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Developer files for bankruptcy

Tuesday, May 15, 2001

By Dan Fitzpatrick and Teresa F. Lindeman, Post-Gazette Staff Writers

Damian and George Zamias, the Johnstown developers who for the last 15 years have been trying to build a 1.2-million-square-foot mall northeast of Pittsburgh, have filed for bankruptcy.

Their firm, Zamias Services Inc., and four limited partnerships controlled by the Zamias family also were part of the Chapter 11 filing, made Friday afternoon in U.S. Bankruptcy Court in Pittsburgh.

Reached yesterday, Damian Zamias said his commitment to the controversial, much-delayed Frazer Heights Galleria mall along Route 28 "remains steadfast," noting the partnership that owns the Frazer land is not part of the Zamias bankruptcy filing. Also, the company's Johnstown and Pittsburgh offices will remain open, he said, and no employees will be affected by the bankruptcy.

A Chapter 11 filing protects companies from creditors while they seek to reorganize.

The filing, Zamias said, is a "response" to a lawsuit it lost earlier this year to American Property Consultants Ltd., a New York real estate investment banking firm. A New York jury ordered Zamias to pay $11.4 million it allegedly owed to the firm, which had helped Zamias form shopping mall partnership in 1997.

Zamias has appealed the decision.

"I can unequivocally say this filing is wholly a result of the [American Property] suit," said Zamias, who is president of Zamias Services. "It has nothing to with our financial relationship with any lender, investor or partner."

He declined to comment further on that point, saying the matter is "in the hands of lawyers." But in a statement released late yesterday, Damian Zamias and his father, George, said the filing will allow their operations to continue uninterrupted while they appeal what they consider an unjust verdict."

American Property Consultants President Richard Mosse disagreed with Zamias' take on the bankruptcy filing, claiming the Zamias family and its partnerships owe hundreds of millions of dollars in mortgages and other debts.

In 1997, the Zamiases approached American Property to "help them out of a very difficult financial situation," Mosse said. American Property arranged for Zamias to partner with Goldman Sachs, which through a real estate fund agreed to help the Zamiases purchase a string of U.S. malls worth $600 million, Mosse said.

Zamias, he said, failed to pay American Property its fee for arranging that partnership. The fee, plus interest, amounted to $11.4 million at the time.

In the last two years, American Property tried several times to settle its dispute with Zamias, only to have the familyrebuff its advances, Mosse said.

The Zamias family tells it differently. "We have been earnestly negotiating with APC for nearly six months, and made every effort possible to resolve this matter," Damian and George Zamias said in yesterday's statement. "Unfortunately, APC rejected our various good faith offers."

In pursuing the Zamias payment, American Property has filed several liens against properties Zamias controls in Pennsylvania and elsewhere, Mosse said. American Property also is trying to get its hands on $4.9 million that Zamias received last year to settle an unrelated business dispute. American Property claims the Zamias family "funneled" the money to Damian Zamias' mother, Marianna, to block American Property from getting it.

American Property is not the only one seeking money from Zamias.

Goldman Sachs, in a separate suit filed in New York in February, is claiming the Zamias family defaulted on a promissory note and that the family now owes it $9.4 million. According to the lawsuit, a real estate fund controlled by the New York investment banker recently "terminated" Zamias' management agreements at 14 malls it co-owns with Zamias and asked that Zamias vacate the properties.

Yesterday, Damian Zamias said the Goldman Sachs suit has "nothing to do" with last week's bankruptcy filing. In February, he confirmed that his company no longer had management contracts at the 14 malls but said that change as well as the closing of an eight-person Dallas office and 13 layoffs at headquarters were made because of a renewed focus on development.

Zamias said there have been no layoffs since February.

The company, which owns, leases and manages malls and shopping centers in 12 states, was founded in 1957 by George Zamias. "My family has based its growth and success on industry knowledge, honesty, loyalty and integrity and the [bankruptcy] filing will not affect how we will continue that tradition," George Zamias said in yesterday's statement.

During abrief interview yesterday, Damian Zamias reiterated his company's new focus and direction, saying that development has greater potential for "value and profits" than property management. Zamias "is not interested in being in a business where you are limited in what you can do," he said.

As part of its new development thrust, a new Zamias venture, LightSpeed Developers L.L.C., recently secured an option to buy a 7-story, 300,000-square-foot Strip District building used by fish, meat and poultry distributor Robert Wholey & Co. Inc. LightSpeed plans to redevelop the Wholey's warehouse, known for its blinking neon fish, as a telecommunications and Internet data center known as "The Lighthouse."

"We are going ahead with that project," Zamias said."In no way will that project be affected."

Zamias also pledges to continue work on the high-profile Frazer Heights Galleria in Frazer, a rural township northeast of Hamar along Route 28. The mall, which survived early opposition from local groups, is now awaiting progress on a new Route 28 interchange.

At this point, planners hope the new highway interchange can open by fall 2004, said Thomas J. Affinito, executive director of the Frazer Transportation Authority, created to help guide the project.

Without the mall, he said, it would be difficult to justify the estimated $33 million cost of the interchange. "The projects are interrelated."



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