THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, December 17, 1995 TAG: 9512170042
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: BY ALEX MARSHALL, STAFF WRITER
DATELINE: NORFOLK LENGTH: Long : 226 lines
Sometime next month, Mayor Paul D. Fraim is expected to stick a gold shovel in 20 acres behind Scope and symbolically break ground on the planned $300 million MacArthur Center shopping mall.
The gold shovel is an appropriate symbol of the hopes of the city's leaders. In MacArthur Center, Norfolk could strike a rich vein of gold on a piece of land that has been fallow for years.
In the future city leaders paint, the mall will produce thousands of new jobs, millions in new tax dollars and enliven parts of downtown that have been moribund for 30 years.
Its location dead center downtown - between Scope and the MacArthur Memorial - is part of a comprehensive strategy to revive not only idle land but also idle human resources - the city's poor, who often lack both jobs and skills. Through a related job-training plan, the mall is meant to turn underskilled public housing residents into trained, wage-collecting taxpayers.
But another possible future is just as dramatic. If Nordstrom and other luxury stores fail to lure shoppers downtown, taxpayers could be left with a big debt, less money for other services, worse social problems, and the question of what to do with a million-square-foot empty box.
In the wake of the council's decision to support Nauticus to the tune of $1 million annually, city promises and predictions are being scrutinized more closely. Nauticus, a national maritime museum, has so far failed to live up to promises to be financially self-supporting.
``If there is any possible risk that the taxpayers are going to have to pick up the tab, I think we need a larger voice,'' said Bev Sell, a civic activist. ``Is this the best time to do this, on the coattails of Nauticus? I have a lot of questions.''
Sell, at recent town meetings on the mall, handed out orange lapel stickers reading, ``Stall the mall 'till we know all.''
``They are always talking about all the jobs and taxes they'll bring,'' said James Janata, a civic league leader. ``I don't know if they have proven that case yet. It's just like Nauticus. If the citizens don't buy it, it's dead.''
Here is a look at what residents could gain and lose depending on the mall's success or failure, as well as why the city and its private partners are confident about risking their own and taxpayers' money.
The biggest spender on the project is The Taubman Co., the Michigan-based developer of more than 20 shopping centers around the country. It will spend $200 million to build the bulk of the 1.2 million-square-foot mall and outfit it, say city officials.
Taubman is prepared to put up $200 million because it believes it can turn a profit - and because the city of Norfolk is assuming part of the financial risk.
The city is underwriting Taubman's risk in two ways.
First, it is spending, through several forms, more than $100 million to help develop the $300 million mall. Taubman gets its regular profits from rents and sales, while paying only two-thirds of the mall's cost.
The city is recovering its money not through mall profits but through expected tax revenues.
Taubman's confidence is based on market studies showing that a luxury mall will compete successfully against neighboring suburban malls by offering something that is available nowhere else in the region.
For example, market studies prepared by the city show that in population, education and income levels, Hampton Roads matches Portland, Ore. Yet the Portland area has four luxury Nordstrom stores. Hampton Roads has none. Its first will be the centerpiece of MacArthur Center.
``There is actually more potential in this market than in Portland,'' said Robert Smithwick, the city's development director, who has spearheaded the project.
``You don't come into a community and do something like this unless you know pretty well that you can be successful with it. There is every reason to believe it will be very successful,'' Smithwick said.
Second, the city is reducing Taubman's financial risk in less obvious ways. This comes in helping Taubman avoid big costs it would usually have, say Smithwick and outside analysts.
When developers build a suburban shopping mall, they have to first find an open piece of land among the freeways and subdivisions, and then persuade perhaps dozens of different owners to sell their pieces of it. Assembling land for a major shopping center can take years.
The developer then has to wade through municipal politics and persuade a city council or board of commissioners to zone the land for the type of project that neighborhoods and other groups often oppose, all the while running up legal and regulatory costs.
Sometimes a developer will spend years on a project, only to see a municipal government reject it.
With the MacArthur Center, the city has handed Taubman land, favorable market studies, and municipal approval on a silver platter.
``You take away the uncertainty of winning approval, the uncertainty of assembling a large parcel, as well as the cost of the land itself, it's a tremendous advantage and contribution,'' said Michael Beyard, who specializes in commercial development research at the Urban Land Institute in Washington.
In addition, the city's development office gave Taubman a key tenant - Nordstrom - already signed.
Smithwick said of the project: ``We really played the role of the developer.''
If the mall is as successful as predicted, Smithwick and his office say the mall should produce a cornucopia of goodies, directly and in its overall impact on downtown. He and his office have produced a series of benchmarks they expect the mall to meet.
``It is senseless to invest any dollar, public or private, without a clear plan for that investment to produce a return,'' Smithwick said.
The mall should spur construction of offices and hotels, increase demand for downtown office space, bring more people downtown, fill seats at symphony concerts and put customers in the door of small merchants along Granby Street.
The benchmarks include:
More tax money: In the first 12 months of operation, the mall should generate $6.5 million in sales, real estate and other tax revenues, and cost $5 million in debt service for a net new tax gain of $1.5 million.
Over 10 years, the mall should generate $40 million in net new taxes, Smithwick said. The mall should average $400 million annually in sales over 10 years. On the average, just the sales tax generated by the mall should average $4 million annually. By comparison, raising the real estate tax 1 cent produces about $600,000 annually.
More jobs: The mall should generate 3,000 permanent jobs and 1,500 construction jobs.
Under the terms of the $33 million federal loan the NRHA is using to build the Nordstrom store, 51 percent of the applicants for these jobs must be from low- and moderate-income residents of Norfolk.
To give residents a chance at winning these jobs, the city has created a job training program that will work in part through the new campus of Tidewater Community College on Granby Street.
More offices and hotels: The mall should reduce the office vacancy rate downtown from the present 15 percent into single digits, and increase the average rent per square foot - now at about $15 for class A office space.
In addition, the total value of real estate downtown, particularly land next to the mall, should increase. The mall also should spark construction of another class A hotel - as upscale as the Marriott on Main Street.
More people: The mall should boost attendance at Waterside, Harbor Park and Nauticus; cultural institutions like Chrysler Hall, the Harrison Opera House and the Wells Theatre; as well as total tourism and convention trade and total numbers of people coming downtown.
The mall developers predict that a minimum of 30,000 people will visit the mall daily.
More shops: With the mall in downtown, surrounding small shopkeepers and restaurateurs should increase in number and do more business, not less. The theory is that the mall will bring so many new people downtown that it will actually benefit stores on the street rather than compete with them.
``We have a responsibility to people'' who took the risk of starting smaller businesses downtown, Smithwick said, ``to bring them a broader customer base.''
The city has a chance of gaining these benefits because it is assuming $100 million of the risk.
The mall's success or failure will turn on the allure of Nordstrom, the perception of safety downtown, the ease of parking, and long-term trends such as whether the regional shopping mall is still the foremost vehicle for shopping.
It will have to draw customers in from surrounding areas, from Williamsburg to Elizabeth City.
``It's only a project because you can draw a line from Williamsburg to Dare County,'' Smithwick said. ``You are in the middle of the circle, and all roads lead here. Can they get here? Can they get here and have a safe experience?''
Here is a breakdown of what the city is investing and how much risk taxpayers are assuming.
Including the $6.2 million to relocate the Fire Station No. 1 on City Hall Avenue, which the council approved last week, the city is putting up more than $103 million in loans and direct spending.
Taxpayers would be responsible for more than half this debt in a worst-case scenario.
Here's how the citizens' gamble breaks down.
Water, sewer and roads: The city will spend $13 million installing sewer lines and developing roads and other street improvements around around the mall.
Building a Nordstrom store: The federal department of Housing and Urban Development is lending Norfolk $33 million in low-interest rate bonds, which the Norfolk Redevelopment and Housing Authority will use to build the Nordstrom department store.
If Norfolk fails to pay the money back, the city loses its annual federal Community Development Block Grants until the money is paid back under the terms of the loan agreement. In effect, the city is guaranteeing the federal government that if the NRHA fails to make its payments, the federal government can take away the city's block grant funds. This is money the city now spends for a variety of social needs throughout the city.
Neither David Rice, executive director of the Norfolk Redevelopment and Housing Authority, nor project director Stephen Cooper would release the contract or working agreement between Nordstrom and the NRHA. This document spells out the terms of the repayment schedule between the NRHA and the department store. Nordstrom wanted this information kept private from other competitors, Rice said.
But at a town meeting earlier this month at Lafayette-Winona Middle School, Deputy City Manager Darlene Burcham said the contract called for a $200,000 annual payment from Nordstrom to the NRHA plus a sliding payment scale based on the store's gross sales. This annual payment from Nordstrom would offset a portion of the annual NRHA payments on the $33 million loan from the federal government, Stephen Cooper said. Expected tax revenues would repay the bulk of the annual loan payments, he said. But he would not be more specific.
Moving a fire station: The city is spending $6.2 million to relocate Fire Station No. 1 out of downtown. The land is needed for the mall.
Under this plan, the city will move fire operations to a new station at St. Paul's Boulevard and move fire training to the facility on Thole Street, which will be expanded. Fire administration will move to city-owned downtown office space.
Parking garages: The city will spend $51 million building parking garages around the mall. The city will sell revenue bonds to raise this money, rather than general obligation bonds backed by taxpayers.
Under the revenue bonds, these construction costs will be partially repaid by people who will be charged $1 per three hours to park while shopping at the mall, as well as through parking fines and fees from other garages. In effect, parkers in other parts of downtown will subsidize parkers at the mall.
If the mall is not successful, and the parking garages do not draw enough cars, taxpayers would not be obligated to repay those debts, said Mayor Fraim.
``The taxpayers would not be required to step in,'' Fraim said. ``The full faith and credit of the city is not pledged to back those bonds.''
Land: The city is leasing Taubman 20 acres of land. City Assessor Wayne Trout says the 20 acres is assessed at more than $10 million. He called this figure ``on the low side'' because the city has owned the land for so many decades.
The city could conceivably sell the land and pocket millions of dollars.
Instead, the city is hoping to make even more money through the taxes the mall will generate. The city has not released the lease terms with Taubman but has said it will gain back its expenses primarily through taxes, not direct rent payments.
The cost of providing land to Taubman is not included in overall cost figures for the mall. MEMO: This is part of a continuing series on the planned MacArthur Center
mall.
Next: A suburban mall in downtown Norfolk? by CNB