1
AMERICAN DREAM: IS THERE A FUTURE FOR
STALLED MALL ON THE NJ MEADOWLANDS?
JOHN REITMEYER, ILYA MARRITZ, SUSAN BERFIELD | DECEMBER 12,
2016
Canadian developers say they're building more than a mall,
it’s also an international tourist destination — one that would be partially
funded by $1 billion in tax incentives
This is the first installment of Mall Madness, a five-part
series on the American Dream retail and entertainment complex under
construction in the Meadowlands. The series was produced through a reporting
collaboration between WNYC, NJ Spotlight, and Bloomberg Businessweek. The
second story, third story, the fourth story, and fifth are also availale
online.
“It makes me angry every time I drive by it,” said Matt
Reagan, expressing a sentiment likely shared by many New Jerseyans about the
multicolored behemoth of a building in the Meadowlands now known as American
Dream.
Reagan, a Rutgers Law student who was flipping hamburgers
while tailgating at nearby MetLife Stadium before a Bruce Springsteen concert
this summer, sees the huge, empty structure as a symbol of New Jersey’s waste
and failure — and the inability of the government to get anything done.
“They’ve already had more than enough money to build what
they wanted to build, and they haven’t done it,” he said.
Construction on the project that drew his strong criticism
began in 2003, and two separate developers have tried and failed to finish a
mixed retail and entertainment center once called Xanadu. They hoped it would
revitalize a Meadowlands sports complex that had suffered through the decline
of horseracing and its once-popular sports arena. Now, a third developer,
Canada-based Triple Five, has taken over the project. The company is trying to
emulate what’s made its Mall of America a big success in Minnesota, intending
to transform the sprawling complex into more than just a mall, but a
destination that will attract international tourists as well as millions of
visitors from New York and New Jersey.
But even as Triple Five says it’s moving ahead with an
ambitious $2.65 billion finance plan to pay for the major construction that’s
still needed to bring the developer’s vision to life, questions remain about
whether a megamall that was first dreamed up more than a 13 years ago remains
relevant in a new era in which online shopping is becoming a dominant force. To bring Triple Five onto the
project, Gov. Chris Christie also had to pledge government tax incentives to
the private developer, and the size of the incentive package has now grown to
over $1 billion, although none of those tax breaks can be redeemed unless the
project eventually opens its doors and turns a profit.
Even if all does go right and the project becomes a success,
public records indicate the annual net benefit for New Jersey will be an
estimated $36 million. Most of the permanent jobs that will be created by
American Dream will also pay less than $20,000 a year, according to the public
records, a small sum for East Rutherford, the town in which the project is located,
where median household income runs close to $80,000.
Meanwhile, public records also indicate that as the project
has moved forward over the past several years, there is one group that has made
money on it — those with political ties to Christie. Campaign contributions
have also flowed back to the governor over the same period.
Putting together the
financing
Christie unveiled Canada-based Triple Five as the project’s
new developer in 2011, saying it had the wherewithal to finally complete a
project that had already left two prior developers, Mills Corp. and Colony
Capital, in shambles. The difference, Christie said, was that for Triple Five,
which is run by Canada’s Ghermezian family, the project would represent more
than just a place to make some cash.
“That’s
what we needed all along,” Christie said at the time. “Someone who didn’t want
to use this as a way to make money, but as a showpiece, a centerpiece for their
development. And that’s what the Triple Five group will do.”
But right now, American Dream is facing what will almost
certainly prove to be a make-or-break moment as Triple Five is trying to close
on its $2.65 billion construction-finance plan. After holding back from making
public comments for weeks, company officials are now saying the deal will close
soon, possibly before the Christmas holiday.
In all, Triple Five is trying to generate $2.65 billion from
investors, some through a complicated $1.15 billion bond sale, but public
confidence has not been running high after the company missed its own early
November deadline to complete the financing deal. And that delay comes after
another planned bond sale was postponed last year. So it remains unclear
whether the financial market has any interest in a three-million-square-foot
retail and entertainment center that’s located less than nine miles from Times
Square.
Christopher Leinberger, an experienced developer who chairs
George Washington University’s Center for Real Estate and Urban Analysis, said
typically the financing for successful commercial-development projects comes
together like “a magnet gathering up little pieces of metal.”
“My experience with financing real-estate projects is that
either it comes together quickly or it doesn't come together,” he said.
But company president Don Ghermezian said Triple Five’s
financing plan remains very much alive. In fact, he is now predicting the
entire financing package will close later this month.
“The financing is 100 percent committed,” Ghermezian said
during a recent interview held at company’s American Dream leasing office and
showroom across overlooking the site in East Rutherford. “The financing will be announced
very, very shortly.”
A major expansion of the Xanadu project’s original design
concept is already underway in an effort to bring American Dream more in line
with Triple Five’s other malls, which feature massive entertainment attractions
like indoor theme parks and full-size ice-skating rinks in addition to a retail
component.
Ghermezian said he’s just hoping that New Jersey residents
can give the company “a little bit more patience,” promising they will
definitely be impressed by the final product.
“People that live in New Jersey that want that feel like we
are a world-class state with a world-class project on par with any project in
the world, I think that this project will be a tremendous (source) of pride for
New Jersey,” Ghermezian said. “There’s no doubt in my mind.”
“We’re putting everything we have into it” he said.
A key
component of Triple Five’s finance plan is the sale of tax-exempt bonds backed
by the pledged government tax incentives, which total $1.15 billion. A
New Jersey Transit rail line also already serves the sports complex, which
helps the project by providing it with a crucial rail link to Penn Station in
New York — at no cost to the developer. Last year officials at the New Jersey
Sports & Exposition Authority also unexpectedly shut down the Izod Arena,
which is also located in the sports complex, ensuring its operations would not
interfere with any of the construction work at the adjacent American Dream
site.
Jobs, wages, and taxes
Christie and Triple Five officials have defended the
government’s involvement in the project by saying the state will benefit in the
long run from the jobs and tax revenue that the project will create. And the tax incentives are
structured in a way that forces Triple Five to first open its doors to the
public and turn a profit before any of the incentives are paid out.
But the
net benefit for New Jersey, as calculated by the New Jersey Economic
Development Authority, an agency that has approved a $390 million portion of
the tax-incentive package, is $730 million spread out over two decades. That
breaks down to roughly $36 million a year, which is about one tenth of 1
percent of the state’s overall $34.5 billion spending plan for the current
fiscal year.
The EDA’s long-term projections also indicate that most of
the roughly 10,000 permanent jobs that will be generated by American Dream – if
it proves to be a success – will pay less than $20,000 a year.
That’s not enough income to afford even a one-bedroom
apartment in most of the communities that surround the sports complex in Bergen
and Hudson counties, according to rent totals tracked annually by
affordable-housing activists. Such compensation would also likely mean many of
the American Dream employees could qualify for state public-assistance programs
and the Earned Income Tax Credit.
Senate Majority Leader Loretta Weinberg, a Democrat from
Bergen County who has been raising questions about the development effort for
years, said she remains unconvinced that the state’s investment will be worth
the financial commitment.
“I don't know what kind of economic engine that is,”
Weinberg said.
“You need to pay people enough that they in turn can go
shopping and pay for a roof over their head, buy food and take care of their
kids,” Weinberg said. “If you don't do that, then you're undermining the whole
underpinning of our economy here.”
But officials from Triple Five say their economic estimates
are much higher than those the EDA used to calculate the size of the tax
incentive. The company has roughly 500 people working at the site now, and is
spending $28 million to $30 million each month. They eventually expect there to
be 23,000 construction jobs and another 23,000 jobs created or supported once
American Dream opens, with $50 million in annual tax revenues from construction
and another $133 million from the permanent jobs.
“We’re creating tens of thousands of jobs, we’re creating an
incredible tax base and revenue for the state of New Jersey,” Ghermezian said.
“These are taxes that we’re creating that otherwise would not exist in the
state of New Jersey.”
Ghermezian also suggested that New Jersey residents, who
have long complained about the existing buildings’ multicolored exterior, will
be happy with the exterior of the project once its completed. “We’re getting
rid of all these colored Lego blocks, whatever it is,” he said.
John Reitmeyer is the budget and public finance writer for
NJ Spotlight. Ilya Marritz is a reporter/producer for WNYC. Susan Berfield is a
reporter for Bloomberg Businessweek.
2
BRICKS OR CLICKS? THE AMERICAN DREAM
MEGAMALL VERSUS ONLINE SHOPPING
JOHN
REITMEYER, ILYA MARRITZ, AND SUSAN BERFIELD | DECEMBER 13,
2016
American Dream's developers argue that they’re not just
building a mall, they’re creating a global destination
This is the second installment of Mall Madness, a
five-part series on the American Dream retail and entertainment complex under
construction in the Meadowlands. The series was produced through a reporting
collaboration between WNYC, NJ Spotlight, and Bloomberg Businessweek. The first
story and the third
story, fourth
story, and fifth are
also available online.
As the retail industry undergoes a massive transformation
thanks to new technology and online shopping, is there any mall out there that
can be considered “Internet-proof?” Maybe not, but that’s exactly what Triple
Five, the developer of the American Dream megamall in the Meadowlands, is
betting on.
American Dream, the garish, multicolored complex that sits
alongside the New Jersey Turnpike in East Rutherford, is designed to be not
just a mall, but a giant entertainment destination, featuring an amusement
park, full-size ice-skating rink, indoor ski slope, waterpark, towering
observation wheel, and, oh yes, some stores, too.
Whether that vision will turn into a reality is very much in
question right now, but the success of the project hinges on it. And as retail
experts say physical stores are becoming less and less popular with shoppers,
it begs the question of whether New Jersey could be doing something else to spur
economic development with 90 acres of state-owned property in the Meadowlands,
especially as the state’s warehouse industry has taken off.
But back in 2003, when the mall was first launched and
construction started under the name “Xanadu,” the primary focus was in-person
shopping, with some entertainment features also sprinkled in. Now, consider how
much has changed: Black Friday, which has traditionally kicked off the holiday
shopping season, just passed with more sales completed online through the long
weekend than in person at stores and malls, according to national retail
figures.
Those sales figures bode well for New Jersey’s budding
e-commerce industry, thanks to warehouses used by Internet retailers like
Amazon and Peapod, the online division of grocery giant Stop & Shop, that
have popped up across the state. But not necessarily for retailers that have
built or leased giant facilities in New Jersey.
Still, Triple Five, which also owns Minnesota’s Mall of
America and Canada’s West Edmonton Mall, maintains it is ready and able to face
the retail industry’s increasing shift away from in-person purchases. The
company has spent the past few years trying to expand its construction plans to
emphasize the nonretail attractions of American Dream that they hope will make
it a destination, not just for the New York/New Jersey region. The firm points
to the success it has had with Mall of America, where international shoppers
fly directly to Minneapolis just to visit its world-famous mall.
In fact, during an interview last week Triple Five President
Don Ghermezian called his company’s business model “Internet proof.”
But when Gov. Chris Christie, a Republican, first ran for
office in 2009, he was critical of the project formerly known as Xanadu, and a
report prepared by the then-Gov.-elect’s transition team also called the earlier version of the planned megamall “a
failed business model.”
By 2011, Christie, ambitious and looking for ways to
jumpstart a state economy struggling to recover from the Great Recession, had
changed his tune and decided to get behind the project and offer more direct
support than any of his Democratic predecessors. His administration put up tax
incentives for the project, and the government incentives have now grown to
over $1 billion. Christie’s own explanation for that reversal centered on the
dilemma of deciding what to do about an already vacant, $2 billion complex, one
that he called “the ugliest damn building in New Jersey” thanks to its
notorious multi-colored exterior.
“To me, it’s not an option to let it fail at this moment,
because that’s not without costs either,” Christie said during a 2011 interview
with WNYC Public Radio. “That would cost at least $100 million to take the
place down.”
But
after five years, Triple Five is still trying to generate the money needed to
finish construction at the American Dream site. In all, the company wants to
raise $2.65 billion from investors, but a planned $1.15 billion bond sale
that’s a major part of Triple Five’s finance plan is now more than a month
late. So it’s still uncertain whether investors will ever be interested in
buying enough stakes in the planned three-million-square-foot entertainment and
retail center to get it to the planned opening date of fall 2018.
Last
week, Ghermezian said the company would close on its financing deal before
Christmas, but yesterday a statement issued by Triple Five said the target for
the bond sale is now January.
Analysts across the country have been pointing to a decline
in retail, and a recent New Jersey Business & Industry Association survey
predicted the industry would be one of only a few expected to go backward in
New Jersey in 2017.
According to Suzanne Mulvee, the director of U.S. retail
research for CoStar Portfolio Strategy, up to one billion square feet of retail
across the country could eventually just “go away.”
“To put that in perspective, it’s a huge amount,” Mulvee
said. “If you think about a retailer like Target for example … that would be
about 10,000 of those Targets.”
The problem, Mulvee explained, is retail companies before
the onset of e-commerce were trying to impress Wall Street by adding more and
more locations. Retail itself was also booming as a cultural phenomenon, with
movies like Mallrats and the popular Milton Bradley board game called “Mall
Madness.”
Driven by big-box chains like Wal-Mart and Target, Mulvee
said the overexpansion carried right through the boom years in the housing
market.
“We built too much space and it became this game of market
share,” she said.
In contrast, New Jersey right now seems to be in the midst
of an e-commerce boom. Anne Strauss-Wieder, director of freight planning for
the North Jersey Transportation Planning Authority, discussed companies like
Amazon, which has opened facilities in recent years in place like Carteret in
Middlesex County and Robbinsville in Mercer County, as an example of this
trend.
“Nowadays we look at a screen,” Strauss-Wieder said. “We buy
something and it shows up at our doorstep. We may not be going to stores, but
that inventory has to be somewhere and has to be readily available to us, the
consumers,” she said.
Exit 8A off the New Jersey Turnpike now has 70 million
square feet of distribution property in its immediate surroundings. The
location itself has become known as a key e-commerce hub throughout the world,
even in places as far away as South Korea, Strauss-Wieder said.
One of the new warehouses that she pointed to is located
under the Pulaski Skyway in Jersey City, just miles from the American Dream
complex in the Meadowlands. The 475,000-square-foot facility is being used by
Peapod.
Peapod is aiming to become the go-to grocery-delivery
service for all of New York City and the surrounding region. The facility
already employs 500 people in the warehouse, and another 250 drivers.
Inside the warehouse, a shopping basket that Peapod calls a
“tote” travels automatically on a conveyor belt before stopping in front of a
stack of products that an online customer had already requested. In all, there
are more than seven miles of conveyor belts in the facility. And in another
section of the warehouse, lines of trucks were backed up against open bays
waiting to be filled with each customers’ selections.
“It’s all about automation now, being able to get the
product to the customer faster,” said Lynn Blasio, senior director of the
Peapod warehouse.
Yet up the road in East Rutherford, Triple Five is still
sticking with its vision of a retail-entertainment destination that is the
hallmark of its other malls, which opened in 1992 and 1981.
The reason, according to Ghermezian, lies in the plan to
create something more “experiential” than a traditional shopping mall — one
that would allow a customer to buy ski equipment and then immediately try it
out on American Dream’s planned indoor ski slope. The megamall would also
feature a huge indoor garden, restaurants staffed by famous chefs, and movie
theaters that will have private viewing suites, all to make it more of a
destination than a mall.
The retail component will also feature flagship stores with
brands that right now aren’t available in New Jersey. More than 70 percent of
the retail space is already filled, Ghermezian said. Still, retail will only
make up about 50 percent of the total American Dream project, a smaller
percentage than Triple Five’s other successful locations, he said.
“For us, we’re not shopping-center developers,” Ghermezian
said.
He also didn’t shy away at all from talk of a declining
retail market. “We are Internet-proof because you can’t go to a theme park on
the Internet. You can’t go to a hundred different restaurants or eating
establishments, you can’t go to the largest indoor waterpark in North America
or ski hill or ice rink on the Internet,” he said.
Capt. Bill Sheehan, the Hackensack Riverkeeper, said he also
believes that American Dream will be a success. The clean-water activist and
lifetime resident of the Meadowlands region is predicting a boost for the local
economy as well.
“It’s going to be a real uptick in the local economy once it
gets moving, once it’s finished and all the entertainment and all the
restaurants and everything are in there,” Sheehan said.
“I have faith in the people in New Jersey that they will at
least come here once to see what it’s all about, and there are eight million of
us,” he said.
http://www.njspotlight.com/stories/16/12/12/bricks-or-clicks-the-american-dream-megamall-versus-online-shopping/
3
ALL IN THE FAMILY: THE CANADIAN
CLAN BEHIND THE AMERICAN DREAM MALL
JOHN
REITMEYER, ILYA MARRITZ, AND SUSAN BERFIELD | DECEMBER 14, 2016
The
Ghermezian family has two hugely popular megamall/entertainment complexes to its
credit, and some troubling flops
This is the third installment of Mall Madness, a five-part
series on the American Dream retail and entertainment complex under
construction in the Meadowlands. The series was produced through a reporting collaboration
between NJ Spotlight, WNYC Public Radio, and Bloomberg Businessweek. The first story, second story, fourth story,
and the fifth are
also available online.
When Gov. Chris Christie decided he was going to try to salvage
the long-planned and half-built megamall in the Meadowlands that for years was
called Xanadu, he turned to a family from Canada with Iranian roots to get the
job done.
Best known for its sprawling Mall of America in Minnesota, the
Canadian Ghermezian family and its company Triple Five are also the owners of
the successful West Edmonton Mall in Canada.
Credit: Jewish Archives and Historical Society of Edmonton and
Northern Alberta
Ghermezian
family (ca. 1999): Jacob Ghermezian (seated center) brought the family to
Canada in the 1950s; Nader Ghermezian (standing left) is now the chairman of
Triple Five.
Christie announced New Jersey’s partnership with the Ghermezians
— which included a pledge to provide a significant government sales-tax
incentive — with much fanfare back in 2011, touting their accomplishments in
retail and real estate. He predicted the New Jersey mall, renamed American
Dream Meadowlands, would open by early 2014.
“You just look at their track record at Mall of America, at the
West Edmonton Mall,” Christie said at the time.
“These gentlemen are very
good negotiators and they will get deals done to get people in here and to get
this place operational,” Christie said of the Ghermezians.
But the megamall in the Meadowlands has still not opened, and
missing from Christie’s public introduction of Triple Five and the Ghermezian
family was a more complete description of the developer’s background and
business history, including some of Triple Five’s thwarted mall-development
efforts in places like Las Vegas, New York, and Maryland. An official who worked on one of
these projects says that he was never contacted by New Jersey to discuss what
went wrong, raising questions about whether New Jersey truly did its due
diligence.
And while some now suggest the Christie administration should
have been focused more on Triple Five’s losses than its wins, others staunchly
defend the Ghermezian family, Triple Five, and its megamall vision. Triple Five
president Don Ghermezian also says he has “no fear” that American Dream will
ultimately prove to be a success — even as many in New Jersey remain skeptical.
The Ghermezian family’s roots go back to Iran, but Jacob
Ghermezian, who is Don Ghermezian’s grandfather, brought his wife and four sons
to North America in the 1950s. Triple Five, a private corporation, was founded
in 1972.
Nearly 10 years later, the company opened the West Edmonton Mall
in Alberta. Spanning more than 5 million square feet, the mall, according to
Triple Five, draws more than 30 million annual visitors, attracted not only by
its stores, but also an indoor wave pool and amusement park, some of the same
features the developer is hoping to eventually open at the American Dream site
in New Jersey.
Triple Five’s other flagship site is the Mall of America, which
opened in 1992 in Bloomington, MN, just outside Minneapolis. With anchor
tenants like Macy’s and Nordstrom, the 4.2-million-square-foot complex, which
also has an indoor amusement park, restaurants, and other entertainment
features, draws 40 million visitors each year, according to Triple Five.
Although those two malls have continued to operate successfully
for decades, Triple Five itself hasn’t been able to replicate its winning
formula by opening a new megamall anywhere else in North America — though not
for a lack of trying.
Not long before Christie
unveiled the Ghermezians as the new developers for the American Dream project
in New Jersey, a property the company had picked for a project it called the
Great Mall of Las Vegas was lost to foreclosure.
In the 1980s, Triple Five also unsuccessfully pursued a mall
project called Fantasyland in Niagara Falls, NY. And about 20 years ago, the
company pitched a mall development in Silver Spring, MD, that was also never
built. It, too, was also called American Dream by the Ghermezians.
At the time, there were a lot of vacant buildings in Silver
Spring, said Doug Duncan, the former county executive for Montgomery County,
MD, which is a suburb of Washington, D.C. Triple Five was offering to fix the
economic-development problem with one major project.
“We needed something dramatic to save Silver Spring,” Duncan
said. “It had been the economic center for Montgomery County for decades and
had fallen on really hard times as people moved further out from Washington,
D.C.”
The cost of that project
totaled about $600 million, making it more modest than the current American
Dream Meadowlands effort, which will end up costing nearly $5 billion. But
Triple Five was also expecting local taxpayers to pitch in by providing things
like street improvements and upgraded parking garages, Duncan said.
However, after roughly a
year of different meetings, he said it became clear the Ghermezians wanted more
from the local taxpayers. And, as Duncan held firm, the deal eventually soured
and Triple Five never built its American Dream-Silver Spring.
“Every time we met with
the Ghermezians, the terms sort of changed a little bit, and they were constantly
looking to push things over onto the public side of the ledger, versus the
private side,” Duncan said.
“I think they expected us out of desperation to
just keep putting more public money into the project because we needed this
project so badly we would basically give them everything they wanted,” he said.
“They were very surprised when I ended a meeting with them and said, ‘You know,
you don't have the money in it. That's it we're done.’”
In New Jersey, since 2011, the size of the government-incentive
package has increased from $200 million to more than $1 billion, a total that
now includes local redevelopment-tax incentives that have been approved by
state agencies.
Triple Five also inherited buildings already on the development
site worth an estimated $2 billion, and the project will also benefit from a
$185 million Meadowlands rail link that debuted in 2009, before Christie took
office. Still, Triple Five is now trying to raise $2.65 billion in new
financing to finish construction at the complex, with a $1.5 billion private
loan expected to be completed later this month and a $1.1 billion bond sale
planned for January.
Duncan, the former government official from Maryland, said he
would have expected a call from officials in New Jersey doing due diligence
before they struck the deal to bring on Triple Five. But there was no call.
“No one from New Jersey called to do any kind of background
check or anything on them,” Duncan said.
Norman Krone, a former Triple
Five consultant who said he worked on company projects in China, wrote a
cautionary letter to Christie in 2011, the same year that Triple Five was
announced as the new developer of the Meadowlands project. The letter urged the
governor to look more skeptically at Triple Five and its projections, and it
cast doubt on the developer’s ability to find success in the Meadowlands.
“Triple Five has not
developed a significant project in the United States and has, in fact, failed
to implement several large-scale projects in other locales,” Krone wrote to Christie.
Christie declined through a spokesman to be interviewed about
the American Dream project, and a statement provided by his spokesman did not
directly address issues raised in Krone’s letter. Jon Hanson, Christie’s top
advisor on the Meadowlands redevelopment-issue, also declined to be interviewed
until the construction-financing is in place.
Speaking generally about the company’s past failures, Triple
Five president Don Ghermezian said in an interview that Triple Five has
continued to successfully expand its malls in Minnesota and West Edmonton. He
also said the company is firmly committed to finishing its project in New
Jersey, even as it has already started a similar effort in Miami.
“We are very, very selective in the projects we do and where we
go,” Ghermezian said. “The other markets that we didn’t end up ultimately
exercising and moving forward there were market conditions that at the time
warranted that we pull back or not move forward.”
“But there was no project that we’ve come as far as we’ve come
with American Dream and decide to step back,” he said. “There’s no fear on my
part that American Dream will not get built.”
The Ghermezians and their company also have their share of
defenders, including Michael Glanzberg, a principal at New York-based Sinvin
Real Estate who said he is an advisor to Don Ghermezian. Glanzberg calls
Ghermezian an “extraordinary visionary,” and he said because of Triple Five’s
something-for-everyone approach he’s expecting American Dream to be a hit with
international visitors, as well as shoppers from New York and New Jersey.
“Most useful insight I could give is that I do think all the
kids, including Don, they do live in tremendous awe and respect and fascination
of what family before them has accomplished,” Glanzberg said. “They truly feel
duty bound to continue accomplishing more.”
“It’s very old school. It’s really very nice,” he said.
Saul Katz, a former Triple Five official from Canada, said the
family is interested in building “a legacy,” and he also used the word
“visionary” as a description of its efforts.
“It’s unfortunate that people have not understood the
Ghermezians, not understood or (trusted) them, but in my experience, I have
tremendous respect for them,” Katz said. “I can’t say enough good about them.”
4
PUTTING A PRICE TAG ON THE
AMERICAN DREAM
JOHN
REITMEYER, ILYA MARRITZ, AND SUSAN BERFIELD | DECEMBER 15, 2016
Getting
to the requisite $5 billion will require a labyrinthine arrangement of private
loans, bond sales, tax incentives — and a public finance agency in Wisconsin
This is the fourth installment of Mall Madness, a five-part
series on the American Dream retail and entertainment complex under construction
in the Meadowlands. The series was produced through a reporting collaboration
between WNYC, NJ Spotlight, and Bloomberg Businessweek. The first story, second story, third,
and fifth are
also available online.
Tim Lizura, president and chief operating officer of the New
Jersey Economic Development Authority, has more than 20 years with the agency
over two different tenures. He also worked on World Trade Center redevelopment
for the Port Authority.
Yet he didn’t hesitate to answer, “Yes,” when asked if Triple
Five’s American Dream was the most complex state project he’s worked on.
“What makes it complex is the financing that sits behind the
analysis,” Lizura said.
Credit: Adrian Gaut/Bloomberg Business Week
That complex financing
includes a state sales-tax incentive that could be worth up to $390 million,
approved by Lizura’s agency last year. Then there’s a local-redevelopment tax
incentive that could be worth up to $800 million. And rather than waiting to redeem
those incentives over several decades, Triple Five intends to use them to back
more than $1 billion in tax-free municipal bonds that could be sold as early as
next month through a public-finance agency in Wisconsin, all to cover
construction costs.
The developer is also planning to raise another $1.5 billion for
construction through a private loan, which would run the total price tag of the
project up to $5 billion, counting the $2 billion value of a vacant building
inherited from prior developers. And a $185 million government-funded rail line
that opened in 2009 will carry customers to and from the planned mall, which is
located on state-owned property in the Meadowlands.
Triple Five’s attorneys, government-agency lawyers, and other
officials say it’s the very complexity of the finance plan — the way the bond
sale has been structured and the tax-incentive programs designed — that ensures
taxpayers are 100 percent protected if Triple Five to falls flat — as did two
of the project’s prior developers. Others take issue with government being
involved at all, arguing that Triple Five, which is owned by a family worth an
estimated $2.5 billion according to Bloomberg’s Billionaires Index, shouldn’t
need tax incentives in a state where property taxes are at an all-time high and
priorities like education and public-employees pensions routinely go
underfunded.
The reason Triple Five wants to raise $2.65 billion in new
financing is to resume construction on a 90-acre site near the New Jersey
Turnpike in East Rutherford, which was left abandoned by two developers when
the project was called Xanadu. Triple Five, which owns the Mall of America in
Minnesota, renamed its project “American Dream,” and wants to turn it into a
three-million-square-foot shopping/entertainment complex, one that will feature
a waterpark, amusement park, full-size ice rink, and observation wheel.
But to do so, the developer needs the bond sale to go through.
And to get this far that has meant getting approvals from three different
agencies in recent months due to the involvement of the state and
local-redevelopment incentive programs. The bond issue also survived a legal
challenge this summer.
One component of the bond sale involves the financing of
payments-in-lieu-of-taxes (PILOTs) that Triple Five has agreed to make to the
borough of East Rutherford instead of paying conventional property taxes. Since
New Jersey law allows such payments to be used to finance upfront construction
costs for priority redevelopment projects, Triple Five plans to back as much as
$800 million in bonds using the pledged payments, with a maturity date of 2049,
according to a summary submitted to the state Local Finance Board in August.
Another $350 million in bonds will be backed by the up-to $390
million sales-tax break that was approved in 2015 by the Economic Development
Authority. To qualify for that tax incentive, the developer had to demonstrate
its project would create a net benefit for the state, and that the company
couldn’t generate enough financing to finish construction without the state’s
involvement. In this case, the incentive is 75 percent of the project’s future
sales-tax revenue over two decades.
The combined $1.15 billion in unrated revenue bonds will be sold
through a two-step process involving the New Jersey Sports & Exposition
Authority and the Wisconsin Public Finance Authority. The Wisconsin agency —
located nearly 1,000 miles from the Meadowlands — is legally authorized to
issue tax-exempt bonds for projects that aren’t required to be within its
borders. According to Bloomberg, the agency has become a popular partner for
projects across the country that provide some kind of social or economic
benefits and are willing to pay fees for the issuance of tax-exempt bonds.
Yet the bond sale has already been delayed several times this
year, and there are several issues that could give investors pause. The
American Dream site stands on slightly higher ground in the Meadowlands than
other parts of a region commonly referred to as a swamp, but a climate-change report released
just last week by the Regional Plan Association warns that critical
infrastructure running through the Meadowlands could be threatened by three
feet of sea-level rise — a scenario that scientists believe could happen as
soon as the 2080s. A map released by the RPA also suggests American Dream could
eventually become an island surrounded by a large saltwater bay.
Another possible concern for investors is an issue raised by the
Federal Reserve Bank of New York in research published online in 2012 about
municipal bonds, which are generally considered to be safe if unspectacular
investments. The research noted
defaults for municipal bonds are higher than is often reported by rating
agencies because unrated bonds are usually not factored into their assessments.
The report also labeled
revenue bonds such as those being sold by Triple Five as being particularly
risky compared with government general-obligation bonds, which are typically
backed directly by tax revenues.
Christopher Leinberger,
an experienced developer who chairs George Washington University’s Center for
Real Estate and Urban Analysis, also raised questions about how much of its own
cash equity Triple Five is putting on the table. According to documents
submitted to the Economic Development Authority, that amount appears to be $200
million, but Tony Armlin, Triple Five’s vice president, said it’s
actually north of $350 million.
Still, even the higher amount remains just a small fraction of
the overall $2.65 billion that Triple Five is trying to raise from investors to
complete the development project.
“I'll make the prediction that there will be a recession, and
when it comes — I just can't tell you when — when it comes, this project is
going to have some very lean years as far as the revenues that it generates,”
Leinberger said. “To carry it through those lean years you need more than 10
percent equity in the deal. That's why banks are demanding 20 percent to 40
percent equity.”
But Armlin has stressed at government meetings in recent months
that there is absolutely no risk being placed on the state or the taxpayers by
Triple Five’s bond issue. Instead, he said the risk is entirely on the
investors because the bonds are being sold as a “non-recourse,” issue. That
means the lenders will have no grounds to go after taxpayers if the project doesn’t
take off, but it also means they will expect a higher yield.
“Triple Five’s project has been completely transparent and fully satisfied every local, state, and federal approval required,” Armlin said during a New Jersey Sports & Exposition Authority meeting in September.
Lizura, the EDA executive, said there are also protections built
into the state tax incentives themselves. He said the tax breaks approved by
his agency will never make it to Triple Five unless the project opens and is
profitable. As an example of how they work, he pointed to a $261 million
tax-incentive package approved for the failed Revel casino in Atlantic City in
2011. Because the casino went belly up, it never redeemed its tax breaks.
“I think we would have been better off if it operated, for sure,
because the state would have gotten a bunch more money and we would’ve given
some of that back, but there’s really no public money at risk in the way the
program is run,” Lizura said.
Triple Five representatives have also pushed back strongly
against claims that the developer is getting a sweetheart property tax break
through its deal with East Rutherford. The borough will still be receiving an
upfront payment of $21.5 million, and then $2.7 million per year through the
agreement even as the investors are also paid off, Triple Five’s
representatives said. They also note that it was a previous developer that
struck the deal to move the mall from a privately owned tract to the
state-owned sports complex.
“No real estate taxes are being diverted from the State of New
Jersey or the Borough of East Rutherford,” Triple Five’s statement said.
East Rutherford Mayor James Cassella also offered assurances
that borough taxpayers are completely protected, even against a lawsuit if the
developer ends up going under. And he said the borough won’t have to provide
the complex with police or other emergency services in return for the PILOTs.
The state police are in charge of patrolling the sports complex, and the Sports
Authority has a Meadowlands Fire Department.
“There isn’t much you could sue us on because we didn’t conceive
this, give any money to it, or whatever,” Cassella said. “We’re just saying if
you open up, you’re going to pay us,” he said.
But Jeff Tittel, director
of New Jersey’s Sierra Club and a longtime critic of American Dream’s tax
incentives, said the bigger issue is what else could be done with the tax
revenue that has been pledged to Triple Five to help fund its construction
costs. “All of this money could clearly be better spent on building new
schools, taking lead out of our drinking water, and cleaning up our toxic
sites,” Tittel said. “This is clearly one of the biggest sellouts and largest
subsidies in state history.”
5
WHO BENEFITS FROM THE AMERICAN
DREAM?
JOHN
REITMEYER, ILYA MARRITZ, AND SUSAN BERFIELD | DECEMBER 16, 2016
Since
Triple Five took over the megamall project, it has made generous contributions
to Gov. Chris Christie’s campaign coffers, as well as to his political allies
This is the final installment of Mall Madness, a five-part
series on the American Dream retail and entertainment complex under
construction in the Meadowlands. The series was produced through a reporting
collaboration between WNYC, NJ Spotlight, and Bloomberg Businessweek. The first story, second story, third story,
and fourth story are
also available online.
The jury is out on whether the American Dream megamall will ever
become a financial success, but one group has already benefited tremendously
from the project — Gov. Chris Christie and his political allies.
Political donations to Christie’s campaign coffers, legal work
for firms aligned with Christie, and large contributions to the Republican
Governors Association have all occurred since Canada-based developer Triple
Five took over work on the massive American Dream project located on
state-owned land in the Meadowlands in East Rutherford.
Credit: Adrian Gaut/Bloomberg Businessweek
Federal IRS records show the governors association, an
organization that spent $1.7 million on TV ads supporting Christie or attacking
his Democratic opponent during his successful 2013 campaign for reelection in
New Jersey, received a $300,000 contribution from the NJ Laborers PAC, the
political fund of the 20,000-member labor union whose members are in line for
jobs at the American Dream site once construction resumes in earnest.
Credit: Tim Larsen/Governor's Office
Christie spoke about the American Dream project while picking up
the union’s endorsement in person in late 2012, saying it would become a “job
machine for the people of North Jersey.”
The RGA, according to the IRS records, also received $10,000
that year from McManimon, Scotland & Baumann, the law firm serving as a
special counsel for Ameream, Triple Five’s subsidiary for the American Dream
project.
The group that seems to have benefited most from work related to
the American Dream effort is Gibbons PC, a major New Jersey law firm that
employs William Palatucci, one of Christie’s closest friends and advisors. The
New Jersey Sports & Exposition Authority, which is overseeing the American
Dream project, said in response to an open-records request that it has paid
Gibbons $7.42 million in legal fees since 2011. But the agency would not provide
more detailed information despite repeated records requests.
“Gibbons PC, along with other firms, were approved by the NJSEA
board to perform legal services in areas where firms have particular experience
and expertise. Gibbons PC was assigned legal work on a wide array of issues
including the American Dream project,” the NJSEA said in a statement. Palatucci
and Gibbons attorney Peter Torcicollo were among the many firm employees to
make contributions to Christie’s presidential campaign, the records show.
The Chiesa, Shahinian
& Giantomasi law firm, previously called Wolff & Samson — whose
founding member David Samson pleaded guilty in federal court earlier this year
to charges that arose in the wake of the Bridgegate scandal — was also at one
point representing Triple Five, records indicate.
To be clear, the campaign contributions are not illegal, and New
Jersey is a state that is already well known for its long history of
pay-to-play politics, under both Democratic and Republican administrations. But
it was Christie who set a high ethical bar as a candidate for governor in 2009,
running on his record as a former federal prosecutor who aggressively and
successfully targeted political corruption in New Jersey. His 2009
gubernatorial campaign also ran a television ad that year in the wake of a
major summer bribery scandal that promised he would “change Trenton” if
elected.
Christie declined through a spokesman to be interviewed about
the American Dream project. His press secretary instead released a statement,
but it did not directly address a question sent by email asking whether the
campaign contributions have in any way influenced the public-approval process
for the American Dream project.
Federal records also show $10,000 contributions were made
to the New Jersey Republican Party’s federal account earlier this year by two
members of the Ghermezian family, Syd Ghermezian and Aviva Ghermezian. Walrath
and Calascibetta also made $10,000 contributions to the state GOP as well,
federal records indicate.
A statement provided by Triple Five representatives said
political contributions are made from time to time “like many other individuals
exercising their (free-speech) rights.”
“They are not linked to any governmental action,” the statement
said.
Senate Majority Leader Loretta Weinberg (D-Bergen) said she’s
not surprised at all to hear about the campaign contributions.
“It would surprise me if you told me you didn’t come across any
contributions,” she said during an interview in her legislative office.
But she quickly turned serious when discussing the NJSEA.
Backing Triple Five’s planned bond sale are pledged state-tax incentives worth
up to $390 million, and payments-in-lieu-of-taxes through a redevelopment
agreement with East Rutherford that are worth up to $800 million. The
complicated finance plan was approved during public meetings held over the
summer by the NJSEA, but the agency held those meetings during the middle of
the day at an off-the-beaten-path location in the middle of the Meadowlands.
The agency also allows NJSEA board members to cast votes by phone.
Weinberg said she’s
concerned that on the American Dream project there’s simply been “too much
investment on the part of the public with very little public oversight.”
“I think that it just needs to be done with a lot of
accountability and a lot of public oversight, and we don’t have that in a lot
of these autonomous or semi-autonomous commissions,” Weinberg said.
East Rutherford Mayor James Cassella, a Republican, said he
understands that taxpayers may be looking at the project skeptically because of
the reputation that many New Jersey politicians have these days.
“Even though 95 percent of the politicians are probably as
honest as the day is long, it’s people think all politicians are crooked, so
there’s something in it for them,” Cassella said.
But no matter what ends up happening with the megamall project —
Triple Five is now shooting for a fall 2018 opening — Cassella said for East
Rutherford residents, life will continue.
“It’s here, if it opens, fine. If it doesn’t, so be it … our lives
up on the hill here will go on,” the mayor said.
Although Christie once bragged that American Dream would open in
time for the Super Bowl that New Jersey hosted back in 2014, the statement
provided by his press secretary, Brian Murray, also expressed a sense of
resignation about the status of the American Dream project. Christie’s second
term ends in early 2018, well before Triple Five plans to open the doors of
American Dream to the public.
“We have witnessed many different development proposals for this
location, dating back through the administrations of at least four previous
governors,” the statement said. “That experience has taught us that governors
have very little control over these kinds of projects, no matter how beneficial
they may be to New Jersey.”
John Reitmeyer is the budget and public finance writer for NJ
Spotlight. Ilya Marritz is a reporter/producer for WNYC. Susan Berfield is a
reporter for Bloomberg Businessweek.
The Mall Madness series was produced through a reporting
collaboration between WNYC, NJ
Spotlight, and Bloomberg Businessweek.
American Dream Pushes Back Open
Date, Secures $1.6B In Financing
Developer Triple Five
worked with J.P. Morgan and Goldman Sachs to secure the construction funds. It
is slated to be complete in March 2019.
BERGEN
COUNTY, NJ — The developer of the multi-billion dollar American Dream Meadowlands
project has secured $1.67 billion in construction financing for the project.
The
Triple Five Group of Companies announced Friday it worked with Goldman Sachs
and J.P. Morgan to obtain the funds.
"The
construction loan paves the way for the completion of American Dream and allows
uss to aggressively move forward with the construction and opening of this
project," said Don Ghermezian, American Dream president and CEO.
The
91-acre complex is now slated to open in March 2019.
Finishing
the "most expensive retail project on Earth has seen setback after setback
since the ill-fated Xandu project was slated to be built on the site 12 years
ago. American Dream was slated to open this summer, but pushed the completion
date back to the fall of next year because it had difficulty securing $1.1
billion in financing.
Local
officials were pleased with the announcement.
"Projects
like this come along once in a lifetime and while it is understandable for
skepticism to take over with the many long delays we have experienced,"
said Jim Kirkos, president of the Meadowlands Regional Chamber of Commerce.
"The time has come for us to seize this moment and leverage the economic
impact a project like this can have on so many lives."
The
project is expected to bring 20,000 jobs to North Jersey and compete with New
York City as the go-to tourist destination in the area.
Triple
Five is the project's third developer. The family-owned company took over the
project in 2011 and has promised American Dream would be akin to two
world-renowned properties to already owns: The Mall of America in Minnesota and
the West Edmonton Mall in Canada. So far, American Dream seems to be meeting,
if not exceeding, those expectations.
Attractions will
include the largest indoor amusement park in
the western hemisphere, Nickelodeon Universe. DreamWorks, owner of popular
movie franchises such as "Shrek," "Kung Fu Panda," and
"How To Train Your Dragon," is the
official partner of American Dream's water park.
The
first Sea Life aquarium in New Jersey will
feature a tropical ocean tank with a walk-through underwater tunnel.
A huge
adult-style
arcade and bowling alley will give parents a
place to hang out and have fun while kids ride a 300-foot-tall observation
wheel and a 12-story
indoor ski park with an 800-foot-long hill.
Several
retailers, including Banana Republic, Gap, MAC, Microsoft, Zara, Pink and
Victoria's Secret have committed to opening stores there. Luxury retailers Lord
& Taylor, Saks Fifth Avenue, and Hermès will also open stores.
American
Dream could have a positive effect on already-existing malls and shopping
centers, including the Willowbrook Mall and Garden State Plaza, which have been
North Jersey mainstays for decades.
Kirkos
previously said that regional malls near the West Edmonton Mall have expanded
three times in recent years.
"The
Garden State Plaza, the Willowbrook Mall, American Dream is not expected to put
those places out of business," Kirkos said.
There
will be several transportation options for American Dream visitors.
A
commuter shuttle will run between NJ Transit's Meadowlands station and the
Secaucus train station. NJ Transit will also operate a direct bus line from the
Port Authority Bus Terminal in New York City to American Dream.
New York
Waterway is in talks to run a shuttle to take passengers to and from marinas
along the Hudson River along the Gold Coast — Edgewater, Weehawken, and North
Bergen — to the entertainment destination.
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