THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Saturday, June 8, 1996 TAG: 9606080269
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY ALEX MARSHALL, STAFF WRITER
DATELINE: NORFOLK LENGTH: 93 lines
The city will withdraw its application for federal loan guarantees and borrow the $33 million from a group of private banks to build the luxury Nordstrom store at the MacArthur Center mall, Mayor Paul D. Fraim said Friday afternoon.
As collateral, the city will put up Scope, Chrysler Hall and the new Waterside convention center. The bank loans are not bonds and will not apply to the city's legal debt levels as regulated by the state. If all goes well, the debt will be paid through lease and tax revenues from the MacArthur Center mall, city officials said.
The mayor said the new loan agreement eliminates the final hurdle for the $300 million mall project. The Norfolk Redevelopment and Housing Authority, which owns the downtown property, is expected to sign final lease agreements with The Taubman Co. next week, and to turn the property over to private contractors in early July.
The change in financing methods means there will no longer be a contractual guarantee that more than half of the 300 jobs at the new Nordstrom store will be made available to low- and moderate-income workers.
The city decided to drop its attempt to win the loan guarantees from the U.S. Department of Housing and Urban Development because Norfolk was unable to resolve differences over those income requirements for employees at the store.
Nordstrom had balked at a demand by HUD that the new store hire 51 percent of its employees from low- and moderate-income backgrounds. The chain had committed only to making such jobs available to such job seekers.
Fraim said the city would still be committed to working with the developer - The Taubman Co. - and Nordstrom, to make sure many or most of the 3,000 jobs at the entire center would go to low- and moderate-income workers. When the MacArthur Center opens in 1998, the new downtown campus of Tidewater Community College will train residents for jobs at the center.
Fraim and Deputy City Manager Darlene L. Burcham, were upbeat about the financing switch, even though they had pursued the HUD guarantees for years. The federal agency had actually approved the loans twice, but stiffened requirements when it came time to finalizing the agreement.
At a meeting in Washington on Tuesday, Fraim said HUD Secretary Henry G. Cisneros and Deputy Secretary Andrew Cuomo seemed close to dropping some of the disputed requirements. But differences still remained, Fraim said, and time was a factor. The city is set to sign the lease agreements with the mall developer next week, and will turn over the property to private contractors in early July.
In addition, Fraim said, borrowing from the group of banks, led by Crestar, has some financial advantages.
Unlike HUD, the banks will allow the city to make only interest payments during the two years of construction. The principal will not have to be paid until after the mall opens.
The banks are also giving the city more flexibility in when to seek the money, which, Fraim said, could mean lower interest rates.
Although the city had earlier contended that the HUD guarantees would ultimately mean better interest rates, the agency would have forced the city to borrow at set dates, regardless of whether better rates could be obtained at a different time, Fraim said.
The banks' willingness to lend the money shows their faith and support in the project, Fraim said. Led by Crestar, the group of banks includes First Union, Central Fidelity, Signet and First Virginia, city officials said.
``We are confident that the MacArthur Center will bring significant long-term benefits to the citizens of Norfolk and the region, and we are pleased to be able to play a lead role in structuring the financing for the Nordstrom store,'' William K. Butler, president of Crestar's Eastern Region, said in a prepared statement.
Another advantage with the private loan, Fraim said, is that the city will not be risking the city's Community Development Block Grant funds. If the loans were not paid on schedule, HUD would have required the city to repay them with the block grants - about $6 million a year which is used to renovate and redevelop low-income neighborhoods.
The new loan agreement also may mean the city no longer has to await approval of its building plans from the state Department of Historic Resources, a requirement that could have delayed construction. State officials have said that the city needed their approval because it was using HUD money which required complying with federal requirements on building in historic areas.
The city is paying to build the Nordstrom store as an incentive to draw the luxury department chain to this market. The city is also building $50 million in parking garages, making $12 million in street improvements and is paying $6.5 million to relocate a fire station. In all, the city is putting more than $100 million into the $300 million project.
But with except for the street improvements and moving the fire station, the city's contribution will be paid back if the center does well. The city expects to turn a $1.5 million profit from tax revenues the first year, even after paying all scheduled expenses.
The loans will be made to the Norfolk Redevelopment and Housing Authority, which owns most of the land where the mall will be built.
On Monday, in what is expected to be a formality, NRHA commissioners are scheduled to vote on authorizing the agency to borrow the $33 million from private banks.
KEYWORDS: MACARTHUR CENTER MALL FUNDING FINANCING by CNB