CITY NOT SOLD ON STORE; NORDSTROM EXPENSES INCLUDE INFRASTRUCTURE.
Despite months of discussions about the proposed $20 million incentive to bring Nordstrom to the Valencia Town Center, several unresolved issues have delayed a formal presentation by the mall's developer.
One major sticking point is just how much tax revenue the city would actually realize from sales at the upscale department store. For its part, The Newhall Land and Farming Company, the mall's developer, estimates its own net rental income would be $3 million a year from the project.
``What's fair for Newhall Land? What's fair for the citizens of Santa Clarita? That's the public policy issue,'' said Steve Stark, the city's director of administrative services.
Under the proposal, the city would borrow $20 million from Newhall Land to give to Nordstrom Inc. to bring a store to Santa Clarita. The city would repay the loan using 85 percent of the sales tax revenue generated by Nordstrom and new stores that are lured to the mall by the presence of the tony retailer.
Sales taxes from existing mall stores would not be included.
The proposal would give the city $9.8 million in new sales tax revenue and $2 million in property tax revenue after 30 years. Over the same period, it would pay out $55.7 million in sales tax revenue to cover the principal and interest on the Nordstrom loan.
Stark said the estimates do not include infrastructure costs, including traffic improvements and road maintenance that would be needed if the mall expands.
Newhall Land expects to net about $3 million annually from rent increases on existing space and rent from new stores that would move in on Nordstrom's coattails, according to an analysis by Keyser Marston Associates Inc.
Extrapolating over 30 years, Newhall Land would net about $89.3 million from the mall expansion. Its initial expenses, including the $20 million for Nordstrom, would be around $58 million.
Marlee Lauffer, spokeswoman for Newhall Land, said the company's rate of return was justified.
``We are assuming a significant risk in terms of putting in $58 million and assuming the upfront costs,'' Lauffer said. ``The city is taking no risk and getting a huge return in terms of sales tax.''
But Lauffer and other supporters say the issue is about more than simply sales taxes. The long-term prospects for the city's biggest shopping mall are also at stake.
``It's very unlikely there will be an expansion of the mall without a subsidy to Nordstrom,'' said Jim Rabe, an analyst at Keyser Marston.
``A successful shopping center today really needs to have four or five (major) tenants,'' he said. ``Malls need to become market dominant, and that will become, at some point, an issue for the Valencia Town Center.''
Lauffer agreed the addition of Nordstrom is important to the continued success of the mall.
``It's important for the center to realize its full potential,'' she said. ``It will help bring additional shoppers, both shoppers already in the Santa Clarita Valley that shop elsewhere, as well as people out of the area.''
In a retail research report contained in the Keyser Marston study, analyst Blount Hunter estimated that the Valencia Town Center is ``under-penetrating,'' or failing to capture, about $42 million a year in area shopping dollars.
Lauffer said Santa Clarita has worked out smaller incentive packages in the past.
The city used sales tax proceeds generated by Home Depot to pay the company $690,000 for infrastructure - including streets, signals, and gutters - that it built around its store in 1993.
And in 1992, the city borrowed $2.5 million from Price Club for improvements that the company made to speed construction of its Via Princessa store. The city is still paying on that loan with 70 percent of the sales taxes generated by the project.
Rabe said incentives are a normal part of business in most industries.
``From the department stores' perspective, this is not atypical,'' Rabe said. ``It is the key for allowing expansions.''
But Stark said the Price Club and Home Depot subsidies were different because they reimbursed companies that built public, not private, infrastructure.
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|Publication:||Daily News (Los Angeles, CA)|
|Date:||May 24, 1999|
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