Mall in Barren Spot Moves Forward with EDA Certification

Sept. 10, 2008 — Island Crossing Shopping Center, a planned mall in Barren Spot anchored by Home Depot, took another step forward Wednesday at a hearing of the Economic Development Authority.
The EDA certified the tax-increment financing (TIF) application from developers of the center, bringing the project one step closer to being the first beneficiary of the new program.
The developer; Caribbean Development Partners (CDP), has applied for $25.4 million in TIF funding. TIF is used in most states to boost development in economically under-served areas. It gives private developers public money to help defray their costs, paying for it by pledging projected future gains in tax revenues from the current improvements that will create those future gains.
The funds are meant to help with associated infrastructure costs, such as roads, sidewalks and utility lines. (See "Governor Approves Economic-Development Proposal, Trims Appropriations.")
In this case, the Public Finance Authority will partner with CDP in seeking bond funding in the open market. The territory will not guarantee the bonds, but will pledge anticipated increased gross receipts and property taxes to pay for them. If the expected incremental increase (tax increment) materializes, the government will pay the bond holder a portion of the new, increased funds. If the tax revenues do not go up, the developer is responsible and the government of the Virgin Islands is held harmless, explained EDA legal counsel Stacey Plaskett at Wednesday's meeting.
According to its application for the TIF, CDP has purchased 44 acres in Barren Spot for $2.13 million, financed by a bank loan. It has commitments from Home Depot and several other businesses to come and build their own stores on slabs prepared by CDP, which will provide utilities, grading, drainage and other infrastructure. The filing by CDP estimates that preparing the site will cost $14.8 million. CDP's application estimates $38 million in investment from the mall's tenants and a total financial outlay of around $71 million in both private and public funds.
In the agreement worked out between EDA and CDP, four bond series would be disbursed in stages as the project passes set benchmarks. If the benchmark is met, CDP has a right to the funds. If not, the government can stop disbursal. The four bond series would have net proceeds of $12.5 million, $2.6 million, $404,000 and $1.2 million, respectively. These sums are net-cash proceeds from the bonds and are less than the TIF financing amount because they do not include interest and other fees that will be paid to the bondholder.
As a safeguard, CDP's rate of return on its investment is capped at 20 percent. If it makes more than that, the subsequent bonds may be canceled. CDP must also build 20 units of affordable housing as part of the development and meet several other EDA conditions.
Greg Hummel, an attorney specializing in TIF bonding hired as a consultant by the EDA, said the project is cautious and well thought out. It will likely bring in much more revenue than would be spent and put the government at little to no risk, he said at Wednesday's hearing.
"This project will well exceed the tax increment, which exemplifies good TIF financing," Hummel said.
Before voting to certify the application, the EDA held a public hearing to gather input.
J.H. Isherwood, an attorney representing Sunny Isle Shopping Center and a number of other retail businesses on St. Croix, raised several concerns, one being that gross-receipts tax revenues may go down if shoppers simply switch to the stores covered by the TIF agreement rather than shopping more.
"The pie for retail sales, we think, is relatively fixed," Isherwood said. "You are not bringing in more people from other islands to buy here. You are not going to have tourists spending more. These are not tourist-oriented facilities."
Many of the stores slated for the new mall are either the same companies or sell similar services as those already in Sunny Isles, Isherwood said.
EDA Chairman Albert Bryan disagreed that the new mall would directly undercut other malls, noting that Sunny Isle is adjacent to Innovative and Juan F. Luis Hospital and an array of other commercial developments. Many of the businesses are very busy and contemplating opening second outlets in the new mall, not shutting down, Bryan said.
"I understand what you say," Bryan said. "But when I go to Sunny Isles, I've never gone to Wendy's and didn't have to stand in line. It is a hub of activity. And the stores in Sunny Isle are geared toward shopping for the home and family, with clothing and such, where this is Home Depot, Walgreens, a medical center — it's different."
After the public hearing ended, Bryan called the EDA to session and the members voted unanimously to certify CDP's application for TIF. Present were Bryan, Nathan Simmonds, Lynn Millin-Maduro, Jose A. Penn, Randolph V. Allen, John F. Lewis and Henry H. Smith.
Next the Legislature will weigh in and give or withhold its approval, the governor will exercise his right to sign or veto the Legislature's act, then the Public Finance Authority must sign off. Once all those events occur, the process of seeking bonds will begin.
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