|By Jeff Pillets, The Record, Hackensack,
N.J.McClatchy-Tribune Regional News
Aug. 22, 2009--An Atlantic City casino controlled by the same firm behind the long-delayed Meadowlands Xanadu project has defaulted on its mortgage and now faces a bank takeover.
The Atlantic City Hilton Casino Resort, staggering under mounting losses and $350 million in debt, missed a July 9 loan payment, according to documents filed with the New Jersey Casino Control Commission.
The Hilton, which reported $9 million in gross operating losses for the first six months of 2009, will remain open as casino executives seek to negotiate a settlement with bankers.
The commission is expected to discuss the foreclosure at a meeting next Wednesday, said Daniel Heneghan, a spokesman for state casino agency.
"The Hilton has been in difficulty for some time," Henegahn said. "We will keep in close contact with all the parties as this is resolved."
The Hilton is owned by a subsidiary of Colony Capital LLC, a private real-estate firm that is known for investing in distressed and undervalued properties.
The Los Angeles-based firm, which claims more than $39 billion in international investments, became Xanadu's lead financial backer in 2006.
Xanadu, a $2 billion shopping and entertainment complex whose opening has been delayed repeatedly, is part of the same Colony investment fund -- Colony Investors VII -- that owns the company's Atlantic City holdings.
Colony spokesman Owen Blicksilver declined to comment.
But the New Jersey Sports and Exposition Authority, the agency overseeing Xanadu, said the Meadowlands project will not be affected by Colony's troubles in Atlantic City.
"They may be part of the same Colony division but the Meadowlands project is completely separate," said John Samerjan, a sports authority spokesman. "Colony is here to stay."
Colony continues to meet all its financial commitments to the sports authority, Samerjan said. He added that Colony has recently seen "encouraging signs" that it will find the $500 million in new capital needed to complete the Xanadu venture.
Mills Corp., chosen as the developer in February 2003, spent more than $800 million on Xanadu before the faltering company was sold off in pieces in 2007. Colony and Dune Capital then joined German-based KanAm as chief investors.
The project had been scheduled to open this month, but that date was pushed back indefinitely amid news that project lender Xanadu Mezz Holdings, an affiliate of Lehman Brothers, had stopped funding its share of construction costs.
Xanadu then sued the Lehman affiliate, seeking $11 million immediately and $25 million overall. A Xanadu attorney wrote in court papers that failure to produce the promised funds would put Xanadu "at grave risk of failure."
Earlier this month, a major retailer slated for Xanadu announced that it would not open its doors until "late 2010." Cabela's, a publicly traded, Nebraska-based hunting and outdoors store made that announcement as part of its second-quarter earnings call Thursday.
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