Sandy walloped the Mad Hatter 11 years ago; judge could decide the Sea Bright icon's fate

SEA BRIGHT - The owners of the Mad Hatter, an iconic Sea Bright bar and restaurant that has sat empty since it was destroyed by Superstorm Sandy more than a decade ago, say they have lined up the financing they need to complete their ambitious project.

But Sea Bright officials are skeptical and think they should be allowed to take control of the property and choose another developer who can rehabilitate the blighted building.

Who is right? State Superior Court Judge Andrea I. Marshall has scheduled a hearing for Oct. 20 to help decide the restaurant's fate, although the date is tenuous; the hearing has been rescheduled six times since July.

It marks the latest chapter in the saga of the Mad Hatter. The restaurant's owners planned to rebuild bigger and better in the aftermath of Sandy, only to run out of money in 2018. Five years later, with another summer tourism season over and construction still stalled, the owners say in court papers that they have found another lender, all while Sea Bright says it has received proposals from four companies that want to redevelop the building.

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"That's really the primary interest right now, making sure the building is safe and is no longer an eyesore," Sea Bright Mayor Brian Kelly said. "Whatever direction that process goes, really that's the main goal."

Here is a look at how we got here:

What was the significance of the Mad Hatter?

The Mad Hatter started in Sea Bright around 2000, taking over a restaurant that had been home to My Father's Place and Good Side Cafe. It was a no-frills seaside bar, featuring thin crust pizza that won a loyal following.

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The restaurant was bought by Sea Bright residents Scott and Amy Kelly in 2006. But both the Kellys' home and the Mad Hatter were demolished by Sandy's surge in October 2012. The restaurant flooded and filled with sand.

"We didn't expect this," Amy Kelly told the Asbury Park Press at her home just a few days after the storm. "We thought there would be some damage, but we didn't expect this."

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The Kellys decided to rebuild the Mad Hatter. They were approved for a $5 million disaster loan from the New Jersey Economic Development Authority. And they planned to knock down the original restaurant and replace it with a three-story, 15,000-square-foot restaurant that overlooked the Atlantic.

The plan won approval from the borough in 2016, overcoming opposition from a neighbor who worried that the new project would be disruptive.

Why wasn't the project completed?

The Kellys knocked down the old Mad Hatter in October 2016 and began to rebuild.

But with the project 75% complete, a loan backed by the U.S. Small Business Administration fell through in December 2018 when the federal government shut down, according to court papers.

The Kellys sounded optimistic that they had found an investor in an interview in the fall of 2019 with the Asbury Park Press. But the project continued to stall.

On April 3, 2020, Sea Bright attorney Roger McLaughlin sent Kelly Management Group a letter saying the adjacent sidewalk was in disrepair, causing a hazardous condition for pedestrian foot traffic, according to court documents.

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That summer, Sea Bright said the company was violating ordinances, including unsecured fencing that allowed unauthorized entry; unsealed openings; loose Tyvek wrap that blew onto adjacent property and impeded motorists; and debris on site, court papers said.

Court documents said the town reluctantly gave Kelly Management Group a 30-day extension, but the company didn't resolve the alleged violations. In March 2021, Sea Bright notified the company that its property would be added to the borough's abandoned property list. Sea Bright filed a lawsuit in July 2021 seeking control of the property. And Judge Marshall agreed, siding with Sea Bright in February 2022.

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Was that the end of the case?

No.

With a new lawyer, Kelly Management Group returned to court last March, arguing that Sea Bright shouldn't have been awarded the property because it didn't follow the proper steps. Namely, it didn't submit a rehabilitation plan to the court. It asked Marshall to reconsider her decision and clarify that the property was only declared abandoned; its ownership remained with Kelly Management Group.

Marshall issued a consent order last June that allowed the Kelly Management Group to hold onto the property, seemingly giving it one more chance to line up an investor, while Sea Bright continued to come up with a rehabilitation plan.

That month, the Kellys received a commitment from a new lender. SnowPoint Capital Management LLC, a Ridgewood-based company that specializes in short-term investments in the Northeast U.S. and Florida, agreed to loan them $3 million, according to court documents.

The agreement, however, required the New Jersey Economic Development Authority, which provided the Mad Hatter with the disaster loan after Sandy, to subordinate its mortgage lien to the new lender. If the Mad Hatter defaulted on the loan, the EDA would no longer be first to get repaid.

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What's next?

Sea Bright attorney McLaughlin in July said in court papers that Kelly Management Group's bid should be denied and raised questions about whether the Kellys' plan was viable.

Sea Bright Mayor Brian Kelly, who isn't related to the Mad Hatter's owners, said the borough has received bids from four developers wanting to rehabilitate the property. He didn't provide details.

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It isn't clear what the EDA plans to do. An email exchange between the agency and Scott Kelly in July that was included in court filings seemed to suggest that the EDA would give up its financial position, but it included at least eight questions about the lender's loan commitment letter.

"Once there is an adequate and complete record that the EDA can use to make an informed decision, then the EDA can consider whether to subordinate and, if so, present the subordination to the EDA Board at a monthly meeting," Deputy Attorney General Jonathan Allen wrote to the court in July.

Michael L. Diamond is a business reporter who has been writing about the New Jersey economy and health care industry for more than 20 years. He can be reached at mdiamond@gannettnj.com.

This article originally appeared on Asbury Park Press: Judge may decide if Sea Bright Mad Hatter can return years after Sandy