City staff presented a resolution setting a public hearing for May 17, 2016 to consider a forgivable loan agreement between the City and The Bon-Ton Stores, Inc. (Younkers) to facilitate redevelopment of the former Cinema 5 space and relocation of the Younkers Home Store within the Southbridge Mall.
On March 3, 2015, the City Council approved a resolution setting terms of a development agreement between the City and The Bon-Ton Stores, Inc. for development within Southbridge Mall. The Forgivable Loan Agreement that has been drafted required review by several private entities, including The Bon-Ton Stores, Inc., the mall management company, and the asset management company that controls the mall on behalf of the mall owner. After a lengthy review process, an agreement has been produced that meets the requirements of all parties.
The Younkers department store chain is owned by The Bon-Ton Stores, Inc., with corporate offices in Milwaukee. Currently, Younkers operates two stores in Southbridge Mall, with the main department store anchoring the east end of the mall and the Younkers Home store located in the west wing, near the former J. C. Penney space.
To ensure long-term viability, Younkers wishes to consolidate the Home Store with the main store by renovating the former Cinema 5 space adjacent to the main store. Because the Cinema space was not designed with retail in mind, it will take significant reconstruction of that area to accommodate a retail store. The owners estimate it will cost approximately $1.45 million to redevelop the theater space, including tenant costs, development costs, and the costs of converting the vacated Home Store space into two leasable spaces. Bon-Ton’s share of the total cost is anticipated to be $550,000.
Bon-Ton and the mall owners (currently a bank) have identified a funding gap in financing this project and have requested an incentive to fill this gap. After negotiation, Staff proposes providing a $250,000 forgivable loan to The Bon-Ton Stores, Inc. The loan would be forgiven after ten years, provided that all requirements of the development agreement are met during that period.
This incentive would be paid back from two sources:
• Local option sales taxes generated by the new, expanded Home Store and the retail store that will locate in the space vacated by the Home Store (half of the current Home Store space is planned to be integrated into the Multi-Purpose Arena project in the former Penney’s space). This requires the stores to generate at least $15,000 in local option sales tax revenue each year, for a ten-year total of $150,000.
• An amendment to the Parking Agreement between the City and the mall ownership.Currently,the ownershipdoes not pay for use of the City-ownedlots that serve the Mall. Under the amended Agreement, the owners will make payments equal to $15,000 a year for ten years. The City Council has already approved the amendment; it is still awaiting approval and signature by the Mall’s ownership. We anticipate that the Parking Agreement will be on the Consent Agenda for the 5/17/16 meeting, prior to the public hearing to approve this Forgivable Loan Agreement.
With these two sources, the City will realize revenues of $300,000 during the ten-year loan forgiveness period. The additional $50,000 will be used to pay back a forgivable loan provided to the Mall to construct a children’s play area. A forgivable loan agreement for this play area is still being reviewed by the Mall owners and will be presented to the Council at a later date.
This project complements the other proposed projects for the Mall, which will be funded through the Iowa Reinvestment District Program.
Redevelopment of the former Cinema space brings all of Younkers operations together, assuring long-term viability of this important anchor store, and allowing Younkers to extend their lease. The repurposing of the Mall into a multi-purpose center serving the community will also bring more shoppers, reversing the loss of retail within the center and leading to increased local option sales tax revenues.
Forgivable Loan Agreement Terms
The City shall provide a $250,000 loan to The Bon-Ton Stores, Inc. for moving the Younkers Home Store to the former theater space; the loan will be made when the reconfigured space is substantially complete. The loan shall be forgiven at a rate of 1110of the principal per year for 10 years. Forgiveness of the loan shall be based upon continued compliance with the requirements of the Forgivable Loan Agreement.
Commencing with the first full year after construction and opening, the integrated Younkers and Younkers Home Store and the space currently occupied by the Home Store shall generate annual local option sales tax (LOST) revenues of no less than $15,000 per year, for ten years. No other sales tax generated within the mall may be counted toward this requirement. If LOST revenues are less than $15,000 in any year, The Bon-Ton Stores, Inc. will pay the shortfall to the City.
The Agreement shall be contingent upon execution by the mall ownership of a 25- year Parking Agreement, with a minimum annual payment of $15,000 to the City for 10 years. The Parking Agreement is still being reviewed by Mall ownership. The Forgivable Loan Agreement is conditioned upon approval of the Parking Agreement. Should the owners fail to approve the Parking Agreement, the forgivable loan will not be paid.
Younkers, including the expanded Home Store, and the retail stores established in the space(s) currently occupied by the Home Store shall create or retain employment at the site and shall hire employees from the community.
Default: If construction of the Home Store is not commenced or if construction is not substantially complete by August 31, 2017, and no extension is warranted, the entire principal of the $250,000 loan is due and payable, plus accrued interest at 4 percent. Should the Younkers Home Store close or otherwise permanently cease operation during the period of the agreement, the unforgiven portion of loan shall be due and payable, plus accrued interest at 4 percent.
