Resorts developers still intend to pay despite canceled contract

Riverhead Resorts’ quest to build a massive resort in Calverton appears to have come to an end, as the Riverhead Town Board voted to formally terminate its contract with the company Friday.
Despite this, Riverhead Resorts president John Niven and attorney Mitch Pally say they still intend to pay the town the $3.9 million Resorts owes in late contract extension fees in the hope that town officials will change their minds.
“We’re going to tell the town we have it and offer to send it to them and whatever the town decides, the town decides,” Mr. Pally said Tuesday. The money, which Resorts had planned to send by wire by Friday, still had not arrived as of yesterday.
Critics of the Resorts’ plan were essentially saying, “I told you so,” after the board voted to cancel the contract, under which Resorts would paid the town $108 million for 755 acres at the Enterprise Park at Calverton, or EPCAL.
“Nobody likes to say, ‘I told you so,’ but we never believed in this project in the first place,” said Richard Amper, executive director of the Long Island Pine Barrens Society environmental group. “It now joins the motion picture studio, the NASCAR track, the Wilpon deal, the Densieski airport, the Mario Cuomo international jetport, the Linda Alba theme park, the water-ski park and who knows how many other pie-in-the-sky ventures that have been proposed at EPCAL and were defeated because they are not real.”
As originally proposed, the Riverhead Resorts project called for construction of eight theme resorts, including one with an indoor ski mountain and another with a man-made lake constructed over the unused 7,000-foot runway at EPCAL, which would be torn up. The $2.2 billion project was being led by Baldragon Homes, a small Scottish company led by Mr. Niven, whose background was mostly in residential construction in Scotland. A larger New York City company called Bayrock Group, which has worked on projects with Donald Trump, was heavily involved in the project initially but later pulled back.
“There have been a lot of failed development projects in the last 20 years, but Riverhead seems to have cornered the market on them,” Mr. Amper continued. “It’s the bad idea capital of the world. If you have a bad idea, take it to Riverhead.”
Mr. Amper said his organization never launched a major campaign against the Resorts project because they didn’t think it was necessary, since it was unlikely to ever be built.
Mr. Amper feels the town should be seeking to develop EPCAL with high-tech companies, as is being done elsewhere on Long Island, at places like Stony Brook University, Brookhaven National Lab and Cold Spring Harbor labs.
Resorts had been late in paying several $1.9 million contract extension fees dating back to May 15. The contract with Resorts permitted them to purchase up to five three-month extensions for $1.9 million each. They had missed three of those payments, and promised to pay off two of them, totaling just under $4 million, this month.
The company delivered a check equivalent to that amount on Nov. 3, but it was written in English pounds instead of American dollars, was not a bank check and was directed to be kept in escrow until the Town Board agreed in principal to lower the sales price to $108 million from the original $155 million and to schedule a public hearing on the new price.
But after Resorts’ attorneys posed with the town officials while displaying the check during the Nov. 3 Town Board meeting, the bank that issued the check canceled it for security reasons because a close-up photo of it appeared on the News-Review website.
Shortly after that, Supervisor Sean Walter announced he would vote to terminate the Resorts contract regardless of whether the fees were paid.
Mr. Walter said that instead of immediately seeking to sell the land to new developers, he wants to hire a land-use consulting firm to reevaluate the zoning at EPCAL and to finish up the ongoing subdivision there, since the land can’t be sold without legally subdividing the sold portions from the rest of the town property.
Former councilman Ed Densieski, the only board member who voted against opening negotiations with the Resorts group in 2007, also had an “I told you so” moment when asked about Friday’s vote.
He had supported an alternate proposal for EPCAL that was led by more established developers Scott Rechler and Jim Petrocelli.
“We had two of the best developers on Long Island, who really wanted to build here and who had the money, and instead we went with a no-name company that has no money,” he said. “It’s mind-boggling to me.”
But Mr. Densieski said he opposes the current board’s plan to re-study the zoning at EPCAL.
“That’s a waste of time, in my opinion,” he said. “We should keep the zoning we have and just make changes to it.”
Mr. Densieski feels the town should lease the property to developers so they can get projects started while they wait for subdivision approvals and contracts.
Mr. Niven told the News-Review last week that he has spent $18 million on the project, including paying the town $7.5 million in non-refundable payments. He told the board recently that although he has financially drained both of his companies in trying to build Riverhead Resorts, he’s determined to complete the project.
Former supervisor Phil Cardinale, who was on the board that selected Resorts over Mr. Rechler’s company, said this week, “I’m pleased the town collected nearly $8 million but disappointed that the transaction didn’t close.”
Mr. Cardinale said the contract was written in such a way that the town could have collected as much as $14 million in extension fees and other payments without ever selling the land.
He noted the net amount the town received from selling nearly 500 acres of industrial land at EPCAL to developer Jan Burman in 2001 was about $12 million, only slightly higher than the $7.5 million they got from Resorts for not selling anything. The Burman deal redirected a chunk of the $17 million sales price to real estate commissions and property management fees, he said.
While the town has received $7.5 million from Resorts, Mr. Cardinale continued, “There has not been one dollar collected since I left office.”
In addition to the Riverhead Resorts deal being terminated, the town’s other deal at EPCAL — to sell 300 acres of industrial land to Rechler Equity Partners — also fell apart because the group’s head, Gregg Rechler, sought to add housing and retail to the project.
“I’m disappointed the board was unable to support either deal and we’re now in the same position we were in 10 years ago,” Mr. Cardinale said. “Since we were given this property in 1998, only about 500 acres has been returned to the tax rolls.”
On Friday, when the board voted 4-1 to terminate the contract with Resorts, Mr. Walter had issued a written statement that began: “Ding-dong, the witch is dead.”
“Riverhead Resorts was a sort of pay-per-view movie purchased by my predecessor,” he wrote. “I always felt I knew how this movie would turn out, but I was willing to give it some time, just to be sure. Riverhead Resorts came into the process making grand claims and looking to take on a rather large project. Some felt they lacked a track record and most felt they would have trouble gaining financing.”
The supervisor said Resorts had been in arrears under the terms of its contract for some time and “has offered excuses and rationalizations but what hasn’t happened is that the money hasn’t crossed the finish line.”
The supervisor said the contract technically expired May 15, when Resorts failed to make an extension payment. He said he had previously voted to give them more time because he thought the money might help him avoid eliminating some town jobs in the 2011 budget. But he said he changed his mind last week because “it is clear to this member of the Town Board that Riverhead Resorts cannot close their transaction.”
Councilman John Dunleavy, who opposed terminating the contract Friday, insisted the money the town had already received from Resorts has helped keep taxes low for the last few years.
Mr. Niven, the Riverhead Resorts principal, said he has deals in place that would provide the project’s full $2.2 billion price tag in January, even though Resorts had difficulty getting the $3.9 million this week.
He is still vowing to see the project to fruition.
“Probably one of the worst things we have done is try to give exact dates,” Mr. Niven said. “The way the economy is right now, trying to raise money is not what it was three years ago. You could go to the bank three years ago and they would throw money at you.
“My commitment to Riverhead Resorts is stronger today than it was last year or the year before. We are determined to do this project on Long Island. And I don’t think there are many projects going on in Long Island just now because people cannot raise the cash, and I think the position we are in just now is an achievement in itself.”
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