Thursday, December 15, 2011

A Tale of Two TIFs: Redeveloping Truman Corners

UPDATE: The Grandview TIF Commission met on Dec. 14 and unanimously recommended RED's redevelopment proposal for the Truman Corners Shopping Center. For more details on RED's proposal, see below. ARMC's proposal was not recommended by the TIF Commission. However, the Board of Aldermen will still consider both proposals and is expected to do so on Jan. 10. 
In general, the commissioners said they felt RED's proposal, while it could potentially put the city at financial risk, was closer to what Grandview's citizens are demanding: more places to shop, and a totally revamped shopping center. The commission expressed frustration with ARMC, the current owner, saying the company has had a long time to make a success of the center and has not done so, in essence calling ARMC's proposal "too little, too late." 
For full coverage of the Commission's final recommendation, see the Dec. 22 issue of the Jackson County Advocate.

Two developers are courting Grandview for the right to redevelop Truman Corners shopping center.
The city’s TIF Commission on Dec. 7 and 8 heard proposals from RED Development and  ARMC, the center’s current management company. Another developer, WestStar, also submitted a proposal but later pulled the plan.
The commission postponed a recommendation for one week, and met again on Dec. 14, after the Advocate press deadline (see online for update). The Board of Aldermen will make a final decision, but that vote has not yet been scheduled.
RED’s proposal would demolish the current center and start from scratch. It calls for a new grocery store on a pad site in front of the center, a decorative plaza for public events, and potential retailers such as T.J. Maxx. No retailers have been secured, however, since RED is not the current developer. Their plan does assume that Sam’s Club will be leaving Grandview in the near future, and suggests that some of the shopping center’s current retailers would have to be relocated.
RED seeks some $41.3 million in public financing–almost half the total project costs. RED also wants the city to back the bonds for the TIF, which could put the city at risk if the project does not perform as expected.
The American Resurgence Management Company’s (ARMC) proposal is essentially an extensive face-lift of the current center. It includes demolishing the vacant Montgomery Ward building to make way for a new Price Chopper. They also have a letter of intent from Burlington Coat Factory to move into a remodeled version of the current Price Chopper building.
ARMC seeks about $8.6 million in public financing for a $47.9 million project. ARMC did not ask the city to back the bonds, and will bear the burden of any risk for the project.

RED’s Proposal:
Truman’s Landing
RED’s proposal, Truman’s Landing, would be a $91.3 million, 545,000-square-foot brand-new shopping center with one large anchor tenant, an expanded grocery store relocated to a pad site in front of the center, and new retail and pad users.
A public plaza or pavilion area would be a prominent feature of the new development. RED would also realign the 15th St. connection between Harry Truman Dr. and Blue Ridge Blvd., and upgrade water, sewer and storm water infrastructure.
The plan assumes that Sam’s Club will relocate to another city.
Aaron March, an attorney for RED, said the company believes it can make a success of the aging shopping center because Grandview’s population is changing.
“IHOP is causing the city to burst at the seams,” March said, referring to the influx of members of the International House of Prayer into Grandview.
Dan Lowe, a senior partner with RED, said he doesn’t understand why the current owners have failed to make the center a success.
“There has got to be more for the property than what sits there today,” Lowe said. “We know the potential a market like Grandview has, and it really causes us to scratch our heads, the shape Truman Corners is in.”
RED officials say there are not any tenants under contract, because they don’t yet own the shopping center, but that it would focus on trying to bring in a retailer like T.J. Maxx to anchor the development, and suggested possible tenants such as Bed Bath & Beyond, Men’s Wearhouse, and Payless Shoes.
Lowe said not all the current businesses at Truman Corners “meet the profile RED would like to attract,” and that several existing businesses would have to be relocated. He specifically mentioned Oil Plus as one that would have to relocate.
RED’s plan also assumes that Sam’s Club is leaving Grandview, but Mayor Steve Dennis said he’s been in contact with officials in Bentonville, Ark., where Sam’s is headquartered. Dennis said he’s been assured that the store has no formal plans to move any time soon, and that Grandview officials would be given plenty of advance notice if it does.
But RED officials presented Sam’s departure as a certainty.
“Everything we hear – and if you call Bentonville, they won’t admit it – but everything we hear is that Sam’s Club is leaving for Raymore or Lee’s Summit,” said attorney Aaron March, who represents RED. 
March wouldn’t say why RED is so certain Sam’s is leaving, saying he “can’t get into that” due to attorney-client privilege.
“All I can tell you is Sam’s is currently negotiating leases in other cities,” March said. “Our project will only go forward if Sam’s is vacated. If we didn’t believe that was going to happen, we wouldn’t be here.”
RED is requesting nearly every form of public incentive Grandview can offer, including some $25.4 million in tax increment financing (TIF), $2.4 million in City Supplemental TIF, a $7.7 million Transportation Development District, and a $5.8 million Community Improvement District – all together, some 45% of the total project costs.
March said “nothing will ever happen” at the shopping center unless Grandview is willing to offer significant incentives.
“We feel the fundamentals of the Truman Corners project are better than any other opportunity in the southeast part of town,” March said. “But this is a very difficult project. It’s hugely complicated and we’re using every arrow in our quiver in terms of state and city incentives to make it happen.”
RED projects that if their proposal is approved, it would generate some $2.2 million in annual sales tax for the city, as opposed to the $1.9 million it is currently generating. Over the 23-year life of the TIF, March said, the city would generate some $35.1 million in sales tax revenues, while the Hickman Mills School District would receive some $11.3 million.
But Tom Kaleko, an independent financial consultant hired by the city, said it’s important to remember those are just projections, and that actual numbers could vary.
Kaleko also cautioned that RED is requesting that the city back bonds issued to pay for the project. That’s a risk, he said, because if the center doesn’t generate the projected revenue to pay back the bonds, the city would have to make those payments out of its General Fund or its credit rating could suffer. But for that to happen, Kaleko said, the projected revenues would have to be off by about 25%.  
Kaleko pointed out that RED is requesting that the city acquire properties by eminent domain if it fails to negotiate a satisfactory sale price with current landowners, and if that happens, it could throw off RED’s projections. 

ARMC’s Proposal:
 The Grand
ARMC’s proposal, The Grand, would be a 375,400-square-foot, $47.9 million redevelopment of the shopping center. It calls for the old Montgomery Ward building to be demolished, and a new Price Chopper would be built on that site. Potentially, a Burlington Coat Factory would remodel and occupy the current Price Chopper site. The plan envisions adding new parking lots, landscaping and trees to the site, with a park-like pedestrian area for public events and a retaining wall and new pad sites on the “back side” of the center.
The proposal is more conservative than the RED plan, in that it goes more slowly in five phases, with the Price Chopper and Burlington site completed by 2014, but the rest waiting until market demand calls for it. It costs less than RED’s plan because the developers already own the property.
Sam’s Club – which the company does not own – was not included in the proposal, but Bill Moore, an attorney for the developers, said they would be willing to extend the TIF later if Sam’s moves.
James McMahon, ARMC president, acknowledged that the company has been slow to bring tenants to the shopping center and that its former TIF plan was revoked by the Board of Aldermen last year when it failed to produce results.
“Things are different now,” he said. “We’re struggling to stay in this game.”
He said the previous plan anticipated Home Depot moving to the site, but that they were outmaneuvered by developers of the Bannister Mall area. The plan was contingent on finding a 150,000-square-foot retailer, which ARMC was unable to do.
Carl Lasala, leasing agent for the center, said a revamped and renewed look would improve the developer’s chances of filling out the rest of the shopping center, once the new Price Chopper is constructed.
“It won’t be the same old Truman Corners,” Lasala said. “You’ve got to sell some sizzle with the steak, and we’ve got a whole lot more sizzle. We buy with our eyes first. When they see it, they’ll like it, and they’ll buy it. I think we’ll make the best of it once we get a new face on the old girl.”
While RED produced a list of potential clients, McMahon said ARMC chose not to produce a list of “maybes,” choosing to rely instead on a solid commitment from Price Chopper and its letter of intent from Burlington.
ARMC is requesting some $8.6 million in TIF. It anticipates that the project would generate about $28.6 million in sales tax for the city over the 23-year life of the TIF, and about $17.6 million for the Hickman Mills School District.
Commissioner Mark Trosen asked why the project’s reimbursable costs included $5.5 million for “soft costs” not related to infrastructure, such as marketing the facility. He questioned whether that was legal.
Representatives for the developer said it was necessary because an extensive re-branding campaign would showcase a new and improved Truman Corners to the wider community.
Tom Kaleko, the city’s independent financial consultant, said it was legal to do so, even though most TIF plans focus more on “hard costs” like infrastructure. He did caution that a letter of intent – like the one ARMC has with Burlington – is not a signed contract, and that “you can back out of a letter of intent any time.”
Kaleko said a strength of ARMC’s plan was that unlike the RED plan, it does not ask the city to assume responsibility for making bond payments if the center doesn’t perform.
“The developer is assuming all the risk here,” Kaleko said.

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