After five years and more than $25 million spent to get a retail project similar to the Grove built next to Santa Anita Park, the deal between developer Caruso Affiliated Inc. and bankrupt race track owner Magna Entertainment Corp. appears dead.
Or is it?
Magna’s attorney told the Business Journal that the joint venture has effectively been ended, but billionaire developer Rick Caruso, who built the popular Grove retail center in the Fairfax district, said he plans to meet with Magna’s founder and is confident a solution will be reached “to keep the deal together.”
At the very least, however, the recent approval of Magna’s Chapter 11 reorganization plan has put a kink in Caruso’s efforts to build a $500 million retail development next to the thoroughbred horse track in Arcadia.
The plan, approved April 26 in U.S. Bankruptcy Court in Delaware, allows Magna founder Frank Stronach to retain control of the historic track, but in the process Santa Anita Associates LLC, a joint venture started in 2005 to build the development with Caruso, would be dissolved by May 1, according to parties involved in the case.
“At this point, Caruso is a member of a joint venture which I believe has been terminated,” said Brian Rosen, a New York attorney representing Magna. “MEC will have nothing to do with the project anymore.”
However, attorneys representing Caruso’s interests in Santa Anita Associates on April 16 filed an objection to Magna’s plan to cancel the development agreement. Caruso said that he expects to work out a deal with Stronach, who’s chairman of MI Developments Inc., a Canadian real estate development firm based in Aurora, Ontario, that would assume legal ownership of Santa Anita.
“This was a surprise. (But) Frank has assured me that this is a process they had to go through in bankruptcy,” said Caruso, who expects to meet with Stronach in two weeks. “He’s assured me that we will work something out. Frank and I have had a good relationship for some time, and I take him at his word.”
Bankruptcy law expert Dan Schechter, a Loyola Marymount University professor who was not familiar with the particulars of the case, said that it should be relatively easy for MI Developments and Caruso to strike a new deal.
However, Schechter said that the dissolution of the joint venture makes it “conceivable that MI Developments could go elsewhere” and find a new partner to develop the project.
Stronach could not be reached for comment. An attorney for MI Developments declined to comment.
Shops at Santa Anita
The project, called the Shops at Santa Anita, would be built on the southern parking lot at the track property. It would include restaurants and shops, and the sort of landscaping and water features found at the Grove and Caruso’s Americana at Brand in Glendale. It also would be larger than the Grove, where Caruso’s company is headquartered.
While little is known about the details of the development agreement between Caruso and Magna, it was struck in 2005 at the height of the real estate boom. Since then, Stronach – an auto parts magnate and horse-racing aficionado who is one of the richest men in Canada – got into financial trouble after spending hundreds of millions of dollars on horse tracks he acquired in the United States.
Indeed, Caruso acknowledged talk at Arcadia City Hall that has suggested Magna’s decision to end the joint venture is a negotiating tactic to extract a better deal when they meet in two weeks.
“Nothing is easy, especially when you are dealing with premium sites,” said Caruso. “I wish we didn’t have the problems to deal with and it was solely in our control, because we’d be getting into the ground.”
Don Penman, city manager of Arcadia, said he is hopeful Caruso stays involved in the project and it moves forward.
“From a practical standpoint, obviously Magna has options they’ve exercised,” Penman said. “It’s not one the city supports because the City Council unanimously approved the Shops at Santa Anita. It was excited about the quality of the project. We would not look forward to starting over again.”
A major reason officials are resistant to starting over is that it’s been a slog to get this far. Caruso has been locked in a years-long legal battle with Westfield Group, a Sydney, Australia, company that owns an Arcadia mall adjacent to the track, Westfield Santa Anita.
Westfield sponsored successful ballot measures in 2006 that blocked paid parking and large Vegas-style signs at Caruso’s planned development. In July 2008, a Los Angeles Superior Court judge ruled that 11 points in the environmental impact report for the Shops at Santa Anita needed to be revised. Since then, Westfield has sought to have several other elements revised, but the case has been stayed pending the Magna reorganization.
Santa Anita Associates has spent $25 million so far on the Santa Anita effort, according to a court filing. While the filing did not specify how the money was spent, the venture developed plans for the project, and paid for the EIR and thousands of hours of consultant and attorney fees.
If Caruso is able to work out a deal with Stronach, the fight with Westfield would still loom. Presumably, the EIR case would be restarted. But Caruso is nothing if not dogged.
He noted his years-long fight to build the Americana at Brand across from the Glendale Galleria, owned by General Growth Properties. He ultimately won $48 million in damages for unfair business practices from General Growth, which is currently in bankruptcy.
“I am certainly not writing this project off. It is one more little speed bump,” Caruso said.
Other interests
Meanwhile, it isn’t as if Caruso doesn’t have other things to do. He told the Business Journal that he plans to break ground on an 88-unit luxury apartment building at 8500 Burton Way in about seven months. The project, which is just outside of Beverly Hills, would take about 24 months to build.
Then there’s his new $750 million investment fund, which was announced last week. The fund, called Caruso-TPG Partners, is a joint venture of TPG Capital of Fort Worth, Texas, and Caruso Capital Partners LLC, part of Caruso Affiliated.
The plan is to buy retail and mixed-use properties along the West Coast, taking advantage of depressed prices. Caruso will be the operating partner. The joint venture plans to target underperforming properties and redevelop them. Caruso has also said that he’s interested in buying the Glendale Galleria.
He said that the creation of Caruso-TPG Partners is unrelated to delays with the Santa Anita project and does not signal a shift in focus. Companies have long approached him about joint-venture opportunities.
“The existing business we have is going to be built on and grow. The majority of the staff is dedicated to the existing business. We have a separate staff that is working on the acquisition side,” he said. “We can do both. It is two parallel tracks moving forward.”
