Apri 10, 2018 Board Book - Loans/Grants/Guarantees

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MEMORANDUM

TO:

Members of the Authority

FROM:

Timothy J. Lizura. President and Chief Operating Officer

DATE:

April 10. 2018

SUBJECT:

AC Beach Development Partners, LLC, et a!
$6288868 Direct Loan MODIFICATION
-

Request:
Consent to the release of the guarantees of Craig Wood and Cape Advisors in exchange for
payments of $1.6 million, additional corporate guarantee, mortgages on commercial and
residential properties and the shortening of the loan term to 7 years.
Background:
AC Beach Development Partners LLC (AC”) was formed by the principals of Cape Advisors
(Curtis Bashaw and Craig Wood) in 2007 develop the Chelsea Hotel in Atlantic City. Cape
Advisors and affiliate Congress Hall employs over 1400 in Cape May County.
In November 2008, EDA approved a $3 million direct (Urban Plus) loan and a $4.2 million New
Markets ‘fax Credit loan to supplement $78.5 million in senior debt and $12.5 million in equity
to complete the project. The loans were personally guaranteed by the principals and by Cape
Advisors.
The economic recession and gaming competition from other states negatively impacted the
Chelsea Hotel which 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 attempted to improve hotel operations. While continuing to operate during
the summers, the hotel ceased operations in 2016 and was acquired through a deed in lieu of
foreclosure by lcahn Enterprises and is being renovated as part of the Tropicana Casino and
Resort expansion in Atlantic City.
In June 2016, the Members approved the restructure of the loan balances of $6.7 million to be
amortized over 10 years. Because the hotel was struggling financially, repayment of the
restructured loan was reliant solely on the cash flow of the principals’ income from other real
estate projects. The principals were required to make an upfront payment of $550.000, monthly
payments of $25,700, and milestone payments, including $2.1 million due in November 2018.
Since closing in October 2016. the guarantors have made $385,500 in monthly payments as
agreed.

 Apri 10, 2018 Board Book - Loans/Grants/Guarantees

Mr. Bashaw recently advised EDA that he and Mr. Wood are ending their business relationship
through a buyout of jointly held interests, Post buyout, Mr. Bashaw will retain full ownership of
Ni properties including Congress Hail, while Mr. Wood will retain full ownership of New York
properties and Cape Advisers. Consideration to Mr. Wood will include a combination of liability
assumption by Mr. Bashaw, exchange of ownership interests and cash paid at closing.

To facilitate the transaction, Mr. Bashaw has asked EDA. to release the guarantees of Craig
Wood and Cape Advisers under new terms with additional consideration as shown below:

0 $16 million in payments million at closing and 6 payments of $50,000 applied
to accrued interest), and repayment of the remaining principal loan balance over 7
years at 1.5%

The corporate guarantee of Cape Resorts Management Company that manages the Cape May
properties

0 A junior mortgage on 10 Jackson Street, Cape May, NJ
A ?rst mortgage on Beach Plum Farm lil at 515 N. Delsea Drive, Cape May Court House,
NJ

0* Assignment of Mr. Bashaw? l00% ownership interest in a newly formed entity that will
own fully Chamberlain Hospitality, Inc. (the Virginia Hotel), 10 Jackson, LLC (the Pink
Cottage) and JF Equities, LLC (the Red Cottage). Additional debt against these properties
will require EDA consent.

Mr. Bashaw will continue to be personally obligated to repay the loan. Payments will be paid
through a combination of distributions from. Mr. Bashawis owned properties plus property
distributions and management fees that were formerly paid to with Mr. Wood. Based on
historical ?nancial information and projections, there is adequate debt service coverage for all
related loan payments.

Recommendation:

Consent to a release of guarantors Craig Wood and Cape Advisors in exchange for payments of
$1.6 million, additional corporate guarantee, mortgages on commercial and residential properties
and the shortening of the loan term to 7 years.

Borrower will be provided up to 6 months from approval to close, with an update required at 3
months. The Members are also asked to delegate authority to staff (Level 3: SVP or Managing
Director) to extend the closing deadline (up to 6 months) upon receipt of satisfactory
information.

 

an: 

 

 

Prepared by: Jerome T. Stesney