EASTVIEW MALL SIGNATURE RETAIL TENANTS ATTACTION PROJECT, REVISED 8/4/10

 

PROJECT DESCRIPTION

This project involves assistance to attract a mix of signature retail tenants to Eastview Mall.  It will take the form of business incentives, including associated building, space and site improvements to the existing main Mall structure, in order to attract new upscale tenants that will be unique to western New York.  The attraction of these “signature retail tenants” is part of the ongoing strategy to reposition the tenant mix and continue to upgrade and “upscale” the Mall.  This project includes a significant private investment by the owner as part of an aggressive program of capital improvements and tenant upgrades.  These improvements are necessary to continue to improve the tenant mix upgrades at the Mall and to position it to successfully attract additional key signature retail tenants.  This project and assistance from the Ontario County Industrial Development Agency are critical to maintaining Eastview Mall as a major regional destination for retail shopping in upstate New York.

This private/public partnership is essential to assuring that the Mall maintains high quality retail space and levels the playing field in a larger market area.  Without these incentives and associated private investment, the competitive advantage and long term viability of the Mall will be compromised and it will decline.

 

SIGNATURE RETAIL TENANTS

Signature retail tenants (SRTs) are retailers that generate significantly greater sales per square foot than other retailers.  These high-end retailers are often referred to as regional destination stores because of the large market area from which they draw.  More specifically, a SRT is a tenant that differentiates the Mall and has a reasonable expectation to increase Mall sales over the aggregate Mall sales trends.

 

OWNERSHIP STRUCTURE

Great Eastern Mall LP and Eastview, LLC, a Delaware Limited Liability Company, are owners of the properties that make up the project.  They together are referred to as the Company. 

 

EASTVIEW MALL DEVELOPMENT CHRONOLOGY

  • 1972 - Eastview Mall opens, with McCurdy’s (now Bon Ton), Sibley’s (Kaufman’s, now Macy’s) and Sears as the three major anchor tenants.
  • 1989 - Major expansion announced; project is eventually delayed due to general economic conditions.
  • 1993 - Project Redevelopment Plan and Tax Increment Financing structure approved by the Town of Victor, to include an approx. 435,000 square foot addition at a total cost of $53 million, supported by an $8 million TIF.  Two new anchor stores, J.C. Penny and Lord & Taylor added, 100+ fashion stores, food court, and multiple infrastructure improvements made (sewer connection, traffic upgrade and gravel pit elimination).
  • 1994 – Redevelopment Agreement finalized between the Town of Victor and Great Eastern Mall.  Construction begins.
  • 2002- City of Geneva adopts local law in July and Town of Victor issues concurring resolution to establish Eastview as an Empire sub-zone.  Sub-zone covers all of existing mall with the exception of Kaufman’s (now Macy’s), Sears, J.C. Penney and Lord & Taylor, and includes future expansion space on site of former Jo-Mor Theatre, western side of  Kaufman’s (now Macy’s) and Regal Theatre footprint.
  • 2003 - $25 million “lifestyle expansion” announced to include three major restaurants and numerous upscale retail stores, as well as additional infrastructure improvements.
  • 2006 – Amendments to Empire sub zone to include Lord & Taylor store, and two connector parcels between former Jo-Mor site and the regal Theater footprint.
  • 2007 – New LL Bean (27,000 square foot) retail store announced on site adjacent to existing mall on former Jo-Mor theater location. The store opened in July 2010.
  • 2009 – Anthropologie (7,000 square foot) retail store was announced.  This chic women’s apparel and home furnishings retailer opened in early 2010.  Its only upstate New York store is at Eastview.

 

THE PROJECT  

The entire Eastview Mall property is made up of several parcels with different owners and businesses.  The Company, through the ownership entities noted above, owns the main Mall, which is made up of numerous small shops, the food court, the new front entrance, common areas, associated parking, etc. The Company also owns the satellite building that houses Raymour & Flanigan, Viking International, and Ethan Allen, as well as the free standing bank building. All these uses are on a single tax parcel (tax account #6.00-1-12.1), which is referred to as the "Mall/Developer Parcel". The L.L. Bean property is identified separately as a sub-parcel of the Mall/Developer Parcel (tax account #6.00-1-12.100/bean).  In addition, the Company owns three other tax parcels at Eastview Mall-- Regal Cinemas (tax account #6.00-1-12.5), the Common Blvd parcel (tax account #600-1-3.5) adjacent to Eastview Commons, and a narrow vacant parcel off Rt. 96 south of the B.J. Wholesale parcel (tax account #600-1-12.8). 
There are five other major parcels that are adjacent to and are associated with the Company’s properties.  The associated buildings are located on their own "pads" and occupied by the five anchor stores - Macy’s, Bon Ton, Lord & Taylor, J.C. Penney and Sears.  These parcels are individually owed, not under the control of the Company and are currently not part of this project or application. However, Phase 2 of the project as discussed later may involve the inclusion of one or more of these parcels for improvements related to the attraction of one or more signature retail tenants.

The specific project involves obtaining assistance from the Ontario County Industrial Development Agency (OCIDA) to help to reposition the tenant mix in the Mall and to attract new signature retail tenants.  The project will be carried out in two phases.  Phase 1 involves several million dollars of capital improvements and upgrades to existing space in the Mall that will help reposition the tenant mix over the next several years.  This is necessary in order to position the Mall to successfully attract SRTs.  Phase 2 involves $21 million of financial assistance for improvements and inducements to attract SRTs to the improved portion of the Mall.  This is projected to result in $40-45 million of private investment.  Phase 2 was originally projected to begin 2014-2016.  However, as will be discussed later, there is an immediate opportunity that could advance to the attraction of a SRT by several years.  This would allow the community to realize the project’s positive impacts sooner and provide even greater financial benefits to the tax jurisdictions.

Retail attraction is highly competitive and these key SRTs typically consider and compare multiple locations simultaneously before making a final decision.  Therefore, in order to attract these signature retail tenants, incentives and financing need to be in place before any commitment is made by the retailers, and well before any construction begins.  With the help of OCIDA assistance, the project requires substantial funding for incentives and related improvements as part of an improvement and inducement program.  This will augment the considerable private investment that will be made by the Company. 

 

WHY INCENTIVES ARE NECESSARY

Signature retail tenants are in great demand not only because they generate considerable sales and sales tax revenue, but because they create an “anchor” in the Mall and are synergistic with many of the nearby retailers. The addition of new stores is necessary for malls to retain its core customers and expand the trade area, ultimately resulting in positive sales growth. These upscale retailers command incentives because of their cache, increased sales tax revenue, higher traffic, increased and higher quality employment, and overall wealth creation.

In addition, increased competition from other malls, such as the Medley Center in Irondequoit and the Destiny USA in Syracuse, are affecting what incentives Eastview Mall must offer.  We have confirmed that mall owners in Buffalo (Walden Galleria), Rochester (Medley Center), and Syracuse (Destiny USA) have been in contact with many of the signature retail tenants Wilmorite is pursuing for Eastview.  Realizing that Eastview Mall is a major economic driver makes Ontario County, in some capacity, an ideal partner in helping attract these new signature retailers.  There is a real risk that their location at another nearby mall would shift shopping patterns away from Ontario County and significantly diminish Eastview’s impact on the local economy.  

 
TAX INCREMENT FINANCING AND EMPIRE ZONE DESIGNATION

Two economic development programs have been important to helping Eastview Mall maintain its competitive position in the today’s challenging retail market.

The first is Tax Increment Financing (TIF).  This municipal financing mechanism uses the increases in assessed valuation and resulting property tax revenue associated with the redevelopment of eligible areas to help pay for the cost of that redevelopment.  Essentially, a municipality will set real property taxes in the area at their pre-development level.  Any increase in real property taxes resulting from the increased valuation of the property due to the development (“the increment”) will be used to pay for the redevelopment.  The law also allows municipalities to contract indebtedness for TIF projects without pledging the full faith and credit of the issuer, thus making TIF debt not subject to a municipality’s state constitutional debt limits.  

As part of the Mall’s long term investment strategy, tax increment bonds were issued in 1994 by the Town of Victor on behalf of the mall in the aggregate amount of $8,000,000.  The proceeds of these bonds were used to finance the acquisition of part of the Mall, for town improvements, and for the expansion at that time.  This involved approximately 109 acre parcel on NYS Route 96 and Town improvements that consisted of the reclamation of an unsightly gravel pit and certain infrastructure improvements including roads, sewage and water facilities upgrades.  The expansion was a total of 435,000 additional square feet to the Mall that included new retailers such as Lord and Taylor and J.C. Penney, and a food court.  The TIF program covers that portion of the 1994 Mall expansion. 

It is important to note that under current plans, the 20-year TIF program ends in 2014 at which time approximately $1.1 million in associated property tax payments per year from all properties involved in the Town TIF program that are paid and used for TIF program improvements will begin to be fully available to all the tax jurisdictions, distributed on a standard proportional basis.  This amount includes approximately $813,000 in TIF program payments being made from the Company-owned properties involved in this project in the 2010 Town/County tax year and the 2009/2010 School District tax year. 

The second economic development tool is the State Empire Zone Program.  In 2002, the City of Geneva and the Company entered into a partnership agreement for the inclusion of Eastview Mall (as a sub zone) into the City’s Empire Zone Program through a formal boundary amendment.  In return for providing this acreage, the agreement established a working arrangement between the Mall and the City to advance Geneva’s regional tourism efforts. 

This original Empire Zone designation covers all of the then-existing main Mall, with the exception of Kaufman’s (now Macy’s), Sears and J.C. Penny, as well as the Regal Theater footprint, and future expansion space on site of the former Jo-Mor theater and an expansion area due west of Kaufman’s (now Macy’s).

In 2006, there was a proposed addition to the sub zone, to include the Lord & Taylor store, and two connector pieces between the former Jo-Mor development site and between that parcel and the Regal Theater footprint.

The 1994 Town TIF program and the Empire Zone Program have become essential tools to supporting the continued growth and repositioning of the tenant mix at Eastview Mall to date.

 

ONTARIO COUNTY’S ROLE

Today’s challenge is to take Eastview Mall “to the next level” in the very competitive retailing industry.  The Company has proposed to partner with the OCIDA and obtain assistance in carrying out this attraction and improvement project.  OCIDA assistance is critical to the success of this effort.  In order to successfully attract the signature retail tenants (in Phase 2), the Company is asking the OCIDA to commit now to providing a Full/Fixed Tax Agreement (FTA) program that could be incorporated within its standard IDA straight-lease and bond finance transactions.  And with the consent of the affected tax jurisdictions, the OCIDA and the jurisdictions are being asked to agree to a property tax payment program generally equal to the full taxes that would normally be paid, and be asked to further allow the difference between the full taxes and an otherwise negotiated amount (the “increment”) to be used to pay debt service related to the Phase 2 inducement package.  It is critical to obtain all the required commitments now for this FTA program so that the needed inducements are in place to successfully attract these signature retail tenants.

While it may be technically possible to use the all property tax payments to support this inducement program, this is not what is being requested.  Since only a portion of the tax payments would be paid and used for debt service, the proposal is for a larger portion of the Mall, ideally the entire mall (outside of the portion that is currently under a Tax Increment Financing (“TIF”) Agreement, to be included in this program. This will result in increasing the increment to a size sufficient to support the incentives and related improvements currently contemplated by Eastview Mall.

All affected tax jurisdictions would continue to see revenue benefits from the project.  Currently the Victor School District (in the 2009/2010 School District tax year), the Town of Victor and Ontario County (in the 2010 Town/County tax year) collectively receive about $1.5 million a year in property tax payments from the entire Mall site’s properties. Of this amount, approximately $852,000 comes from the Company-owned properties involved in this project.  As noted earlier, once the TIF ends in 2014, the tax jurisdictions would receive an additional $1.1 million per year from those properties participating in the Town TIF program.  This includes approximately $813,000 from the Company-owned properties involved in the project.  The proposed FTA program would provide greater certainty of future property tax revenues by establishing a fixed payment amount now for all Company-owned parcels during Phase 1.  Further, the payments to all tax jurisdictions will increase 2% per year during the five-year Phase 1 period that ends in 2016. 

When Phase 2 begins, the established amount for the Company-owned parcels and possibly others would remain fixed, but increase by 3% annually for the following 25 years.  During Phase 2, the amount of property taxes collected above these set amounts is the increment, which would be paid and used each year to cover the debt service costs associated with the inducement package.  A tax program of fixed payment amounts (with set annual increases) will not only provide all tax jurisdictions with revenue certainty, but safeguard against possible future property tax reductions from these properties, which have occurred in the past.  This FTA program will help preserve and strengthen the value of Eastview Mall as well as those properties in the surrounding area, thus assuring continued growth in property tax revenue for all the tax jurisdictions.

While IDAs are typically limited by General Municipal Law in their ability to provide financial assistance to retail projects, there are exceptions.  These include projects that are located within an Empire Zone area, or that serve as a “tourism destination” by attracting a significant number of visitors from outside the area.  In either case, Eastview Mall qualifies for assistance from the OCIDA.  In addition, it is important to note that this project is in keeping with the County’s adopted strategic plan, which recognizes the need to attract “signature retail projects” to the Mall to assure its long term success.

 

ECONOMIC IMPACTS OF THE PROJECT

Eastview Mall continues to be a major economic driver in Ontario County.  It generates a considerable amount of sales taxes and serves as a critical revenue source for Ontario County, and for all the towns, villages and cities in the county who receive a share of the total collected.

The full economic impacts of Eastview Mall and this proposed project were the subjects of a recent economic impact analysis recently completed by Fairweather Consulting for the Ontario County Industrial Development Agency.   The study evaluated the public costs associated with the project as well as the direct benefits, such as increased sales tax and property tax revenues.  It concluded that the attraction of signature retail tenants and this specific project represent an overall net positive economic impact for Ontario County and for each of the affected tax jurisdictions. This picture becomes even more positive when considering other direct and indirect impacts, such as the creation of new jobs and associated new spending, and the impacts from the increased value of nearby properties.  The report also discussed the effect of the “no action” alternative; that is, the economic impact of maintaining the status quo and not undertaking this project.  Here the consequences can be serious.  With no action, retail facilities will decline over time as their market position deteriorates, resulting in a reduced retail activity and lower sales per square foot.  The net effect on a community would be, among other things, a decline in property tax revenue and sales taxes collected from these centers.

It is clear from this economic impact report that the successful attraction of signature retail tenants to Eastview Mall is critical for its long term success and for assuring that the Mall remains an important economic driver in Ontario County.

 

STATUS OF LOCAL REVIEW AND THE OPPORTUNITY AT HAND

Following discussions with each of the affected tax jurisdictions in 2008, an application was submitted to the Ontario County IDA on November 6, 2008.  At that time, all the tax jurisdictions were notified of the application and that their consent would be required to use a portion of the future years’ (in Phase 2) tax payments (the “increment”) as part of the proposed FTA financing program.

On January 26, 2009, the OCIDA held a public hearing on the application at the Victor Town Hall.  At this hearing the results of the OCIDA’s economic analysis of the project were presented by Consultant Peter Fairweather.  A second public hearing has been scheduled by the OCIDA for August 9, 2010 in the Victor Town Hall.

The Company is proposing to obtain County IDA approval now for Phase 1 and to set the fixed payment schedule for a 30-year period.  It continues to work with all the tax jurisdictions to secure their consents to pay and use future additional payments (the “increment”) for debt service as part of Phase 2.  As part of their consideration of the request to consent to the FTA program, the Town of Victor and the Victor School District have been actively reviewing and analyzing the application and project.  Each tax jurisdiction retained a consultant team to advise them.  Over the last 18 months, representatives of the Company have attended several meetings and provided considerable information to the consultant teams.  During this time, Company representatives met several times with representatives of the Victor Town Board as well as had meetings with consultants for the Victor School District.  We understand that both consultant teams have completed their analyses of the project.

While the successful attraction of a Signature Retail Tenant(s) (SRTs) was originally projected to occur in 2014-2016, an opportunity has presented itself to secure a commitment from a major SRT now, which would advance development by several years.  This opportunity underscores the need to secure all approvals related to the OCIDA application now, especially the consents by the three tax jurisdictions for Phase 2 of the FTA financing program.  It is critically important that these consents are obtained as soon as possible so that the Company knows that it can offer this incentive as it negotiates with the SRT(s).

If the Company is successful in attracting the SRT sooner and Phase 2 begins before 2014, it has offered to refinance the balance of the TIF bonds.  This would make available earlier approximately $1.1 million in annual tax payments to be shared by the three tax jurisdictions.  In addition, the Company has also agreed as part Phase 2 of the program to increase the annual tax payments for each tax jurisdiction by 3% per year, instead of 2% per year that was in the originally submitted OCIDA application.