Mills Corp. pressing ahead with Xanadu despite cash woes.

The Mills Corporation may be on the ropes, but it is continuing the development of Meadowlands Xanadu, the $1.3 billion sports themed mall and entertainment center in East Rutherford, New Jersey, as if it is a project it plans to see through--despite the fact that Xanadu's completion is scheduled for 2008 and the company has hinted that it may sell itself within the next few months.

"I'm very encouraged by what I saw," said Mitchell Hersh, president and CEO of office REIT Mack-Cali, which has the right to develop office and hotel space on the Xanadu site and who met with Mills last week. too discuss the future of the project. "They brought in schedules and photographs from an aerial view. It's really taking shape."

Hersh wouldn't comment on whether Mills' seemingly strong commitment to the project was any indicator that the company may try to rebound from its recent financial woes rather than engage in a sale. Mills announced in recent weeks that it is recapitalizing its debt with a $2.230 billion loan from Goldman Sachs Mortgage Company at a rate of 225 basis points above LIBOR. Analysts have said that the bridge loan will give the company more time to pursue a sale, breathing room that could strengthen its position by removing the perception of desperation and allow it to garner a higher sales price. It could also allow the company a chance to try and resuscitate itself. In mid-April, Mills refinanced an outlet mall it owns in Florida, Sawgrass Mills, which produced a higher than expected valuation of the asset and prompted Bank of America Securities to revise its estimate of the company's NAV and raise its price target for Mills stock to $32 per share. Similar successful refinancings could go a long way towards alleviating Mills' financial troubles, but many analysts have expressed doubt that most of Mills assets would yield as much value as Sawgrass Mills.

Mills has been plagued in recent months by accounting restatements, delayed earnings reports, loan defaults, the scrapping of a number of development projects in its pipeline, and an ongoing SEC investigation. Mills' troubles prompted a highly publicized run on two German open-end funds in January operated by real estate company, KanAm, a firm with which Mills co-owns a number of properties and development projects, including Xanadu.

Hersh indicated that Mack-Cali would likely first develop a hotel on the Xanadu site but that the remaining uncertainty surrounding Mills' ability to finish the Xanadu project would need to be addressed before Mack-Cali could began any work on the site. Hersh mentioned he would also like to first see the finalized design for the neighboring football stadium to be co-developed by NFL teams, the Giants and Jets.