(Bloomberg) – Since its grand opening nearly two decades ago, the mega-mall built in New Jersey’s Meadowlands has made little but a hemorrhage. Now, less than two years after its much-delayed opening, the resort known as American Dream threatens to crush the lofty ambitions of another developer.
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The Ghermezian family, which runs some of North America’s largest and most successful malls, can’t meet the bills for the shopping and entertainment megaplex, which helped drive its original developer to the brink out of bankruptcy and was later seized by the team lenders that came next.
Revenue from stores has been so scarce amid the growing pandemic that Ghermezians have hired legal and financial advisers to help ease the burden of the crippling $3 billion debt, and perhaps retain some role in project management, according to people familiar with the matter. .
Family members aren’t the only ones losing a lot of money. Lenders such as JPMorgan Chase & Co., Goldman Sachs Group Inc., Soros Fund Management and Starwood Property Trust Inc. could suffer losses on $1.7 billion in construction loans. About $1.1 billion in municipal debt also supports the project.
“It was like watching a train wreck that lasts forever,” said Neil Shapiro, a New York real estate attorney and senior partner at Herrick Feinstein. “There aren’t many projects that lose at least $3 billion that we still talk about as projects,” said Shapiro, who is not involved in the mall.
Outside, the 3-million-square-foot shopping and entertainment complex on approximately 90 acres in New Jersey’s Meadowlands is almost fully open, charging weekend crowds up to $115 for passes. a day at DreamWorks Water Park and $80 for its Big Snow Indoor Ski. slope. Luxury stores like Hermès, Tiffany & Co. and Dolce & Gabbana arrive in September.
But all of that may be too little, too late for the Ghermezians and their company, Triple Five Group. They have hired financial adviser Houlihan Lokey Inc. and law firm Weil Gotshal & Manges to represent them in the restructuring talks, said the people, who asked not to be identified while discussing the private negotiations. This month, American Dream dipped into its reserves to make a $9.3 million municipal bond payment.
With the pandemic still making buyers wary, sales of American Dream were just $139 million in the first two quarters of the year, according to public disclosures. At this rate, the mall is poised to fall far short of the nearly $2 billion a 2017 study predicted it would bring in in its first year of operation.
This jeopardizes the family’s hold on its $548 million stake. And they’ve already lost 49% stakes in two other power malls — Mall of America outside Minneapolis and West Edmonton Mall in Canada — that they pledged as collateral to American Dream’s lenders. Those assets, valued at $680 million in bond papers, were seized in March when the loans defaulted.
Representatives for American Dream and Triple Five declined to comment.
Given their experience with giant retail and entertainment complexes, one possible outcome would be for the Ghermezians to relinquish ownership of American Dream while continuing to operate it, some people with knowledge of the situation said. After all, few others are qualified to run the giant company, said Anjee Solanki, retail sales manager for Colliers, the real estate services company.
“It’s a beast of a project,” Solanki said.
One likely scenario is lenders giving another 18 to 24 months for sales to ramp up, if Triple Five injects hundreds of millions of dollars of its own money or secures it from a new financial partner, according to Shapiro.
The saga began in 1993 when Mills Corp. was looking to build a massive retail, office and hotel complex on 200 acres of wetlands a few miles from Manhattan. Environmental opposition killed that effort. But Mills’ plans were revived a decade later when New Jersey greenlighted a proposed redevelopment of another land nearby – the sprawling parking lot surrounding what was then known as Continental Airlines Arena. .
Mills, who called the project Xanadu, started in 2004; two years later, it was on the verge of bankruptcy. Colony Capital Inc., run by Trump ally Tom Barrack, took control in 2007 and fared little better: lenders foreclosed on the property in 2010.
By the time Triple Five took over a year later, the unfinished project had already consumed $2 billion, according to bond documents. The Ghermezians, who immigrated to Canada from Iran in 1960, came with their vision of a tourist center that would attract 40 million visitors a year. It doesn’t matter that malls regularly lose shoppers to online rivals, or that they have to compete with Manhattan for tourists. Their plan included a year-round ski slope and an indoor water park with slides, wave pools, and tube rides. They added a trampoline park, go-karts and virtual reality entertainment.
“All attractions are positioned to drive retail traffic, which we are experts on,” American Dream President Don Ghermezian said in a July phone interview.
Financially, however, the Ghermezians need a different kind of expertise as they grapple with layers of mall debt and powerful lenders.
The construction loans included $1.2 billion in senior debt and $475 million in mezzanine debt with lenders led by JPMorgan, according to a 2017 release from American Dream. Barry Sternlicht’s Starwood advanced $175 million in 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 that developers make to bondholders instead of paying property taxes. Another $290 million in municipal bonds is backed by a pledge of 75% of sales tax revenue from mall purchases. Both were sold by JPMorgan and Goldman.
PILOT bonds are superior to construction loans, and holders could foreclose on property if PILOT payments are not made, according to John Miller, head of municipal investments at Nuveen, the largest holder of American Dream muni bonds. That makes it likely that senior and mezzanine construction lenders will step in and make the payment to prevent their holdings from being wiped out, said Miller, whose company owns $685 million of the debt.
Discussions between Triple Five and its creditors could result in forbearance or an extension of terms to give the developer breathing room, said Miller, who is not involved in the talks. “It’s in everyone’s interest to keep these drivers up to date” and find a way to fix the problem by correcting mall operations, Miller said.
Whether this works is unclear. Andy Graiser, co-chairman of consulting firm A&G Real Estate Partners, doubts American Dream can compete as a tourism mecca with Manhattan just eight miles away. “Usually you don’t come to New York and have American Dream among your top three or four things you want to do before you go,” Graiser said.
Lenders and financial advisers declined to comment or did not respond to messages. Starwood CEO Sternlicht is confident his company will come out whole. “We were the leading mortgage lender alongside some of the largest monetary central banks in the country,” he said on an Aug. 5 earnings call. “I’m sure our investment is solid.”
Despite the setbacks and disruptions of Covid, the Ghermezians are finding tenants. About 100 retailers are open and more than 100 more are coming this year, according to Nuveen, which said in July that American Dream “seems to be picking up steam.”
State Senate Majority Leader Loretta Weinberg, who has long worried about public investment in the project, said Ghermezians “seem to have done everything they could against all sorts of hardships. “. This included scrapping and replacing the Xanadu exterior, which was widely derided as an eyesore. The New Jersey Democrat had said it looked like something a 4-year-old would have made out of Legos.
“It’s not as harsh on the eyes as the previous one,” Weinberg says now. “It’s a much better view from the turnpike.”
(Corrects story dated Aug. 19 to reflect that only PILOT bonds are superior to construction loans.)
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