Cornerstone files for Chapter 11

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 LINWOOD – News Saturday morning that they city’s largest tax ratable, Cornerstone Commerce Center, had filed for Chapter 11 bankruptcy in Delaware sent shockwaves around the community.

Mayor Rick DePamphilis said Monday that he had no indication that Cornerstone was in any kind of financial trouble and that the bankruptcy was a complete surprise to him.

“I was under the impression that Cornerstone was 98 percent leased. Cornerstone is our largest taxpayer in the city, and we want to do whatever we can to help make sure they are successful,” he said.

Developer and owner Robin Karman said Tuesday that the economy, along with the city being slow to come to an agreement over the second phase of development of the 36-acre site and over the purchase of open space buffering the site helped to move her to file Chapter 11.

“I have been quoted as saying we are 98 percent leased. But leased is not occupied,” she said. “The difference is of course that occupied means we are collecting rent.”

Karman said one of the reasons she came to this area in the first place was because Atlantic County has typically been a very strong real estate market.

“Before the collapse of the real estate market in 2008 the vacancy rate in Atlantic County was less that 10 percent. We came here because of that and because the area needed a larger-footprint project, and that is what we had here. People came in here looking for space larger than 10,000 square feet. We were fully leased. Then the crash in 2008 came along,” said Karman.

While it did not affect them immediately, there were problems brewing. Cornerstone clients signed rental agreements in 2006 and most of the short-term leases were five years.

“In 2011 a number of leases were up, lease rates around the region were stagnant, and some tenants went out of business and will never be back here to fill those spaces again,” she explained.

Cornerstone was given a five-year abatement when it came in to develop the former Prudential site. The abatement allows a new business to get a break on taxes for five years and increases the amount they pay by 20 percent each year, bringing it to 100 percent in five years.

Karman said she went from paying $150,000 to $800,000 over the course of the eight years that work first began at the site.

“That is a lot of money, and we take no services from the city; we do our own trash and snow removal,” Karman added. “Basically we took a big bang in 2011; rents were stagnant, our taxes popped significantly.”

“That $800,000 that we pay in taxes is 50 percent of our operating budget. We need to find ways to offset that cost. Our electric cost is huge. We wanted to install solar but we were turned down. Solar, we feel would have saved us a great deal of money in the long run,” said Karman. “We wanted to have improved signage throughout the site and along New Road, but we have not been able to do that.”

Compounding the problem of moving forward is the installation of a traffic signal near the center. The city made it clear the cost of a light would be on Cornerstone. Karman said the fly in the ointment there lies with the state Department of Transportation. Initially department officials said there would be approval for the light, but after conducting a study they said traffic volume does not warrant it.

The city wants the light before the second phase of development. Karman said increased traffic that will come because of the second phase is probably the only way the state would permit its installation.

DePamphilis said that both signage at the site and the traffic light were issues the city and the developer have discussed a number of times.

Karman said she is confident Cornerstone will emerge from the Chapter 11 proceedings in a strong financial position in six to 12 months.

“Chapter 11 is for reorganizing, and that is what we are going to do,” she said.

Karman said she would like to be able to sit down without the costly attorneys and work things out with the city so both sides are happy.

Karman said she is enthusiastic about a new tenant she is signing that will occupy the empty gym space on the first floor, although she declined to provide a name.

“Once they move in, which will not be until probably May 2013, we will be at 98 percent occupancy again,” she said. “This new tenant will drive the demand for space here and create a real need for that second-phase development to begin.”

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