monies from previous projects to fund new ones, almost like Ponzi schemes. When the financial markets took a sharp downturn and his revenue sources were drying up he started using his own name for collateral on large loans, which is a financial no-no. Yet banks and cities desparate for any development fell at his feet when he approached them. Now his Empire is collapsing like a deck of cards and they have no one to blame but themselves. You cant keep blaming the economy for all the mistakes that were made. Cappelli is being sued on all fronts and is just about ready to file bankruptcy. The Emperor Has No Clothes!
The ENTIRE Council MUST GO!!!
With the exception of St.Paul, not one of the council members or the mayor are qualified to run the city. The corruption, mismanagement and cover-ups must end. Put an end to the hand picked democrats and the republicans that vote with them. The old trick of not running a democrat against a republican as long as they vote with them must end also. It may be too late to save the city but we should try. I’ve watched this city deteriorate for 40 years. It’s a damn shame.
Stick a fork in Capelli because he’s done!
It’s time for staff and council to take their heads out of the sand and see Cappelli & Appicella for what they are; Snake Oil Salesmen. I agree the council needs a shake up but I must remind Mr. Jeferstahl that St. Paul was one of five votes on council to give Cappelli his 14th extension on the LeCount / Andersen project the other four being the four democrats.
Anthony Galletta