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The Mills inks $500m deal to save Meadowlands Xanadu retail project.

The Mills Corporation recapitalized Meadowlands Xanadu yesterday (Tuesday) a development that had become the embattled company's greatest liability after the project's construction costs were revealed last month to have jumped from $1.2 billion to $2 billion.

The deal will bring a $500 million infusion of capital from Colony Capital Acquisitions, who will also arrange financing for the project's significant remaining construction costs.

New Jersey officials called the recapitalization a guarantee that the project would now get completed. Xanadu's cost overruns combined with The Mills' long-standing financial woes, seemed close in recent weeks to precipitating the project's financial collapse.

"This deal takes away all the uncertainty that the project had come under," said George Zoffinger, the president of the New Jersey Sports and Exposition Authority, which owns the land on which Meadowlands Xanadu is being built and was one of the key state agencies involved in selecting The Mills to develop the site.

The NJSEA as well as the state government had come under fire for having selected a developer who it seemed would not be able to transform the site adjacent to the Continental Airlines Arena and Giants Stadium into the sports, shopping, and entertainment development that had been hailed as a major economic driver for the area.

"There was concern that the project wouldn't get completed," Zoffinger said. "Now that's alleviated."

The deal removes The Mills from further financing obligations relating to the project's continued costs while granting Colony a senior equity interest that will entitle it to preferred returns. The Mills conversely will now assume a subordinate equity position to Colony and KanAm, a German open-end fund who, along with The Mills, was one of the project's original stakeholders.

According to a statement issued by The Mills on Tuesday, it is unlikely now that the company will be able to recoup its $485 million investment in Xanadu; a write off that analysts and industry experts had predicted The Mills would have to make in order to complete a sale of the company.

"If this deal gets done, then it's huge for The Mills because the number one thing hanging over the stock has been this project," said Larry Feldman, chairman and CEO of Feldman Mall Properties, a company that opportunistically acquires and repositions mall properties. "Xanadu has been the biggest barrier to a sale of the company because its has been considered a bottomless pit of liability that no buyer would want to take on."

After news of the recapitalization and the changes in liability structure were announced Tuesday morning, The Mills' stock rebounded sharply from the 52 week low of $12.27 per share it had been trading at last Thursday to $19.14 midday on Tuesday.

After a series of accounting errors that spurred an SEC investigation, overstated earnings, project write-offs, and layoffs, The Mills has announced in recent months that it will pursue a sale of the company. Last May, Goldman Sachs Mortgage Company provided The Mills with a commitment a $2.230 billion bridge loan that the company said it would use to recapitalize its previous $1 billion credit facility and repay term loans and fund certain property level debt.

In mid-April, The Mills refinanced an outlet mall it owns in Florida, Sawgrass Mills.

Last week, The Mills announced the sale of three of its shopping center assets for $981 million, Vaughn Mills in Ontario, Canada, St. Enoch Centre in Glasgow, Scotland, and Madrid Xanadu in Madrid, Spain. The Mills stated that it would receive $500 million in net proceeds from the disposition, a deal that was praised by analysts because it would help The Mills service its term loans and pay operating expenses.
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Author:Geiger, Daniel
Publication:Real Estate Weekly
Geographic Code:1USA
Date:Aug 23, 2006
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