Posted by John on Tuesday, May 20, 2008 at 3:03pm.
1. "by" is a preposition. "by Magic Castle is a prepositional phrase behaving as an adverb modifying the verb "are passing".
2. Yes, capitalize Magic Castle if it is the name of a specific place.
If it is NOT a specific place then your would say "by the magic castle".
3. If Magic Castle is a specific place it is a proper noun. If it is not a specific place, then it would be an adjective modifying 'castle'.
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