New Jersey Governor Chris Christie (R) has called on the developers of the nation’s largest entertainment and shopping complex to open it or “surrender the property” back to the state. What happens with the property could depend on a private investor who is contemplating putting $500 million into it.
The complex, called Xanadu, is a $2 billion project covering two million square feet in New Jersey’s Meadowlands. The complex has never opened, and the state can no longer afford to subsidize its open-ended delays and uncertain prospects.
Since 2009 Xanadu has sat silent in the East Rutherford wetlands awaiting a $500 million infusion to complete construction. The wait, coupled with the state’s looming bankruptcy, has done a world of damage to the aesthetically reviled, tile-covered structure, which The New York Times describes as “the world’s biggest air vent covered in Play Doh.”
But it might be too soon to consign Xanadu to a landfill. Christie’s tough talk coincides with the appearance of a potential white knight investor. Stephen Ross of Related Cos., a Manhattan real estate development firm, is in talks with Colony Capital and the state about becoming a partner.
Xanadu has been beset by bad luck since it was sanctioned in 2003 by the New Jersey Sports and Exposition Authority (NJSEA) and the Mills Corporation, which won the NJSEA’s approval to develop the state-owned site.
First, competing developers sued over the selection of the Mills proposal, delaying groundbreaking by a year. Then in 2007 Mills dissolved after an accounting scandal. Mills sold its $500 million stake to Los Angeles-based Colony Capital and co-investors KanAm and Dune Capital.
The following year, the other half of Xanadu’s financing—a further $500 million—evaporated after the site’s original lenders, Lehman Brothers Holdings and Capmark Financial Group, filed for bankruptcy.
A potential rescue would allow the new investor to be paid back first after the complex opens. For now the project’s future remains tenuous. Outdoors retailer Cabela’s, which was supposed to be a major tenant, is exiting its contract, leaving open the possibility other tenants might follow.
The Xanadu debacle coincides with New Jersey’s own fiscal reckoning. Officials are projecting a budget deficit that could reach $11 billion.
Eileen Norcross ([email protected]) is a senior research fellow with the Mercatus Center at George Mason University.