Construction of a three-story, 1.3-million-square-foot mall expansion, the largest building project in Syracuse in 19 years, came to a halt in June after Citigroup refused to loan any more money to the developer. The project was designed to showcase "state-of-the-art" green technology, renewable energy resources, and sustainable design for both construction and operations. The project was to include an innovative design combining research, retail, entertainment, dining, hospitality and tourism. The project has created expectations to create tens of thousands of jobs, attract millions of visitors to an otherwise economically depressed region, and add millions of dollars annually into the local and state government economy. Drawing in part on public funding, it had become known as the model "private - public partnership" for economic development, for green development and for sustainable development. 
The Post-Standard reported that Citigroup said the project was at least $15 million over budget and a year over schedule -- and had no tenants signed up despite the expenditure of millions of dollars on marketing. It demanded that the developer put up $15 million more of his own money, on top of $40 million he already has put into the construction.
The project was being financed by the developer’s own $40 million, $170 million from the sale of Syracuse Industrial Development Agency bonds and a $155 million loan from Citigroup. The $210 million in SIDA bond proceeds and the developer's own money have already been dispersed and are not at issue in the dispute.
When the bank stopped funding the construction, the developer sued the bank, saying Citigroup reneged on the loan agreement because of its own financial problems - problems that prompted the federal government to give the bank $45 billion to keep it afloat. The bank countered that as a result of a loan "Deficiency", the bank had no further obligation to fund the construction loan agreement until the "Deficiency" was fully resolved and the developer was in default on interest payments. Citigroup also attempted to argue that because there were allegedly no signed leases and because - in their opinion - the project was a "failure", that there should be no obligation to further fund the project. According to the Court, the bank sought to rewrite the loan agreement because there was no requirement that there be any tenants whatsoever at this stage of the construction. There was no requirement that - at this stage - the project be a success or otherwise. The first net operating income test from the loan agreement did not come effect until some six months in the future. The court concluded that the bank’s arguments were “specious, without substance in law and fact, and irrelevant to the issues before this Court.”
The practice of the loan funding was to pay interest payments from the funding. If the funding did not come in, the developer was unable to make the interest payment. By stopping the funding, the bank created the deficiency itself.
The Court ruled that the bank broke the loan agreement and ordered it to resume lending the remaining $68.4 million yet to be advanced on the loan, starting with an immediate payment of $29 million. Citigroup obtained a stay of the ruling while it appeals the order.
One can have a nice green construction project, but that doesn’t isolate the project from larger economic forces, bad management or stingy bankers. I probably didn’t need to tell you that though, did I?
Are there “green” provisions in a proposed
contract you are bidding on? Have you
identified the risks of those clauses and are you prepared to handle those new
contractual risks? Click here
to send us your contract and we will provide a complimentary attorney review.
