The proposed settlement in Spokane’s ongoing dispute over River Park Square could end a major threat to one of the key programs helping the city’s low-income residents and poorer neighborhoods.
The threat grew more serious in recent weeks when the developer of the mall disclosed it was considering bankruptcy as one of its options for dealing with financial problems at the mall, city officials said.
City Hall would be left on the hook for a significant share of payments on a $22.65 million construction loan granted to the developer through the city in 1998 under a special community development loan program.
As part of the proposed settlement, the developer would provide a bank letter of credit to secure payments on the U.S. Department of Housing and Urban Development loan through 2018, city officials said.
That’s significant because the city’s HUD community development block grant funds have been tapped by more than $1.5 million over the past 11 months to make up for shortages in loan repayments from the mall developer. The proposed settlement would restore that funding.
“Hallelujah. That would be wonderful news for us,” said Florrie Brassier, executive director of the Northwest Fair Housing Alliance.
City officials and representatives of the developer were negotiating Friday on a list of issues that had the two sides about $500,000 apart in a settlement involving upward of $60 million. If the talks can be finalized by Monday, the proposal could go before the City Council for a vote.
Brassier said her organization this year had been expecting a $25,000 grant for a program to educate landlords about their legal obligations involving persons with disabilities.
That grant and others were put on hold because of financial and legal problems surrounding the mall and its public-private garage.
For years, federal community development funds have been available to help low-income residents and neighborhoods with specific projects or social service programs. Money is used to fix roofs, pave streets and build sidewalks.
A few years ago, the YWCA spent some of the money to build a wheelchair ramp at its domestic violence shelter. The loss of such grants is a double-whammy because other sources of funding have also shrunk in recent years, said Monica Walters, executive director of the YWCA.
The mall is owned by real estate corporations affiliated to Cowles Publishing Co., which also owns The Spokesman-Review, KHQ-TV and other media.
If the River Park Square mall were to enter bankruptcy, corporate law would make it difficult for the city or any other creditors to recover money from the Cowles’ family holdings, because of legal barriers between the real estate affiliates and other corporate entities, said bankruptcy attorney Ian Ledlin.
“If it is an unsecured debt, they could stop making payments,” Ledlin said.
In such a case, the city would be forced to continue tapping its community development funds to make up any loan shortfalls. Currently, there is $21.3 million owed in principal on the loan, plus interest.
Councilman Bob Apple said he was one of two council members to insist on protection of community development funds in any RPS agreement.
Money this year was suspended from roof repairs, housing rehabilitation, a small business loan fund and other projects because of the shortfall in loan repayment.
Jerry Numbers, chairman of the East Central Neighborhood Council, said the effects of community development spending can be seen across low- and moderate-income areas of the city. “I see what it’s done in Hillyard, West Central, Chief Garry Park, Emerson-Garfield …,” he said. “As a neighborhood person, I think it’s very important.”
Steve Rector, secretary-treasurer for the development companies affiliated with Cowles Publishing Co., acknowledged that bankruptcy is being considered if settlement talks fail, but wouldn’t discuss timing.
He said, however, that the only type of bankruptcy being considered is Chapter 11 business reorganization. In that type of bankruptcy, the mall developer would retain ownership of the property and the mall and garage would remain open as the corporate entities seek to shore up finances.
“It would continue to operate as it currently is with no difference in the day-to-day operations,” Rector said. “A reorganization allows the debtor to remain in possession of assets while they formulate a plan to emerge from bankruptcy.”
Earlier this fall, a Cowles affiliate that owns the currently unoccupied building across Main Avenue from Nordstrom filed for Chapter 11 bankruptcy. CPC Development Co. was one of the companies named in a lawsuit between the firms and its former mall manager, RWR Management Co.
RWR Management won a $6.5 million jury verdict, which the mall developers are appealing. In filing for bankruptcy, the development companies say the judgment far exceeds CPC’s assets of $2.4 million.
Attorneys for RWR have recently asked the federal bankruptcy court to dismiss that case for “lack of good faith,” arguing that CPC is really trying to avoid filing a bond for the judgment while the case is on appeal.
Of concern to city officials in the event of a bankruptcy by the developer is the fate of the $22.65 million loan that was obtained by the city with a federal guarantee, and re-loaned to the developer for part of the mall’s renovation. Several sources of revenue are pledged to repay the loan, but if those aren’t enough, the city’s community development block grants provide a backup.
One source pledged for repayment is the rent Nordstrom pays the developer. That money would continue to be paid in the event of a bankruptcy, Rector said.
Also pledged are “connection fees” to businesses linked to River Park Square by skywalks. Those fees would not necessarily continue to be available for loan repayment if the mall was in a Chapter 11 reorganization, Rector said.
Under the mall renovation’s original agreement, another source of money to repay the loan was to be a portion of rent the garage’s owner, a nonprofit corporation, paid to the mall developer, which owns the ground on which the parking structure is built.
Revenue was supposed to come from parking receipts at the garage, which until June had been operated under lease by a public-private entity.
Pledging the development grants as a backstop to the loan was one of the most controversial aspects of the mall project when it was proposed in the mid-1990s. Critics said it amounted to risking funding for the poor to build an upscale shopping mall and Nordstrom.
Supporters of the project said then that other sources of money would easily repay the loan, so the block grants would never be in jeopardy. But the ongoing political and legal battles created a series of events that proved them wrong.
When the garage developed financial problems shortly after the renovated mall opened, there wasn’t enough money to pay the so-called ground rent from parking revenue. The city refused to comply with an ordinance to pay ground rent and some other garage expenses with a loan from its parking meter funds.
Ground rent hasn’t been paid since February 2000, so a share of the ground rent hasn’t been paid by the developer to the city to repay the loan.
City Councilwoman Mary Verner said that protecting those development grants from future siphoning is a key to the settlement.
“It’s very important that our most vulnerable members of society are not left without funding,” she said.
Verner isn’t sure how she’ll vote on the settlement proposal. Like other council members, she’s received briefings but has not seen a written agreement. Sources say the final draft isn’t likely to be available before Monday.
“It’s very important for me to know exactly what the details are,” she said.
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