THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Sunday, January 19, 1997 TAG: 9701200224
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY ALEX MARSHALL, STAFF WRITER
DATELINE: NORFOLK LENGTH: 113 lines
Years of work and millions of taxpayer and private dollars come together in a fat stack of documents that spell out just what must be done by whom to build the $300 million MacArthur Center shopping mall downtown.
Released by the city this month, the documents are sets of leases and operating agreements between the Norfolk Redevelopment and Housing Authority and The Taubman Co., the mall developer, and Nordstrom and Dillard's, the two anchor department stores.
They bind the developer, department stores and city to a set of of big financial commitments. The stores and mall developer hope to make millions in profit. The city hopes to reap millions in new tax dollars.
The leases stipulate an opening date for the mall of March 12, 1999. The original plan was to open in the fall of 1998, but that proved too ambitious.
Preparing the leases and operating agreements took more than a year, and involved numerous delays. The leases were scheduled to be signed last June, which in itself was a delay from a previous closing date. The leases were eventually completed in December of last year.
More than 20 attorneys were involved, said one city attorney involved in the negotiation, and work was always cordial but slow and complex. Each major group - the municipal government, the NRHA, Nordstrom, Dillard and Taubman - had their own team of attorneys, including specialists in shopping center law, bond issues and easement agreements.
The final product included a lease between NRHA and Taubman, a lease between NRHA and Nordstrom, and two agreements signed by all parties on parking, and another on operating the center. The documents total perhaps 500 pages in length.
The MacArthur Center mall, now under construction, fills a hole in Norfolk's downtown vacant since cleared in urban renewal almost 40 years ago. The three-story, $300 million mall will have two department stores and space for a third, plus movie theaters, restaurants and more than 100 speciality stores. The city expects it to not only boost tax revenues, but to spur a new wave of development downtown.
There are signs this is already happening. Last week, the city announced the development of $22 million in townhouses downtown, and the renovation of two historic buildings on and off Granby Street.
Landing the luxury department store Nordstrom was pivotal to getting the mall. But Norfolk, in a deal similar to one struck by other cities, is paying dearly for the Seattle-based retailer to put a store here.
Under the agreements, the city is obligated to reimburse Nordstrom up to almost $37 million for the cost of building its store. This includes a payment of $1 million to Nordstrom for any in-house costs. The money cannot be used to buy merchandise for the store.
Taubman kicks in $3 million toward building the Nordstrom store, as well. That reduces the city's contribution.
So what does the city get for giving Nordstrom a store?
One big payback will be city taxes. Nordstrom will also pay the NRHA a minimum of $200,000 a year, plus a percentage of the store's gross sales.
In addition to the $200,000 annual lease payment, Nordstrom will pay the city 1/2 percent of all sales between $40 million and $50 million; 1 percent between $50 million and $100 million; and 1 1/2 percent of all sales over $100 million.
If Nordstrom does $100 million in business a year, the city would collect $750,000 annually.
Under the agreements, Nordstrom can leave town or close the 160,000-square-foot store only if less than 65 percent of the mall is leased. In addition, the agreements prohibit Nordstrom from renaming the store Nordstrom Rack or Nordstrom Factory Direct, its budget outlets.
Under the lease, the only practical way the Nordstrom store could change its name is if the Nordstrom corporation is sold or bought out, or the Nordstrom corporations sell their department stores in Maryland, Washington and Virginia.
Not included in the documents are Nordstrom's agreement not to open a similar store within a 50-mile radius of MacArthur Center. This is in a separate legal agreement between Taubman and Nordstrom, and is not open for public inspection, said a city attorney familiar with the documents.
The city and Taubman are in the process of searching for a third anchor store. The operating agreements say the third anchor should be a store like Macy's, Hecht's, Neiman Marcus, Parisian, Jacobson, Lord & Taylor, Bloomingdale's or Saks Fifth Avenue.
The third anchor tenant should be a 150,000-square foot department store, the lease says, except in the case of Jacobson, Lord & Taylor or Saks, in which case a store of 70,000 square feet would be allowed.
The lease between the NRHA and Taubman MacArthur Associates Limited Partnership, a subsidiary set up by The Taubman Co. of Michigan, detail requirements put on the mall developer. They are also spelled out in a lengthy set of agreements that govern the construction and operation of the mall.
The commitments by Taubman include:
That Taubman must pay the NRHA $200,000 rent in the first year. After that, it increases by $100,000 up to $500,000 the fourth year. After that, the rent increases by $15,000 every year.
The mall must be ``a first class regional shopping center'' comparable to The Fashion Centre at Pentagon City or Westfarms Mall in West Hartford, Conn.
Taubman may sell its interest in the mall two years after its completion. By contrast, Nordstrom is required to operate its store for 20 years.
Most the commitments run for 20 years and can be renewed for 10 year periods. The commitment by the city to spend $50 million for mall parking facilities is the city's single biggest financial contribution.
The city is required to build four parking spaces for every 1,000 square feet of leasable space in the mall, but not less than 4,650 parking spaces within two parking garages flanking the mall. Taubman will be responsible for building the garages, but will be reimbursed by the city up to a maximum of $44 million.
In addition, the city is obliged to improve the Freemason Street garage, already under way, which should boost the city's total spending on parking to roughly $50 million.
The leases detail that the mall will occupy 21.3 acres. This includes 9.5 acres of parking, 1.5 acres for Nordstrom, 2 acres for Dillard and 8.3 acres for the more than 100 stores, movie theaters and restaurants that are planned for the rest of the mall. ILLUSTRATION: Color drawing
An artist's sketch of an entrance to the MacArthur Center