Albany Times Union
January 7, 2001
Albany In assessment fight, Pyramid Crossgates, Pyramid Management are barred from using a common method to calculate mall's market value.
By Kim Martineau
A judge has barred Crossgates Mall from using its financial statements as evidence in a legal dispute between the shopping center and the town of Guilderland over how much the facility is worth.
The decision could prove to be a fatal blow to Pyramid Crossgates Co's eight-year battle to have its tax assessment reduced by 40 percent, to $119 million.
If the town loses the long-running lawsuit with its largest taxpayer, the county, town and school district together stand to lose more than $12 million in tax revenue.
In a stern ruling last week, on his last day on the bench, acting state Supreme Court justice Raymond Marinelli reprimanded Pyramid Crossgates Co. and Pyramid Management Group for violating three court orders to turn over financial records the town has sought since 1996.
Marinelli barred Pyramid Crossgates and Pyramid Management from using the income method, the most common way for commercial properties like malls to calculate their market value.
He also ordered both companies to pay the town's legal bills from fighting the latest round of motions, which began in March. Since 1992 the town and school district have collectively paid more than $458,000 in legal fees.
"I'm so glad we refused to settle and continued to fight this," said town assessor Carol Wysomski.
At the heart of the towns conflict with Pyramid is the ambiguous relationship between Pyramid Crossgates, a partnership that owns the mall, and Pyramid Management, a company based in Syracuse that manages Crossgates and at least 17 other shopping centers.
While Pyramid Management has prepared Crossgates' certified income and expense statements, the Management Company has consistently refused to provide receipts and other records the town could use to verify whether the figures are accurate.
In reviewing some of the records, an auditor hired by the town, William Kahn, found large and frequent transactions between Pyramid Management and Pyramid Crossgates, including more than $1 million a year in management fees, raising questions about whether the company was trying to reduce its earnings on paper, according to Kahn's affidavits and other court records. But the town has been unable to get its hands on records of the exact expenses.
"While, on the surface, a management fee or leasing fee arrangement may appear reasonable," said Kahn, of the Albany firm Urbach, Kahn & Werlin, in a letter to the town's law firm, "it is important to recognize that such fees provide a means by which cash flow (or profit) may be shifted" to other malls or entities.
Pyramid partner Michael Shanley and Pyramid Crossgates lawyer Kevin McGrath, in New York City, did not return calls for comment.
By shifting money around either to overstate Crossgates Malls' expenses or to understate its income, Pyramid Management can make Crossgates appear to generate less income than it actually does to support its case for a lower assessment, the town has repeatedly argued in court papers.
"You can play games to drive the value of the property down," said John Varney, a lawyer with the Syracuse firm Hancock & Estabrook, which is representing the town and school district.
In 1996, Guilderland obtained its first court order forcing Pyramid Management to turn over detailed income and expense records, including records that would reveal the management's relationship with other malls. Pyramid appealed, claiming the malls operate independently and the town had no right to its confidential records. But the Appellate Division rejected its argument a year later.
"There is good reason to believe that (Pyramid Crossgates) and (Pyramid Management) are closely interrelated and have substantial motivation to manipulate management fees or otherwise shift operating expenses among (Pyramid Crossgates), (Pyramid Management) and other related Pyramid mall(s)," wrote justice Thomas Mercure, in the court's unanimous decision.
The judge faulted Pyramid for creating a "confused web" of interrelated companies, and then denying Guilderland access to receipts, bills and other original documents necessary to verify Pyramid Crossgates' actual financial picture.
Among the malls and strip centers in the Pyramid portfolio are Crossgates Mall and about 17 others including Crossgates Commons in Albany and Aviation Mall in Queensbury. All of the properties are controlled by separate partnerships involving chairman and founder Robert Congel and others.
Last year, six partners who hold a minority stake in 10 Pyramid properties in upstate New York and Massachusetts filed a federal lawsuit, accusing Congel and other company insiders of defrauding them of more than $100 million by moving money from one partnership to another without consulting them.
Congel used his business partners' money, the suit alleges, to cover cost overruns on unrelated projects including two Pyramid malls: Carousel Center in Syracuse, a project that grew from a $180 million to $300 million; and Palisades Center in West Nyack, which also doubled in expense, to $600 million. The partners also claim Pyramid Management overcharged for its services and that Congel provided them with false, or misleading, financial statements.
The defendants have denied the claims in court records and claim the partners sued after the Pyramid malls were put on the market failed to sell and were taken off the block in 1999. In the Guilderland assessment challenge, Pyramid will likely compare Crossgates' market value to other similar-sized malls under the economic method of assessment. "It presents them with a lot of problems," said Varney.
Because Marinelli is now retired from the bench, the case will be reassigned to a new judge by the end of the month.