CAPE MAY— The city is taking steps to recover a $102,000 loan it made to the Beach Theatre Foundation.
At an April 21 City Council meeting, City Solicitor Tony Monzo said the loan has “matured and is due and payable.” While the loan was for a term of five years, a clause in the agreement required repayment when the foundation’s lease of the building from Frank Theatres ended.
Resident John Fleming asked Mayor Edward J. Mahaney Jr. if the foundation has been making payments to the city. The mayor confirmed payments have not been made.
Mahaney said after discussing the matter with the leadership of the Beach Theatre Foundation, council has agreed to take action to recover the money. He said it was public money loaned to the foundation.
In September 2007, City Council presented the Beach Theatre Foundation with a check for $100,000. The loan was to allow the foundation operate the theater for 12 months and find a developer to purchase and renovate the building which was estimated to cost between $12 million and $18 million.
In November 2007, the non-profit Beach Theatre Foundation reopened the theatre under a management agreement. The group spent six weeks cleaning and refurbishing the theater.
The foundation had hoped to find an investor to develop the property while preserving the theater.
The Beach Theatre Foundation’s 18-month lease ended March 31, 2009 but the foundation continued to search for a developer. Frank Theatres reopened the theater May 22, 2009 under their own management but closed it after Labor Day 2009.
In September 2009, the foundation sent a letter to City Manager Bruce MacLeod written as a follow up to a meeting between Beach Theatre Foundation President Steve Jackson and McLeod. In the letter, Haas noted the foundation was aware it was not in compliance with certain terms of the promissory note.
The foundation did not commence paying cash interest on the principal of the note when interest became due on or after 12 months from the date loan proceeds were disbursed nor did it pay the entire principal balance of the note when lease of the theater terminated.
In the letter, Jackson requested the principal amount of $102,000 as of Sept. 7, 2008, become due September 7, 2012. As consideration for the waiver and amendment, the foundation offered payment of cash interest monthly. The letter noted the foundation was still developing plans and seeking to partner with a developer to purchase the building.
The city did not accept those terms.
At the April 21 council meeting, Bernie Haas, treasurer of the Beach Theatre Foundation, told Monzo the loan did not mature until 2012. Haas said an event occurred within the loan that has a loophole that caused it to be called in by the city.
Monzo said the loan matured on the maturity date or upon termination of the foundation’s lease of the theatre from Frank Theatres. Mahaney said the city mailed a letter to the foundation requesting its position on the loan.
Haas said the loan came from the same state money that was loaned to and repaid by Congress Hall Hotel for its renovations. McLeod said the money repaid by Congress Hall returned to Cape May and has been invested as required by the state.
McLeod confirmed it was not part of the city’s general fund. Haas asked how much money was currently in the fund “to be leant to worthy causes.”
McLeod said $600,000 was loaned to Congress Hall, which was repaid with interest, and the fund has also earned interest in the bank. He said he did not have the exact figure but he believed the fund was again in excess of $600,000.
Haas noted the fund had $600,000 even without the $100,000 loan from the Beach Theatre Foundation being repaid and it had no affect on taxes in Cape May.
Mahaney said it was the responsibility of the city “when they loan that money out to have it repaid.” He said it was the duty of council to make sure that due process is followed.
“It’s public money that has to be accounted for, it’s not a gift,” said Mahaney.
Thirty-five individuals including a number Beach Theatre Foundation member pledged as guarantors to repay the loan if the foundation was unable to repay the loan. Each guarantor pledged thousands of dollars, which totals $100,000, according to Haas.
He said if the foundation doesn’t raise funds to pay off the loan, the 35 guarantors will be called upon to cover it.
