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DestiNY USA still not greenest mall in America
The latest development took place earlier this month: the City of Syracuse agreed to extend tax breaks six more months, in exchange for $1 million from developer Bob Congel.
The Post-Standard's longstanding DestiNY USA correspondent, Rick Moriarty, generously agreed to sit down with us for a conversation that would help put the news in some context. Below, we've brought you a very abbreviated excerpt. For more, take a listen:
Rick Moriarty: The whole plan grew so much over the years, it was kind of a giant public brainstorming session. At one time if you looked at the renderings you'd see golf courses all over the lakefront - which is a very industrial area. Indoor parks, water parks and sort of re-created Tuscan villages with recreations of the Erie Canal, and canal boats. Things you don't normally see inside a mall.
Innovation Trail: There are there really incredible big green towers in some of those early renderings.
RM: Probably the most fantastic plan was a 1,300-room hotel, which would make it a pretty big hotel, something you might see in Vegas. Sort of like big, giant blades of grass. How you fit rooms inside giant blades of grass I'm not sure, but the pictures were fantastic.
The addition onto the Carousel Center showed these towers coming off all green, covered with solar panels. The greenness of the project was also something that was added in a few years back: co-generation power plants running off of fuel made from biodegradable material. What you see there now doesn't have anything to do with that obviously.
IT: What's there now, for folks who haven't visited?
RM: Well, after struggling for many years to get it off the ground, what you see there now is a building that's about 1.3 million square feet total, which is a pretty big building. It's about three stories. It doesn't look anything like the pictures you've seen before. A lot of people think it's kind of ugly, Soviet-era architecture. I think it'll be prettied up once they get some tenants in there and it actually opens. But obviously you don't see any solar panels or blades of grass at this point.
IT: Why do you think people bought in to it?
RM: Some of it had to do with the tax deal that was proposed. If you're going to propose a tax deal like that - a thirty-year property tax exemption - that's huge. You've got to propose something huge for it, so he did. You've got to make it sound like the biggest thing that ever hit Syracuse or the region for that matter, it's going to transform the region's economy. And I think people were hoping that if it was just half of what was promised it would be great.
The latest plan is to make it kind of a combination of outlet stores, entertainment venues and restaurants. And it was always supposed to be multiphase development, but nobody's really talking about future phases right now. I think they're going to have to try to fill the current phase and worry about a second phase after that.
IT: What investment does Syracuse have in making this happen? What's on the table for them?
RM: The deal with the city was that they would give up property taxes. And that's a tremendous investment for the city and the county, which gave up its property taxes as well. The property taxes would come to about $17 million [a year].
For that, they expected to get sales tax dollars. The whole idea is that you build something so fantastic that people for hundreds of miles will come in here, bringing new money into the area, as opposed to just moving around the money that's here or competing with other malls.
It's very difficult for government to put restrictions or requirements on what kind of tenants you're going to build, so they just had to kind of hope that they were successful.
IT: So recently Citigroup cut off additional funding to Destiny.
RM: It did. For background, the bank had agreed to provide a $155 million construction loan. That was only a piece of the financing for this project. The other pieces were primarily bonds sold by the Syracuse Industrial Development Agency.
After lending $86 million of the $155 million construction loan, [Citigroup] said we won't lend any more. Now, under their agreement in settling this, the bank is still not funding the loan beyond the $86 million that it already provided.
The developer got out of some personal guarantees for repayment. So if everything goes south, as they say, the developer and his partners won't be personally liable.
The bank has also offered to forgive the $86 million loan as well as a $100 million mortgage on the original mall if the developer manages to refinance a $310 million mortgage on the original mall with some other bank.
In other words, Citigroup wants to get out of the entire project. And they're willing to take a very substantial haircut to do it: $186 million.
Congel needs to refinance, not only to take advantage of the forgiveness that Citigroup has offered, but also the other loans on the mall are going to come due. If he can't refinance those, then he could be found in default. That would be a disaster for him. So he has a couple of years to do that.
Those bonds that I made mention of, $220 million of these bonds were what they call "green bonds." Congress authorized up to $2 billion in federally tax-exempt bonding to be issued for green projects: projects that utilize alternative energy, solar panels, something that would really advance the technology.
Destiny was authorized for up to $1 billion and used $220 million of that for this phase. But the developer did not install the promised cutting edge green technology. So the IRS is now auditing those bonds to see if they conform to the law. If they didn't, the IRS could take away the tax exemption on those bonds. That would cost the developer more money too, probably leading to some litigation with the investors who bought those bonds.
IT: With all these promises coming due, are these critical years for the project?
RM: It's a critical period for them. They need to lease up the addition and open it. I would think that would make it easier for the developer to refinance the mall.
It's not an easy time. The economy is not great. We may be slowly coming out of the recession but it's very slow and there's talk of a double dip. We don't know if that's going to occur or not but it's not a good time in the retail industry. Now that the lawsuit with Citigroup is over, the developer really has to perform in terms of leasing it up or it could be a very bad situation in a couple years.
Rick Moriarty and the Post-Standard team have done some tremendous reporting on DestiNY USA over the years. You can read up on their coverage here.