Decision Called City Center’s Salvation Detractors See Financial Risk In Pursuit Of $23.8 Million Loan
Supporters hail it as a way to save downtown Spokane. Detractors call it a financial risk for taxpayers.
The City Council’s decision Monday to go after a $23.8 million federal loan to build a larger Nordstrom store drew criticism from residents who distrust the way Spokane government spends money.
“You’re asking for the citizens of this community to co-sign a loan for $24 million when there’s a probability of citizens being on the hook for that $24 million,” resident John Talbot told the council.
“That’s pretty smart.”
The council’s 5-0 vote put the owners of River Park Square on the road to nearly doubling the shopping mall’s size. Redevelopment plans include building a larger Nordstrom store, a pedestrian mall, a movie theater, a food court and a glass-enclosed Post Street atrium.
They say public money is crucial to making the plan work. And besides, they say, all federal taxpayers ultimately would be on the hook, not just those in Spokane.
“The $80 million River Park Square project is a large and complex undertaking which requires a public/private partnership,” said Betsy Cowles, president of the two companies that own the mall. “Without public participation, this project will not work.”
Citizens Realty Co. and Lincoln Investments Co. own River Park Square, an affiliate of Cowles Publishing Co., which owns The Spokesman-Review.
Federal loans from the U.S. Department of Housing and Urban Development are designed to do one of three things, said Tom Kinney, HUD’s community development representative in Seattle. They include benefiting low- to moderate-income persons, eliminating slums and blight and covering the costs of public emergencies.
Project supporters say their plan meets two requirements - most importantly, keeping downtown from becoming an urban wasteland.
They also point to a study by Real Estate Economics, a Bellevue, Wash.-based research group, that said improvements will boost downtown retail employment 58 percent by 1999, creating $24 million in new wages.
HUD loans are sought for this kind of development because the agency is more flexible than the average lender, and payments can be varied over time, said Mike Adolfae, the city’s community development director.
Lease payments from Nordstrom and surrounding property owners will pay off the loan over a 20-year period. In the construction phase, no lease payments will come in, so HUD keeps loan payments lower during that time.
The city also is asking for a $3.6 million economic development grant from HUD. That money would be used to pay the first year’s interest on the federal loan and reduce annual principal payments each year thereafter.
Developers can ask private lenders for only so much money, which is why River Park Square needs to enlist public participation, said William Maher of Ernst & Young, a real estate advisory company in Washington, D.C. Maher was hired as a consultant by the mall’s owners.
The whole deal is contingent upon Nordstrom and the Bon Marche signing new leases, and the developer getting private financing, he said.
“There won’t be any HUD money in this project until everyone’s signed on,” Maher said.
As for the risk to Spokane taxpayers, no city general fund money will ever be used to pay off the HUD loan if the developers or Nordstrom default, Adolfae said. Because HUD guarantees the loan, it is the last line of collection for investors.
“Frankly, that has never happened,” said HUD’s Kinney. “They’re safe deals.”