- Raw lesser Economc Devnomrm Aomomn? MEMORANDUM Executive Session TO: Members of the Authority FROM Timothy J. Lizura, President and Chief Operating Officer DATE: June 14, 2016 SUBJECT: AC Beach Development Partners, LLC, et a1 $2,580,000 Direct (Urban Plus) Loan and $4,200,000 NMTC Loan Reguest: The Members are asked to approve a 10 year?loan restructure of the subject loans. Background: AC Beach Development Partners LLC was formed by the principals of Cape Advisors (Curtis Bashaw and Craig Wood) in 2007 to purchase two adjacent hotels to redevelop them into the Chelsea Hotel in Atlantic City. in November 2008, the NJEDA approved a $3 million direct (Urban Plus) and a $4.2 million New Markets Tax Credit ?nancing to supplement $78.5 million in senior debt and $12.5 million in equity from Normandy Ventures, LLC and the principals, to complete the project. The loans are secured byjunior mortgages on the property and personally guaranteed by the principals and by Cape Advisors. The economic recession that started in 2008 and gaming competition from other states negatively impacted the Chelsea Hotel and the business defaulted on its senior debt in early 2009. Since that time, EDA and the senior lender provided a series of payment moratoria to provide cash ?ow relief and to support operations while the principals sought to improve hotel operations and lobby for passage of a bill allowing a boutique casino in the Chelsea. In October the subject loans were transferred to Special Loan Management due to payment default and the loans were written off in December 2014. The loans have since matured on (March and April 15? of this year, respectively) and are now fully due and payable. Because the borrower has not demonstrated the ability to pay the loans in full or re?nance, EDA and borrower have negotiated the following terms to consolidate the debt and restructure it over a fully amonizing 10 year payout. A $550,000 cash payment upfront. Principal and interest payments amortized over 10 years at 1.5% ($25,700 Milestone principal payments aggregating $4,450,000 payable as follows: October 30, 2018 $2,100,000 October 30, 2021 - $1,300,000 October 30, 2024 - $1,050,000 The loans will continue to be secured by junior mortgages on the project property and personal/corporate guarantees of Curtis Bashaw, Craig Wood and Cape Advisers. Due to the hotel?s cash flow impairmeut, it is anticipated that the principal milestone payments will paid through a combination of personal?guarantors? property distributions, management fees and profits from other active development projects. Failure to make any payment or any principal milestone payment will be considered an event of default, acceleration of loan and demand for payment in full. Recommendation: . Consent to a 10 year loan restructure under the proposed terms as stated above. Approval of this restructure will allow an Atlantic City hotel an opportunity to meet its obligations and repay the EDA loans in full. \lt3f//v? Prepared by: Jerome T. Stesney New JERSEY ?co~o~uc DEVELOPMENT AUTHORITY MEMORANDUM Executive Session TO: Members of the Authority FROM: Timothy J. Lizura, President and Chief Operating Of?cer DATE: June 13,2017 SUBJECT: AC Beach Development Partners, LLC, et al $6,529,206 Direct Loan MODIFICATION Reguest: Consent to the release of junior mortgages on the project property in exchange for a 100,000 principal payment and agreement from senior lien holder to forgo applying for Authority assistance for the Chelsea Hotel for 2 years. Background: AC Beach Development Partners LLC was formed by the principals of Cape Advisers (Curtis Bashavv and Craig Wood) in 2007 to purchase two adjacent hotels to redevelop them into the Chelsea Hotel in Atlantic City which is now closed. In November 2008, the EDA approved a $3 million direct (Urban Plus) and a $4.2 million New Markets Tax Credit ?nancing to supplement $78.5 million in senior debt and $12.5 million in equity from Normandy Ventures, LLC, a related real estate investment company, and the principals, to complete the prej ect. The loans are secured by junior mortgages on the property with no liquidation value due to the senior lien amount of $92 million, and is personally guaranteed by the principals and by Cape Advisers. The economic recession and gaming competition from other states negatively impacted the Chelsea Hotel and the business defaulted on its senior debt in early 2009. EDA and the senior lender provided a series of payment moratoria to provide cash flow relief and to support operations while the principals sought to improve hotel operations. In December 2014, the Urban Plus and NMTC loans were written off books for accounting purposes. in June 2016, the Members approved the restructure and consolidation of the loans to be repaid in full over 10 years from the cash flow of guarantors, Curtis Bashaw, Craig Wood and Cape Advisers. Since closing on the lean restructure in October 2016, the guarantors have paid $179,900 as agreed and the lean remains current. Recently Icahn Enterprises, which owns the nearby Tropicana Casino and Resort, purchased the senior debt of $92 million from (existing lender) which is secured by a first mortgage on the hotel. Icahn Enterprises contacted EDA to advise its subsidiary, Morris, LLC completed the acquisition and were planning to initiate foreclosure to gain. control of the Chelsea Hotel property. lcahn Enterprises intends to reopen and make additional capital investment in the Chelsea Hotel property, including a possible connector bridge between the Tropicana?s gaming ?oor, and Chelsea?s 5th ?oor outdoor lounge and pool. To avoid foreclosure proceedings that could be and costly, and the principals of AC Beach have been in discussions to negotiate a deed in lieu of foreclosure to gain control of the property. To facilitate the transfer, IEP Morris has offered EDA $100,000 for a release of its two junior mortgages against the property, and has agreed to forgo applying for Authority assistance for the Chelsea Hotel property for 2 years. mortgages offer no value in a liquidation or in a foreclosure. At the most recent appraisal dated June 2010, the Hotel was valued at $22 million, but due to the senior lien of $92 million the mortgages do not represent a source of repayment for EDA. in addition, as the loan restructure was predicated on the strength of the personal/corporate guarantors and not the hotel operations or real estate collateral, release of the mortgages will have no impact on continued repayment of the restructured loans. The personal and corporate guarantors will remain obligated to repay the remaining EDA debt under the terms of the current loan restructure, and in the event of a payment default, EDA can accelerate the loan and pursue its remedies against the guarantors. Absent accepting this offer, IEP Morris will likely initiate foreclosure proceedings to extinguish the EDA mortgages providing no recovery for EDA and delaying the acquisition and investment for 18?24 months. Further, as the principals are contractually obligated to maintain the property under the senior loan agreement, declining this request could jeopardize the ability of the guarantors to continue to make payments under the EDA loan restructure. Recommendation: Release junior mortgages in exchange for $100,000 payment and agreement by 1131? Morris to forgo applying for Authority assistance for the Chelsea Hotel for 2 years. The Member?s approval of this request will expedite private investment and reopening of the Chelsea Hotel, create jobs and promote the revitalization of Atlantic City. Prepared by: Jerome T. Stesney