Update—Destiny USA v. Citigroup
In the March 2010 Real Estate Update, we reported on the 2009 trial and appellate court decisions against Citigroup relating to the Destiny USA project in upstate New York. The project, an ambitious 800,000 square foot extension to the giant Carousel Center Mall in Syracuse, New York, had commenced in 2007. After the project was substantially underway—with developer equity and government development agency funds expended, and Citigroup, as agent for itself and other lenders, having advanced $85 Million of the $155 Million construction loan—Citgroup declared that the loan was "out of balance" because there were insufficient remaining unfunded loan proceeds and other funding sources to both complete construction and pay for tenant improvement costs ("TI Costs"). The developer objected, claiming that the TI Costs were not part of the "loan balancing" formula. The trial court issued a "mandatory injunction" ordering Citigroup not to include TI Costs in its computations, and the Appellate Division confirmed the main points of trial court ruling.
With Citigroup's appeal of the court decisions still pending, the parties have jointly announced a settlement and their intentions to pursue completion of the project. The details of the settlement were not disclosed.
Much has changed since the litigation over the project began. The banking and financial crisis was a backdrop to the Destiny USA v. Citigroup lawsuit at the lower court stages, leading some to speculate that Citigroup's larger financial troubles were the source of the bank's unwillingness to continue funding the project. What has also changed is the perceived demand for large-scale retail and entertainment projects such as Destiny USA.
Nevertheless, seeing a stalled project move forward rather than continuing to be mired in litigation must be seen as a positive development, and a preferable outcome—especially to the developer and the local economy—to carrying a slow and costly court battle to its conclusion.
Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. The Advisory should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.