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Continued: Mall of America revises its plans for expansion

  • Article by: SUSAN FEYDER , Star Tribune
  • Last update: February 5, 2009 - 10:20 AM

After failing three times to get the public financing it wanted to pay for part of a $2 billion expansion, the Mall of America won't be making another pitch to the Legislature this year.

Instead, it's considering building the 5.6-million-square-foot project in phases, with a first phase of about 3 million square feet that could be done by 2013. The rest would be delayed indefinitely.

The change could allow the mall to tap a modified subsidy package passed by the Legislature last year that authorizes the city of Bloomington to impose new taxes to help fund the project. "It's not enough to support 5.6 million square feet at one time," said Kurt Hagen, vice president for development at Triple Five Corp., the mall's owner. The public financing is for a parking ramp and other infrastructure improvements, not for the mall itself.

The original plans have called for a 300,000-square-foot Bass Pro sporting goods store, an upscale Marriott Renaissance Hotel, a Great Wolf Lodge with an indoor water park, and 1.4 million square feet for about 250 other tenants. A first phase probably would scale back non-anchor tenants to 800,000 square feet, Hagen said, and it would still include a skating rink in the common area.

It's unclear how Bass Pro and Great Wolf would fit into the first phase because it must be redesigned.

The Marriott could proceed, because it's to be built between Macy's and Bloomingdale's on the south side of the existing mall, while the rest of the expansion would be on the north side.

Hagen said mall and city officials are working together to determine how to design a tax package and how much of the first phase it could support.

Bloomington City Manager Mark Bernhardson says he's not sure how long it will take to decide which taxes would be appropriate and generate the required revenue. The city could impose an additional citywide lodging tax of up to 1 percent. It also could levy on-site taxes at the mall, including a sales tax of up to 1 percent, a food and beverage tax of up to 3 percent, and a tax of up to 1 percent on tickets for entertainment venues.

"Without public financing the chances of doing this are zero," Hagen said. He said it could take as long as a year to come up with a final development plan for a first phase of the expansion.

Mall officials hope that by then the credit markets will have recovered so that Triple Five could get private financing for the project. "One thing that gives us confidence is that in 2007 we had several banks that were interested," said Maureen Bausch, executive vice president for development at the mall. Bausch and Hagen said that's not the case in the current market.

Bass Pro, Great Wolf and Marriott would be responsible for financing their portions of the expansion. Representatives of all three said they remain interested in coming to the mall.

Hagen said Triple Five would handle the balance of the privately financed portion of the planned expansion, which could come to about $1 billion for the initial 3 million square feet.

Early last year mall officials said lenders would require an equity investment of about 20 percent of the project's cost. But credit markets have tightened even more since then, and aren't likely to loosen anytime soon.

Thomas Crowley, a commercial real estate investment banker with Minneapolis-based Dougherty Funding, said the equity investment requirement now could be as high as 40 percent, or about $400 million of the estimated $1 billion cost. A consortium of lenders, rather than a single financial institution, could wind up dividing up the loan amount.

The past year has seen commercial real estate developers nationwide struggle under massive debt loads. Little is known about privately held Triple Five's financial structure. Twenty years ago, it took on partners when the mall was built because it was unable to line up permanent financing on its own.

Triple Five became the mall's sole owner in 2006, when it paid about $1 billion to buy out the interests of Simon Property Group and Teachers Insurance and Annuity (TIAA-CREF).

GE Commercial Corp. loaned $104 million to Triple Five to help it buy out Simon and Teachers, according to Securities and Exchange Commission (SEC) documents filed by the lender.

Deutsche Bank's website also disclosed a $755 million loan to Triple Five for the mall at about the time of the former partners were bought out.

Crowley, the investment banker, said lenders for the mall's expansion probably would require that more than half the space be leased in advance. "They're lucky they're not underway right now with the way retailers are collapsing," he said.

Area retail experts also say finding new tenants could be a challenge for quite a while because few new and unique retail concepts are being developed.

"Everybody is so risk-averse," said Andrea Christenson, a vice president who specializes in retail for the Twin Cities office of Colliers Turley Martin Tucker. She also said some tenants could balk at the relatively high cost of doing business at the mall, where vast common areas require large outlays for security personnel.

So far that hasn't hurt the mall, which boasts an occupancy rate of around 95 percent, slightly higher than the average for the area's regional malls, according to Bloomington-based NorthMarq.

The mall's sales in 2008 rose by 2 percent, less than the 7 percent in 2007, but still relatively healthy in the current depressed retail market.

Susan Feyder • 612-673-1723

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