Cape May Asks Beach Theatre Loan Guarantors to Sign Promissory Notes

CAPE MAY — City Solicitor Anthony Monzo has sent letters to 33 persons who signed pledges to make a donation to the Beach Theatre Foundation “for the purpose of collateralizing and partially guarantying a loan from the City of Cape May made to the Beach Theatre Foundation, Inc.,” asking them to sign promissory note.
The city loaned the Beach Theatre Foundation $100,000 for a five year term ending in 2012 from funding made available from the state Small Cities Program. The foundation operated the Beach Theatre in 2008 with a lease from the theatre’s owners, Frank Investments.
The foundation’s lease was not renewed by Frank Investments, which has been seeking a demolition permit for the auditorium portion of the property with plans to build condominiums above the existing retail stores.
The loan from the city included a clause requiring early repayment if the foundation lost its lease.
The letter from the city to pledgors states: “According to the terms and conditions of the Beach Theatre Loan, the balance is now due and payable. Demand for full payment was made on April 20, 2010 with a due date of June 20, 2010. Beach Theatre Foundation, Inc., has not remitted payment, therefore, demand is hereby made with respect to your Pledge.”
A copy of the pledges made by the 33 individuals was enclosed with the letter, which notes the recipient is required to pay the city within five years, which will be on September 30, 2012.
“I am therefore enclosing a Promissory Note to evidence your obligation to the City which I would ask that you sign and return,” said Monzo in the letter.
Monzo told the Herald the pledgors have five years to make the payment from the time they signed a guarantee.
He said the city requested the pledgors sign a promissory note as a confirmation or reaffirmation of what they had promised in 2007.
“Many of them forgot about it, many of them were not aware the city was desirous of collecting on the pledges,” said Monzo.
He said the letter served as a notification to the pledgors that the Beach Theatre Foundation had defaulted on its loan, demand has been made for payment and payment has not been made and therefore the city was pursuing pledge guarantees within the original timeframe.
Beach Theatre Foundation (BTF) President Steve Jackson sent a letter on behalf of the foundation’s board of directors to the pledgors noting the letter from Monzo directs the recipient to pay sums directly to the city.
“The BTF Board believes the acceleration was without business sense or justification, was politically motivated, and done in bad faith. Although it made the noted demand and purported acceleration, the City has not sought to collect the note by legal proceedings against the BTF, and, accordingly, it is unknown at this time, if the City were to sue the BTF, whether defenses the BTF would raise would prevail in court,” said Jackson in his letter.
Pledges paid to the foundation were tax deductible while a payment made directly to the city is not, making it significantly more expensive, Jackson told the Herald.
Jackson’s letter said the terms of the pledge instrument “differ from the terms of the note the city is seeking pledgors to sign, particularly as to the length of time for repayment—signing the note could mean an obligation that is not only non deductible, but also needs to be paid back up to three years sooner.”
Monzo told the Herald the payments by the pledgors to the city would be tax exempt. He said donations to the city are tax deductible when a special fund is created.
Even though the money would be paid to the city, technically, it is still payment on a pledge to the Beach Theatre Foundation, said Monzo.
Jackson told the Herald while the city was trying to be “good fiduciary civil servants,” to get the money repaid, the move to collect the money would not benefit the city since the goal was to reopen the theater for residents and visitors.
Jackson said the $100,000 in funding loaned through the city was paid to Frank Investment to lease the Beach Theatre. He said it has been difficult to interest any developers in the property since the nation has been in a deep recession for several years.
The foundation has asked the city that repayment be delayed until the original term of the agreement in October 2012.
“It gives us a couple of more years to fight the fight,” said Jackson.
He said the city cannot use the $100,000 towards it 2011 budget or to purchase a fire truck since the funding has specific guidelines for its use.
The foundation has not declared bankruptcy because it has not been put in such as position by the city, said Jackson. He said the city would not receive repayment and shut down any efforts to preserve the Beach Theatre.