The developer of the Domino Sugar Factory failed to receive an injunction in State Supreme Court Tuesday to block its partner from recapitalizing the proposed $1.5 billion project.
The decision appeared to clear the way for the Community Preservation Corporation, a joint owner of the site, to proceed with a deal to hand the majority stake to the project’s senior lender, Pacific Coast Capital Partners, LLC.
Isaac Katan, who has been a fifty-fifty partner with CPC in the 11-acre former factory, had launched the suit in March seeking an injunction on the restructuring deal because it would significantly dilute both his and CPC’s interest in the project, which sits along the Brooklyn waterfront in Williamsburg.
Mr. Katan, in an exclusive conversation with The Commercial Observer last month, claimed he needed to delay the deal with Pacific Coast Capital Partners in court in order to structure a recapitalization with another investor who would provide superior terms.
Mr. Katan wouldn’t name the investor he said he was in talks with.
Susan Pollock, an executive at CPC, told The Commercial Observer at the time that she doubted Mr. Katan could arrange such a deal because he had made similar attempts over the past year that had been unsuccessful.
“There were no offers that were on the table that would meet all the needs of the project,” Ms. Pollock told The Commercial Observer then. “We vetted them seriously, we have had very lengthy negotiations with several parties and no one has been able to offer the deal that PCCP (Pacific Coast) is willing to do.”
Mr. Katan’s attorneys, in a statement, vowed to fight on and said that his company, Katan Group, had a deal in place.
“In making its speedy decision, the Court did not have the benefit of reviewing Katan Group’s newly-inked white-knight offer, which preserves equity and brings an experienced real estate developer into the Domino project,” Christopher Milito, a lawyer with MorrisonCohen LLP who is representing Mr. Katan said in the statement. “We have presented this new evidence to the Court so that it may carefully consider its recent ruling in light of this development, which undermines CPCR’s claim that its deal with the mortgage lender is the only available transaction. We believe that the merits of this argument will prevail in subsequent legal proceedings and are committed to pursuing a development that ultimately serves the best interests of the residents of Brooklyn and the City of New York.”
Mr. Katan secured the Domino Sugar Factory in 2006 in a whirlwind deal largely negotiated over a single weekend to buy the site with CPC for about $50 million from the sugar company, which decades ago used the factory as one of its largest sugar refineries in the world.
In an interview and tour of the location with The Commercial Observer last month, Mr. Katan said CPC piled on additional debt in subsequent years, even though little physical work was done. The 11-acre parcel features a sprawling complex of buildings, most of which can be razed. But its centerpiece is the refinery building, whose tall smokestack and Domino Sugar logo are landmarked and have become beloved icons of the Brooklyn waterfront. The buildings, which have sat fallow for years, are in derelict condition however and present a challenge – and significant expense – to restore.
Mr. Katan said that all the while, CPC had collected lucrative consulting fees, income that he claimed would rise threefold to about $750,000 in the deal with Pacific Coast Capital Partners, LLC, which holds a $125 million loan against the site that has been in default since December. Mr. Katan hinted that CPC was motivated by this increase in its fees to complete the recapitalization deal with Pacific Coast Capital Partners even though it would reduce both Mr. Katan and CPC’s interest in the development to eight percent apiece.
CPC, which specializes in the development of affordable housing, for its part, skillfully led the site through a contentious and tricky city approval process, eventually winning the right to build a number of tall residential towers there in exchange for also developing significant affordable housing.
Ms. Pollack said that CPC had tried for months before the mortgage default in December to bring capital and partners to the project, including deals that Mr. Katan sought to arrange, but that Pacific Coast Capital Partners was the only party with the resources to put the development back on sound financial footing.
Ms. Pollack nor Mr. Katan could be reached by press time for comment.
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