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Moreover, the heirs of the late John Rollins apparently have won
the final battle in the war over development of Brandywine Town
Center two years after they sold the controversial property.
Actually, according to the Delaware Supreme Court, they didn't
sell the property.
In a
ruling handed down on Jul. 21, Chief Justice Myron Steele held
that, although three subsidiaries of Acadia Reality Trust ended
up owning the property, what might have looked like a real
estate sale and figuratively quacked like one wasn't one.
It was
a 'reverse merger' and therefore not subject to state and county
realty transfer tax, Steele ruled.
"We
recognize that the Rollins and Acadia entities here carried out
a transaction that, once completed, resulted in the indirect
exchange of real estate for cash. Acadia Realty, through the
Acadia [subsidiaries], received an interest in property
beneficially owned by entities connected with the Rollins
family. Once the survivor [corporations] gained title to the
property, [they] immediately cashed out the Rollins'
newly-acquired ownership interest, leaving Acadia Reality as the
sole beneficial owner," he wrote.
He
went on to hold, however, that that did not constitute the kind
of 'abuse' that the Assembly sought to remedy when it exempted
corporate mergers which involve real estate assets from having
to pay realty transfer tax.
The
exemption, he found, was intended to prevent a person from
forming a company in which he or she was sole owner,
transferring real estate to that company and then selling it to
someone else. In the Rollins-Acadia deal, the merger involved
existing corporations, at least on the Rollins side, which had
other legitimate purposes.
In a
September, 2004, judgment, Superior Court judge William
Carpenter held that "it would be folly to try to argue that [the
Rollins-Acadia deal] is anything more than a legal
procedure intended to transfer real estate properties."
Carpenter based that conclusion on timing of the transaction,
the complete change of ownership it involved, the short duration
after the transaction during which Rollins interests retained
partial ownership of the property, and "the business purpose
surrounding the merger."
Steele
reversed Carpenter's ruling.
As
outlined in Steele's opinion, the deal went like this:
Acadia
Realty, a publicly traded company which owns and manages
shopping centers nationwide, was interested in the Brandywine
Town Center when Rollins's heirs put it on the market. It
therefore formed three wholly owned limited liability
corporations as counterparts to the three Rollins companies
which collectively owned the property.
In
January, 2003, the three Acadia companies were 'merged into' the
three Rollins companies. Although the Rollins entities were
survivors in the deal, their names were changed to those the
then-liquidated Acadia companies had. At that point, the
companies bought out the Rollins heirs.
Acadia
paid $1,171,094 in reality transfer taxes to both the state and
New Castle County and filed suit in Superior Court to get the
money back. Based on the combined tax rate of 3%, the amount
paid indicates the deal was worth $78,072,933.
According to Michael Strine, the county's chief financial
officer, Steele's ruling means that both the county and state
will have to refund the amount of the tax and pay Acadia an
additional $292,774 apiece in interest.
Brandywine Town Center was built after a prolonged controversy.
County Council rezoned the property, which formerly was the site
of Brandywine Raceway, a racetrack, over opposition from
several Brandywine Hundred civic associations and residents.
Before the development plan was approved, the objectors managed
to force inclusion of several deed restrictions
controlling the appearance of the retail center.
In an
authorized biography, John Rollins, who reveled in being a
self-made successful businessman and political kingmaker,
characterized getting Town Center approved and built as winning
a fight for a cause.
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