Albany’s Golden Gate Fields Developer Runs Low on Cash

October 19, 2007 – By Richard Brenneman

What’s the future of Golden Gate Fields now that its corporate owner is shedding real estate to cover losses on its ailing horse racing business?

The track’s principal owner has told investors that something major is afoot, despite last year’s withdrawal of a proposal for an upscale shopping center and housing complex on part of the site.

“Well, Golden Gate is a sizable piece of land, and … for what it returns, the value of the real estate—it’s just not in line,” said Frank Stronach, the Canadian auto parks magnate who holds a controlling interest in the track’s corporate parent, Magna Entertainment Corporation.
“But we are working on that, and hopefully within half a year we will have a very good answer on that one,” he told investors during a conference call last month.

“Good,” said Albany Mayor Robert Lieber Wednesday. “Hopefully, they will close it, sell off the land and bring in a developer who will create a project the community can support.”
But just what’s in store for the Albany track remains an open question. “[I]t would be way too early that we could publicly comment on it until we have the solution firmly firmed up,” Stronach told investors.

During that same Sept. 13 call to investors, Magna officials announced that the Albany track was among company holdings pledged as collateral for a bridge loan of up to $80 million needed to avert a financial crisis.

According to the latest corporate earnings statement, covering the three months ending June 30, Magna continues to hemorrhage cash.

At the time that report was released in August, Stronach said, “We recognize that immediate and drastic action is required and we have commissioned a strategic review of the company.”

A month later came the announcement of the bridge loan and confirmation of plans for the sale of a significant part of the company’s assets.

Lieber, an outspoken critic of Stronach’s earlier plans to develop a shopping mall complex on the track’s parking lot, said he is angry because Magna “has blown off their promise to the community to develop the Bay Trail through their property” and renounced a promised 10-year lease on the shoreline trail area to the East Bay Regional Park—offering instead only a one-year term.

“That sounds to me like plain bad faith,” he said.

Collateral pledge

According to an 8-K Form filed with the federal Securities and Exchange Commission Sept. 18, the Albany track, Santa Anita Park in Los Angeles County and the site of a proposed track in Dixon in Yolo County are three of the five Magna properties pledged as collateral for the loan.

In addition to the bridge loan, Stronach pumped another $20 million of his own money into the company through an investment trust he created to provide an estate for his heirs, former Magna CEO Tom Hodgson told investors and two East Coast journalists during the

September conference call.

“We were running out of cash,” Stronach said. Magna Chief Financial Officer Blake Tohana said the company had $54 million in obligations coming due by June 30, 2008.

Defeat of the plans for an upscale outdoor mall and housing complex at Golden Gate Fields were abandoned after two project foes defeated a pair of supporters in a race for open seats on the Albany City Council last November, assuring a majority vote against the controversial super mall.

More bad news came six months later, when voters in the western Sacramento valley town of Dixon voted down Magna’s plans for a track, retail and housing development there in a four-measure referendum in April.

Magna’s first “For Sale” sign went up on the Dixon property, during Stronach’s announcement of the financial losses Aug. 9—when Hodgson announced that the company had given up their plans for the site.

The company posted losses of $22.4 million for the three months ending June 30.
“We are extremely disappointed with the second quarter results,” Stronach said in a statement to investors. “We recognize that immediate and drastic review is required and we have commissioned a strategic review of the company.”

Then, during the September conference call, the company announced the loan along with plans for sale of real estate near Magna’s Gulfstream Park in Florida, Laurel Park in Maryland, and a site near Vienna, Austria where the company operates a track/casino—or
Racino in Magna’s trademarked coinage.

Magna’s efforts to install casinos and slot machine-like racing gaming machines at its tracks have met with limited success, with the efforts rejected in many jurisdictions.

The company is also looking at plans to sell its joint shopping center and housing project adjacent to Santa Anita, now under development by Rick Caruso, the same L.A. shopping center magnate who was defeated in his plans for the Albany mall.

A similar project with another developer at Gulfstream is also a candidate for sale.

“I am 100 percent behind the debt elimination plan,” Stronach told his audience during the September conference call, later adding that “we will eliminate racetracks which were marginal or lost a little money.”

Troubled past

While Stronach became one of Canada’s richest men by shrewdly building up his auto parts company into a North American market leader, his passion for thoroughbreds has spawned controversy from the start.

Once boasting of plans to build the world’s largest racing empire, he amassed the largest collection of tracks ever assembled in North America. But investors in the parts company weren’t happy with the tracks’ impact on the balance sheet and forced him to spin off the racing ventures as a separate company.

Magna Entertainment has tried a variety of gambits to boost the bottom line in an era in which off-track betting has sapped track attendance, and other sports have commandeered the limelight from what was once hailed as the “Sport of Kings.”

Magna has pushed to combine track operations with casinos and, most recently, Stronach has partnered with developers to build upscale projects on track-adjacent land.

The Albany project planned with Caruso would have occupied parking lot space no longer needed because of the dropping attendance.

Magna last week announced plans to sell off parts of its portfolio to stanch the cash hemorrhage, with the Santa Anita track in Southern California going on the block along with a proposed track site closer at hand in Dixon.

When the Golden Gate Fields racing season opens Nov. 7, the track will be in better shape than ever for thoroughbreds thundering along the home stretch, thanks to a new track surface mandated by state racing commissioners.

All California tracks with major racing seasons have been ordered to install new surfaces to prevent horses from breaking their legs—an accident that usually ends with a lethal injection for the injured animal.

Magna chose the patented Tapeta system, which uses a wax-coated mixture of sand, rubber and fiber to cushion hoof-blows on the track. Horses were able to try out the surface for the first time when the track opened for training Oct. 7.

Lieber said the resurfacing cost Magna about $10 million.

Bay Trail flap

Local environmental activists had challenged the resurfacing because they believed the project hadn’t received the requisite review mandated by the California Environmental Quality Act.

Norman La Force, the attorney who chairs the Sierra Club’s East Bay Public Lands Committee, said the track had known about the project for eleven months before applying for a permit in April, yet had not conducted a thorough review of its potential impacts on the community and the sensitive bayside environment.

Robert Cheasty, a former Albany mayor and chair of Citizens for Eastshore State Park, negotiated with track officials.

In the end, he said, in exchange for the environmentalists withdrawing their objections, track officials agreed to give the Eastshore State Park a 10-year period of access so they could complete installation of the Bay Trail through the track’s property and open it to public access.

“But once they got what they wanted, they blew off their promise to give the community the Bay Trail,” Lieber said. “Now they only want to give a one-year lease.”

The change in mood at the track came about the same time Stronach began discussing possible new developments there.

“We are very disappointed by the lack of progress on the Bay Trail,” said Cheasty. “To paraphrase the chain gang boss in Cool Hand Luke, we’re hoping it’s only a ‘failure to communicate.’ But if Golden Gate Fields doesn’t go through with the completion of the Bay Trail, then it will have broken words, its bond of trust with the community.”

La Force of the Sierra Club said that henceforth community groups wouldn’t trust what track officials said “without a signed contract, and with enforcement penalties.”

Source: Berkeley Daily Planet