Troubled Xanadu Still Has Promise: Cushman & Wakefield’s Medina

Xanadu,  the $2 billion retail and entertainment complex taken over yesterday by a consortium of lenders, may soon be getting a new lease on life after years of delays and financial woes. The lenders are in talks with developers who could take over the project, reportedly including The Related Cos. and Triple Five Group, the Canadian developers of the Mall of America in Minneapolis.

Nevertheless, there are plenty of hurdles ahead for Xanadu, which stands partly complete in the New Jersey Meadowlands complex near the Izod Center sports and entertainment venue and the new stadium for the National Football League’s Giants and Jets. Years of problems, along with a widely criticized design, have given the property a reputation as a costly white elephant.  The project’s creditors, which include Credit Suisse Group AG, Capmark Financial Group Inc. and Fortress Investment Group L.L.C., assumed control of the 4.8 million-square-foot project from Colony Capital L.L.C.

Despite widespread skepticism about Xanadu’s chances, it has its believers among senior executives in the local real estate market. “There are a lot of reasons to expect that a project like Xanadu could experience success,” said Gil Medina, New Jersey executive managing director for Cushman & Wakefield Inc., which is unaffiliated with the project.

Up to now, the project has suffered from timing, said Medina, who has watched the project take shape from his office window a few hundred yards away. The faltering retail market has caused potential tenants to cut back their commitments to leasing space or pull out entirely. And in 2008, the collapse of Lehman Brothers took a major source of financing out of the picture. Medina, a who served as New Jersey’s secretary of commerce in former governor Christie Todd Whitman’s administration, suggested  that the project has several aces in the hole.  Medina noted that although Xanadu’s exterior has drawn criticism, “When you go into the interior, it is absolutely fabulous.”

Tourism could be give the project a major boost as well, Medina said, since New Jersey ranks 10th in the country as a tourist destination. Xanadu’s location in the New York City metropolitan region and in densely populated New Jersey is also in its favor. A completed rail link and road improvements have addressed infrastructure concerns. Moreover, he said, the administration of New Jersey Gov. Chris Christie is engaged and wants to see the project succeed. The new owners are seeking state assistance to help defray the cost of infrastructure improvements, and tax increment financing may be an option.