Coliseum deal collapses: how talks broke down.

Discussions with various parties privy to the Coliseum sale contract negotiations between the Metropolitan Transportation Agency and developer Boston Properties paint entirely different pictures of the series of events leading up to the disintegration of the deal to develop a portion of the Coliseum site with a new office tower.

On the one hand, you have the developer, chaired by Mortimer Zuckerman, who together with partner Edward H. Linde have worked on this project since 1985. They have gone through three mayoral administrations, nine years of lawsuits and four renegotiations to have it all collapse in seconds on the eve of another contract signing.

Right now, they are out $17 million, not to mention years of related costs. And they blame it on a stonewalling MTA who put obstacles and unyielding conditions in their path.

On the other side of the table has sat the public companies, the Metropolitan Transportation Authority and its parent agency, Triborough Bridge and Tunnel Authority, that hold the keys to the property. They have sat through the same headache and ulcer-causing challenges and restructurings. And they believe Boston Properties never really wanted to do this deal and needed to get out of it gracefully with a minimal loss of dollars.

In the middle lie the officials of the City of New York, including Deputy Mayor John Dyson, who has stated publicly that the MTA insisted on inappropriate conditions and privately that their hired counsel was "fire-building" from the very beginning.

And of course, there are the people of the City of New York, who have filed a multitude of lawsuits against the project to force its downsizing several times, while elected officials such as Council Member Ronnie Eldridge continue to beg for an interim usage and for another proposal different than Zuckerman's.

Meanwhile, the site seems jinxed without some kind of divine intervention and exorcism.

"It was a very acrimonious deal," said one attorney familiar with the negotiations. "They hated each other. They had just come out of a lawsuit."

In late May, the MTA/TBTA boards approved, at the urging of general counsel Robert Bergen, the exchange of a $33.863 million letter of credit put up by Boston Properties, for a $17 million cash payment that would settle a lawsuit brought by the developer. They also gave approval for the subdivision of the Coliseum parcel and buildings, and agreed to the letter of intent that was to result in the full-blown contract, to be signed on July 15th.

But six weeks later, about 8 p.m. on that Friday night, with most of the major deal points still unresolved, MTA officials walked out of the room. They claim Boston Properties dragged its feet and didn't begin to negotiate in earnest until that last week. They say meetings were put off, documents went unreturned and issues they thought were well settled in the letter of intent were brought up instead to be rehashed.

Boston Properties's counsel, Alan J. Pomerantz of Weil Gotshal & Manges, says they acted in good faith, worked diligently on the documents and completed many when working with counsel other than the MTA's hired guns Bachner Talley Polevoy & Misher, who were being led by partner Martin D. Polevoy and whose bills were being paid for, incidentally, by Boston Properties.

Pomerantz says all the Industrial Development Agency documents were completed timely while working with counsel from Hawkins Delafield & Wood. He also says MTA general counsel Robert Bergen walked out of the meeting, refusing to come up with a dollar amount for security even while four hours remained on the clock.

It is yet unclear if this matter is over and done with, and if the Coliseum is up for grabs again for an interim or permanent development, or if Boston Properties will file suit to recover its $17 million and enjoin other projects.

What is increasingly clear, however, through letters provided by the parties, is that by the end of June, attorney Bergen was warning Linde that the "relaxed pace" of the negotiations between the Boston Properties entity, Coliseum Associates, and the MTA, was of concern if they were to conclude on time.

A meeting on June 29th was productive, but the parties did not meet again until July 6th. During this time, however, documents were being sent back and forth for comments between the attorneys.

Bergen's assessment of the situation is echoed in another letter from MTA chairman Peter E. Stangl to Governor Mario Cuomo on July 1st, wherein he mentions he has informed Mayor Rudolf Giuliani of the "low-key approach" as well, and insists that "any failure to meet the July 15 milestone will not result from any lack of interest or effort on our part."

While a July 6th meeting that was also attended by Leonard M. Wasserman of the city's corporation counsel went well by all accounts, with progress being made on certain documents, things deteriorated soon after.

Pomerantz, who heads the Boston Properties' legal team that includes Brown & Wood attorney Paul D. Selver, said he began requesting further face-to-face meetings for his clients and the MTA to resolve open issues. "On July 7, I told him [Polevoy] we would be marking up documents and started sending them on the 8th and the 9th. I said I would like to have a meeting to pre-close and raise the business points. He said he couldn't schedule a meeting until he spoke with his clients. We worked all weekend and he never called back."

Pomerantz said he finally wrote a letter on July 12th -and sent it by fax - to Polevoy, asking Polevoy to reconsider his "refusal to meet with us to identify and resolve open issues."

[Bergen, who declined to comment on other issues, said Pomerantz never asked for a meeting. "If he said he did he can't document it," said Bergen. "It's a lie." Pomerantz said, "For Bergen to say that, it's very reckless. He should know better. I never had a conversation with Bergen without his counsel present. He should check with counsel before talking." Polevoy is touring in France and did not respond to a message left with his office before deadline.]

Rather than meeting, Pomerantz wrote in this July 12th letter, Polevoy instead stated he would redraft documents and send them back. "As an experienced transactional lawyer, I am sure that you realize that this procedure is most unusual," wrote Pomerantz, who later told REW, "Usually lawyers sit down and work on the comments, but Polevoy wanted to redraft the documents entirely."

The Pomerantz letter goes on, "By not yet responding in any form to the comments that we have made, it appears that unless you and your clients will accept every change that we have requested, the process your clients have chosen will merely frustrate a fair resolution. It appears that this may be their intention...-Your client's refusal to permit such a meeting is unusual and disturbing."

Boston Properties spokesperson Morri Berman, who was familiar with the correspondence, said "We said we want to sit down in a room and negotiate the documents. They said we don't want to sit in a room and talk but we'll send you documents and you mark them up. We're not going to meet face to face with you. That had a lot to do with what is going on."

Pomerantz's evening letter formally requesting the meeting prompted a furious response from Polevoy - the "Chutzpah" letter, that was sent by hand and fax the next morning, July 13th.

"Dear Alan:," worte Polevoy, "Your letter of last night is not only one of the most outrageous and disingenuous writings that I have ever received, but also equates to the classic definition of Chutzpah. I just don't understand how a professional of your stature could have sent it to me."

Polevoy then goes on to review the series of events with respect to various documents, listing when they were sent back and forth and amended by the parties.

"There is no question that [Polevoy's] letters were written as exhibits to lawsuits," said Pomerantz, who says he was astounded at the wrath brought on by his letter.

Polevoy's July 13th letter details the dates of documents sent by Bachner Tally, noting they were not returned nor final comments made for around two weeks before being returned by Weil Gotshal. Three documents that were sent to Weil Gotshal on June 21, 23 and 28 were returned with comments to Polevoy on July 11 and July 12.

One set of documents came in at 3:30 a.m. on July 9 and one around midnight of July 11th, he says.

"I recall sending you at least five letters requesting that you promptly respond to our documents so that we could meet..." wrote back Polevoy.

In fact, says Pomerantz, the two met to discuss some of the documents before July 4th and some documents that were sent over, were unnecessary. "We got documents that had no bearing on the deal," noted Pomerantz. "We went through the documents and had a meeting."

Despite the lawyerly posturing in the letters, Pomerantz said they all did finally meet to work on open issues beginning the same day, Wednesday, July 13th.

As an example of the little details that needed to be worked out, both sides described negotiations on Thursday, July 14th, and efforts by the MTA to obtain windows and air conditioning for the bottom floors for what the MTA told REW were office tenants.

Pomerantz says the space was exhibition space, and the MTA wanted Coliseum Associates to build it out for tenants. "What he wanted us to do is to rebuild the space and this was not required by the letter of intent." The change would also cost at least a million dollars.

Pomerantz said he told the MTA officials, "You think it's a minor thing. But let's say we only want to pay you a dollar less for the property. You wouldn't think that was a minor thing and yet what you are asking for is an increase in price."

With a transaction so detailed, agreements under discussion included a zoning plan to separate the lots; a garage agreement; a demolition agreement, certain financing documents, and a participation provision, along with the actual "Restated" contract agreement based on the original sales documents, and all based on the Letter of Intent that was signed on June 1st.

One attorney, who asked not to be quoted by name, said that when a deadline is set, normally everything is negotiated promptly and by the day of the closing, documents are merely being collated and stapled.

But on this day of closing, July 15, most of the serious issues were still unresolved. These included the form of security that would be provided by Coliseum Associates to ensure the safe demolition and separation of the two buildings, along with the new project's construction.

Another problem was the definition of a credit-worthy tenant. "One of the obligations that we had as Coliseum Associates was to have a credit-rated, financeable tenant at the end of December," explained Pomerantz. "But when they submitted their documents as to what qualified, they needed a rated corporation."

Weil Gotshal, as the expected tenant, is a private partnership, and Pomerantz says only publicly-traded entities would have qualified. "Arthur Anderson and Goldman Sachs wouldn't have qualified," he added.

MTA sources said this would have easily been resolved by an arbitrator and as a partnership, Weil Gotshal could have had individual partners sign certifications. Nevertheless, they say, this was not an issue that needed to be focused on at that time. Pomerantz said he agreed immediately to Assistant Corporation Counsel Wasserman's suggestion that the city be the final arbitrator, but this was not accepted by the MTA.

But on that final day, once the parties began discussing the forms of security that were needed during the work, they never even got to discuss the other open issues, which included major items on every one of the documents. "Not one of them was fully negotiated," the MTA person said.

Pomerantz said he assumed they would be able to make decisions on all the remaining open business issues. "All the legal ones were already resolved," he said.

In the afternoon, Deputy Mayor for Economic Development John Dyson came to sit in on the meetings that included attorneys for both sides, and Boston Properties' Linde and Robert Selsam, executive vice president, as well as Dennis.

According to a witness, discussions revolved around using the actual Coliseum land as an asset for security as well as letters of credit. This was not agreed to by Pomerantz.

"The term sheet we signed did not require collateral for these risks," he declared. "They wanted a net worth entity for $100 million and two letters of credit - one for $25 million and one for $49 million. It was inappropriate to materially change the deal, but we negotiated."

Four hours later, Dyson suggested Boston Properties provide $20 million in cash or an asset as security. Bergen then asked Linde, who was at the bargaining table, if he could do this. Linde then said he was not authorized to permit this and Pomerantz says he told them he would have to make a phone call to Zuckerman, but did not want to do so until he was sure the MTA would accept the $20 million or whatever number they suggested, so he would not have to call twice.

An MTA source says the Boston Properties' response was "No way. All the indications were that they weren't interested in making a deal."

"The last thing I said," Pomerantz told REW, "was, 'Make us an offer and we will go forward.' Bergen went out of the room with Polevoy and when they came back, they refused to make an offer and walked out."

"Dyson was very, very angry," said Pomerantz. "He was furious. He accused Polevoy of being unprofessional and writing letters right along including insulting letters to [Corporation Counsel Paul] Crotty. He said Bergen never wanted to do the deal, and they deprived the city of a development. Dyson called it 'fire-building,' by heating the deal up and documenting each step."

Pomerantz read later that Dyson said Stangl was prepared to extend the time on the clock for the weekend if the parties were close to a deal. Nevertheless, at 8 p.m., with four hours of negotiating time left before the clock would have to be stopped, the MTA was gone. Dyson's office did not respond before deadline.

While options including lawsuits are being discussed, Pomerantz said his clients had not yet made a decision as to how they will proceed.

An MTA source does not believe Boston Properties will proceed with a lawsuit, however, because the MTA does not think the company will be able to prove they tried to negotiate the agreement in good faith. This person, who asked not to be quoted by name, thinks Zuckerman is happy to have cut his loses from the original $33.3 million letter of credit down to the $17 million and will go quietly away, complaining nevertheless that he was run off by the MTA.

But Zuckerman's spokesperson does not buy into that scenario. Warned Berman, "We are not going to go gentle into that good night."