Mall project clears critical hurdle Monday

Tim Sittema

Council, IDB approve TIF extension, grant, roadway work

The proposed redevelopment of the Oak Ridge mall cleared a critical hurdle on Monday when city officials agreed to extend a property tax agreement for the 59-acre project, authorize $2 million in roadway and other infrastructure work, and offer a $500,000 grant if some federal funding is not approved.

Officials described the proposed redevelopment, named Main Street Oak Ridge, as an $80 million project that could fill a “hole in the heart” of Oak Ridge, bring new retail life to the city’s downtown, and build a lasting legacy.

Monday’s moves were meant to reduce the risk for four local lenders that could combine to offer $13 million in loans to part of the redevelopment under a tax increment financing, or TIF, agreement. That incentive would use new property tax revenues generated at the mall site and 120 surrounding acres included in the TIF area to repay those loans. Officials said the loans could be repaid in 18 years, according to financial models.

David Bradshaw

But in two separate special meetings on Monday, the Oak Ridge Industrial Development Board and Oak Ridge City Council agreed to extend the TIF term from 20 years to 30. That extra 10 years is meant to act as a “shock absorber” and help make sure that the banks are repaid if there is a “glitch” in the project that would push the repayment past the previously approved 20-year term, officials said.

“This is not a ‘home run’ project for us as financial institutions,” said David R. Bradshaw, Oak Ridge president of CapitalMark Bank and Trust, one of the financial institutions that could participate. But, he added, “It is the right thing to do for the community.”

City officials and project executives described the redevelopment as complicated. It’s not a typical “greenfield” project, Oak Ridge City Manager Mark Watson said, because it includes demolition and rebuilding. But he said property values at the mall site, where previous redevelopment efforts have failed, have dropped from about $60 million in 2002 to $6 million today, and the city might have lost some $5 million to $6 million in sales tax revenues.

Mark Watson

It’s time to turn that around, city officials said.

“We’ve basically been a city with a hole in our heart,” Watson said. “It’s time to fill that hole.”

City officials have repeatedly expressed optimism that, if anyone can successfully redevelop the mostly empty mall property, it’s Crosland Southeast, the North Carolina firm that has had a purchase contract on the site since January 2013.

Tim Sittema, a partner in Crosland Southeast, said developers have whittled down the list of main issues from 2,000 a few years ago to two today. He said the TIF financing was a big hurdle, and he was more optimistic after Monday’s votes.

“Without that, the project would have been dead,” Sittema said of the TIF financing.

The local lenders haven’t agreed to make the TIF loans yet, though. They have to be approved by loan committees, Bradshaw said. Crosland Southeast hopes to have answers within about a month.

The original 20-year TIF was endorsed and approved by Oak Ridge officials and Anderson County officials last fall and approved by state officials this winter. The revised TIF term could be considered by the Anderson County Commission in October.

Sittema said the other remaining issue is site leasing. He said Crosland is negotiating leases and letters of intent with potential tenants representing more than 70 percent of the retail space at Main Street Oak Ridge.

“We’ve made significant progress,” Sittema told the City Council, saying he is pleased with the potential tenants and the volume of prospective retailers.

He said demolition could start in the first half of 2015, and new stores could open in the middle of 2016. A site plan published last week shows a mix of anchor stores, smaller “junior” retailers, large and small shops, restaurants and retailers, and outparcels. The existing enclosed space between the two remaining anchor stores—Belk and JCPenney—would be demolished, and Main Street Oak Ridge could contain about 400,000 square feet of retail space in multiple buildings, up to 100,000 square feet of office space and a hotel, plus the construction of up to 50 multi-family residential units.

The IDB approved the 10-year TIF extension in a 6-0 vote on Monday. IDB Secretary and Treasurer Chris Johnson abstained. Johnson is president and chief executive officer of ORNL Federal Credit Union, one of the potential local lenders.

Tom Beehan

A few hours later, the City Council approved the extension in a 6-1 vote.

“Retail is needed in Oak Ridge, and it is going to have a lot of benefits,” Oak Ridge Mayor Tom Beehan said. “I’m very supportive and happy to see that we are finally here.”

“This is a legacy issue, as far as I’m concerned, for this city,” Council member Charlie Hensley said. “This is a community project. It’s a team effort.”

Council member Trina Baughn cast the lone “no” vote. She said she had to look at the deal from a risk mitigation standpoint.

“We’re in essence putting all of our eggs on the sales tax revenues,” Baughn said. “We need to be very careful about how far we’re going to extend our risk so we don’t make the mistakes we’ve made in the past.”

Responding to a citizen question about public risk later in the meeting, though, attorney Mark Mamantov, who helps the city on tax incentive deals, told Oak Ridge officials they would have no obligation to pay the project debt.

“You have no legal responsibility to pay for it if there is a shortfall,” he said.

The IDB approved the $500,000 infrastructure grant in a 5-1 vote, with Johnson abstaining again and board member Dave Mason voting “no.” The IDB grant would be used as a financial “backstop” if the city does not get a $1 million federal grant from the U.S. Department of Commerce Economic Development Administration. Mason had asked how the IDB grant to the mall project might affect the city’s ability to provide power to parcels at the Horizon Center industrial park in west Oak Ridge.

Besides Mason and Johnson, IDB members present at Monday’s meeting were Chair David Wilson, Vice Chair Buzz Patrick, and board members Harold Trapp, Richard Chinn, and Lou Dunlap. Board members Hal Osucha and Melissa Freiderich were absent.

The public infrastructure improvements later approved by Council in a 6-1 vote—Baughn again voted “no”—would include the rebuilding of three private roads: Main Street East, Main Street West, and Wilson Street. In addition to rebuilding those private streets to public road standards, the improvements would also include the relocation and placement of underground power and communications lines along Rutgers Avenue between Walmart and Wilson Street. The total estimated cost of that project is $2 million, with $1 million of that coming from $800,000 in reserves and $200,000 from the Fiscal Year 2015 Capital Project Funds.

The remaining $1 million would either come from an EDA grant, or the $500,000 IDB grant and $500,000 from TIF proceeds.

“I want to see this project succeed,” Baughn said. “I really do. But this is a great deal for the developer.”

Sittema disagreed.

“This is not a ‘fat deal’ for anybody,” he said. “This project is a very difficult project.”

But, he added, “We’re committed to trying to make this happen.”

A Main Street Oak Ridge site plan from Tuesday, without tenants shown. (Submitted image)

Watson said Crosland Southeast has already gone through more than 50 project designs and spent hundreds of thousands of dollars. He said a successful renovation of the mall property would encourage a “tremendous return of shoppers.”

That was a line echoed by City Council member Anne Garcia Garland.

“We’ve lost volumes of sales tax to Turkey Creek, West Town…shortly to Hardin Valley,” she said, referring to shopping centers and communities in neighboring Knox County.

Main Street Oak Ridge could attract shoppers to the city that are now going elsewhere, Garcia Garland said.

A TIF has previously been used in Oak Ridge, although on a much smaller $600,000 scale, at the Woodland Town Center on South Illinois Avenue.

See the Monday night City Council meeting agenda and mall resolutions here.