Chappaqua Crossing: Town Board Ticket Makes Financial Claims

Candidates of the Team New Castle ticket for the New Castle Town Board made a presentation on Thursday giving an array of claims about the financial history and situation of Chappaqua Crossing developer Summit/Greenfield.

The candidates - they are Rob Greenstein for supervisor and Adam Brodsky and Lisa Katz for council seats - are each opposed to a proposal for retail at the former Readers' Digest campus. The plan, which the town board is reviewing a rezoning request and master plan change for, calls for having 120,000 square feet of retail space and includes a grocery store of 36,000 to 66,000.

During the talk, which was held at Horace Greeley High School, the candidates sought to back up their arguments with a presentation said to have been arranged by several people in the real estate industry.

The presentation, which serves as a financial dossier for the slate, claimed that when Summit/Greenfield completed its purchase on the site from Readers Digest for $59 million in 2006, $28 million came from a fund from Greenfield Partners, which is half of the Summit/Greenfield joint venture. That fund, in turn, was backed by institutional investors, the slate claims with the remaining $31 million was a loan that came from Bank of America.

The loan was then bundled with a group of other loans into an investment vehicle called BALL 2007-BMB1, the presentation continued. Various online searches, including a ratings update list of the vehicle from Moody's, show that it is type of commercial mortgage-backed securities (CMBS) group.

In the process, the loan was split into pieces, the ticket claims: a $16 million "A" piece, which is the first repayment priority and lowest investor risk but is coupled with the lowest interest rate, a $2.9 million intermediate-level "B" piece, and a $12.1 million "C" piece, which carried the highest interest rate, had the highest risk for investors but was last in priority. 

In his presentation of the claims, Greenstein then noted the 2009 bankruptcy of Readers' Digest, which signed a long-term lease after selling its property but vacated in 2010. When it happened, the loan was given to a special servicer, which is tasked with handling loans in default or deemed to be at risk of defaulting. Modifications were then made to the loan in 2010 and 2011, the ticket claims, with the 2010 modification giving the developer more time.

Summit/Greenfield is then alleged by the ticket in July 2011 to have told its special servicer that its "best exit strategy was through redevelopment."

Through 2011, cash reserves were used to pay the loan, the ticket claims, and in November 2011 Summit/Greenfield is alleged to have made an offer to purchase its debt from the BALL vehicle at a discount of its original value. The special servicer, according to the claim, then sold the loan in January 2012 but at a loss of $13 million for the BALL vehicle. That loan was bought by an entity controlled by real estate company NorthStar Realty Finance Corp., the ticket claims, for just $17.2 million. The "C" piece investment was wiped out, while only $1.2 million was received for the "B" piece, the group claims, and with the "A" piece being fully paid.

As a result of the changes in the debt, the group suspects that the value of the property was $18.9 million, when combining the principal amounts of the A and B pieces and excluding the C piece. Greenstein suggested that the property is worth a number that is similar.

As a result of the NorthStar purchase, the ticket claims, the loan had a restructuring and was put into a collateralized debt obligation (CDO). 

As a result of the transaction, the ticket claims there are three scenarios that could happen: if the town board denies the rezoning, then NorthStar could foreclose, or approval could be granted and Summit/Greenfield could either sell the site or get more funding to develop it. 

“NorthStar has a good deal. They can't lose," Greenstein said, noting that its cost basis is lower than Summit/Greenfield's. 

Greenstein also claimed that Summit/Greenfield does not care about the community.

“They care about getting a return for their investors," he said.

Greenstein suggested at this point that the developer's intention is one of preserving reputation so more money can be raised in the future. He also believes that what it can have on the property is limited by a high cost basis.

Geoff Thompson, who is Summit/Greenfield's spokesman and was at the meeting, declined to the comment about the financial part of the talk.

Attempts to find data for the financial claims were mixed. Moody's, for example, stated there was a 2012 liquidation of the loan, but there were no results readily available showing that it was sold to NorthStar, or of the existence of different pieces of the debt.

Greenstein Does Not Rule Out Town Returning to Court with Developer

The financial presentation was followed by audience questions.

Greenstein was asked by Patch whether he would be willing to return to court over lawsuits that were filed by the developer against the town previously. Greenstein gave an affirmative answer, describing the question as whether to allow a lawsuit to play itself out and to let an appeal play itself out.

The lawsuits, which were filed in federal and state courts in February 2011, were in response to how the town board handled the review of its residential rezoning request to allow 199 condos and townhouses. The board, in April 2011, voted to rezone for only 111 units. The state lawsuit was dismissed by a judge in 2012, but Summit/Greenfield soon filed an appeal notice. The town and developer agreed to a settlement in December 2012, which suspended the lawsuits. However, the settlement calls for the town board and planning board to give requisite approvals to the retail zoning, along with following a timeline, or else Summit/Greenfield has the right to reactivate the lawsuits.

Greenstein opposes the settlement and feels that it was made by the town when it was in a position of strength.

Since the town board approved the residential rezoning it has given Summit/Greenfield several extensions, which are needed in order for it to stay in place. Another one is now being requested by Summit/Greenfield attorney John Marwell.

Slate's Approach 

If the town board approves the rezoning, as well as a master plan change needed for the retail plan, it was suggested at the meeting that the way to challenge it is for residents to litigate through an Article 78 proceeding. Greenstein, who feels that the retail proposal should not have been handled before an update of the town's master plan is completed, suggested that an argument in court could be that the plan was amended for Chappaqua Crossing in a way that is arbitrary and capricious. He suggested that if it is invalidated then it could undermine the rezoning since that cannot take place with the master plan update.

One man in the audience, who did not want to give his name, was among the more vocal of those in attendance. He suggested that that he was willing to have his taxes go up specifically for the cost of litigation, and at one point sympathized with the idea of having a community purchase of Chappaqua Crossing.

Barbara Runde noted that Summit/Greenfield has had multiple rezoning requests already and felt that it shouldn't get any more.

“How many people in this town ask for three zoning changes for one piece of property?”

Victoria Alzapiedi was concerned that it the session had “only one angle.” She felt that there should be a counterpoint of the issue available.

Alzapiedi, who is involved with the local Democratic organization, also noted that people in the part do not gather and talk about what each other's positions are.

“People are individual voters on all these topics.”

Greenstein said that members of the town board were invited, although the only one to attend was Councilman Jason Chapin, who got involved in some of the dialogue when inquiry about procedure came up, such as dealing with the state Department of Transportation. Signs displaying their names were visible on chairs in a front row. 

Democratic Supervisor candidate Penny Paderewski and Democratic Councilman candidate Michael Wolfensohn also attended.