Project follows approval of tax district to help The Mall in Hays
By Ken Stephens
Special to The Hays Daily News
HUTCHINSON -- The new owner of the Hutchinson Mall met with the city council Tuesday and laid out a three-year, $14.65 million plan for refurbishing the mall and re-energizing it with a host of new tenants, including a big department store.
Andy Weiner, president of RockStep Capital, and Korb Maxwell of the Polsinelli law firm in Kansas City also laid out an even longer-term plan for partially financing the refurbishment of the mall through a tax increment financing district and a community improvement district.
To get the ball moving, the council agreed to vote next Tuesday on a resolution establishing a public hearing at least 30 days later on whether to create a TIF district. But an actual commitment of future tax money would still be months away.
The Hutchinson Mall has been deteriorating for a couple of decades, and after Dillard's and Sears closed, more than half the mall is now vacant.
A slideshow presentation projected on a big screen for the council envisions a new national department store, a large regional sporting goods store, a new theater company, a smaller new department store, another junior anchor and eight new specialty stores.
Although Weiner couldn't name specific stores, he said he was meeting with some as recently as Monday in New York.
"Behind those ambiguous names are real tenants we are talking to," Weiner said.
Weiner said it won't happen overnight. "2015 is for getting deals together; 2016 will be the first wave of openings, and 2017 will be the second wave of openings," Weiner said.
Weiner told the council the key to getting new retail tenants in the mall is offering rent as low as possible and capital costs, such as store renovation, fixtures and heating and air conditioning equipment, as low as possible. Because Hutchinson is an underserved market with significant leakage of shoppers who go elsewhere to spend their money, Weiner said, "There's a group (of retailers and restaurants) willing to come here -- if you get the deal right."
The deal has to be right, Weiner added, because sales per square foot of retail space in a small market like Hutchinson will be half to a third of what those retailers can generate per square foot in larger markets, like Houston, Dallas or Kansas City.
"You must provide low rent, well below the cost of new construction, and if you offer low or, heaven forbid, no capital costs to come in, we can get them to come in," Weiner said.
Weiner said the mall "needs to be brought into the 21st Century." Maxwell said RockStep plans to do that by freshening the facades of the mall, repairing the parking lot and adding new signs wanted by retailers, among other things. The rough plan presented to the council Tuesday estimated spending $1 million to resurface the parking lot, $300,000 for new signs and $450,000 for replacing or repairing heating and air conditioning equipment. Updating facades and remodeling store the interiors would cost about $9.65 million, including $3 million for a major department store and $2.5 million for the sporting goods store.
Soft costs, including legal, architectural, engineering, brokerage and finance fees, would total an additional $2 million, and another $1.25 million is set aside for unforeseen contingencies.
Those costs don't include $2.5 million to acquire the mall.
Most of the costs, Maxwell said, would be borne by RockStep and its investors. But they want to use a tax increment financing district and a community improvement district to finance about $6.3 million.
A TIF district would freeze the mall's valuation at its current value for about 12 to 13 years, saving the mall owners about $1.75 million in property tax payments as the value of the mall incrementally increased in value. Maxwell said the mall is now valued at about $3 million but could grow to as much as $8 million as the number of tenants increases.
The savings on property taxes would apply to city, county, community college, library, recreation and some school property taxes. It would not apply to the 1.5 mills paid to the state or the 20 mills collected by the school district for the general fund. However, it would apply to school taxes levied for the local option budget, bonds and interest and the capital outlay budgets.
Any of the other taxing entities could veto a TIF agreement, so City Manager John Deardoff said he would be arranging meetings to explain the potential arrangement and hopefully bring them on board.
The TIF district also would allow the developer to capture an increase in sales tax revenue as well. Maxwell said current sales volume is about $15 million a year, and he estimated that could grow by more than $29 million. That growth would give the developer about $1.5 million in sales tax revenue over the life of the TIF district.
Only city-only sales taxes would return to the developer. It would not affect the county sales tax or the portion of the county sales tax that goes to the city. So the city would still realize some increase in sales tax revenue from a growth in sales.
The community improvement district would mean that shoppers at the mall would pay 1 percent more sales tax at the mall than they would at most other retail locations in the city. The term of that extra tax would initially be set at 22 years, although it would be shorter if the developer recovered his eligible costs before then.
Maxwell and Deardoff emphasized that the proposal does not ask the city or any other taxing entity to sacrifice any of the tax revenue they now derive from the mall. Instead it asks them to waive some increases in revenue for a period of time to make it possible to revive the mall.
"It's a quality of life issue here," Weiner said. "It's upgrading a property into the 21st century. It's making it better for people here and creating jobs here. ... I don't want to be specific as to jobs, but it is real."
Speaking specifically about the requested CID sales tax increase, Weiner said, "1 percent in exchange for a complete recapitalization of an asset that is dying is a good exchange."
Putting all those finance mechanisms in place will take several months, and so Weiner and Maxwell asked the city council to move as quickly as possible to pass a resolution to conduct a public hearing on creation of a TIF district. That public hearing could not occur earlier than 30 days after the resolution is passed. And the public hearing could result only in defining the boundaries of the TIF district and establishing its current tax obligation. It would not commit to giving the developer any future tax revenue. That would come later, after negotiation of a development agreement and other steps.
"We've been waiting for a project like this for a long time," City Council Member Bob Bush said. "I think we should start talking about it as soon as possible."