City Signs Papers For Downtown Hud Loan Transaction Should Be Complete By End Of Month, Says Developer’S Attorney

The city of Spokane moved two steps closer Friday to having a federal guarantee for a loan to help renovate a downtown mall.

It received the papers for the guarantee of a $22.65 million loan, which means the Housing and Urban Development Department is waiving a possible procedural problem with the request. City Manager Bill Pupo signed the papers late Friday afternoon and sent them back to HUD for the agency’s final approval.

The action came the same day the nation’s largest newspaper, The Wall Street Journal, printed a front-page article exploring the city’s involvement in the River Park Square redevelopment project. That article also revealed confidential information about the lease agreement between the shopping center developers and their major tenant, Nordstrom.

The lease is part of the collateral the city is using to secure the loan that HUD would guarantee.

Pupo mentioned the papers for the loan guarantee during Mayor John Talbott’s cable television show Thursday.

“The loan was approved a long time ago,” Pupo said. “I will sign them (the loan documents) and send them back.”

Duane Swinton, an attorney for the developers, called it “a huge step.” He likened it to a person who is trying to get a home mortgage being given the final loan documents after the bank has said it will lend the money.

The transaction should be complete by the end of the month, Swinton said.

A spokesman for HUD could not estimate when the loan guarantee would be final.

“The department has finished all of its reviews and the loan process is in its final stages,” said Peter Ragone at HUD’s Washington, D.C., office. “However, it is not yet complete.”

With the loan guarantee, the city will be able to borrow up to $22.65 million from Chase Manhattan bank, and loan it to the project’s developers, Citizen Realty Co. and Lincoln Investment Co.

Those companies are subsidiaries of Cowles Publishing Co., which also owns The Spokesman-Review.

The developers will use the money to pay for part of the construction of the $110 million River Park Square renovation, which will include a new Nordstrom department store, a 20-screen theater, an enlarged parking garage and other shops and restaurants.

Opponents contend the city’s involvement amounts to corporate welfare, and have sued unsuccessfully to stop the project.

To repay the loan, the developers will put money into a special account, which the city will then use to repay the loan from Chase Manhattan. The city’s use of the federal loan guarantee reduces the interest rate for the borrowed money.

If the renovation project failed, the money the city receives from HUD for community development block grants - currently used for neighborhood improvement projects - would be tapped to repay the loan.

The city approved the agreement for this public-private partnership and work on the first phase of the renovation began in 1997. HUD gave preliminary approval to the loan guarantee in July 1997, but processing the request has so far taken 18 months.

Part of the loan agreement between the city and the developers is the lease between the mall owners and Nordstrom, which both companies say contains confidential information. Opponents of the project have sued to make the lease public, but the details of the lease have been ordered sealed by a Spokane County Superior Court judge, at least until the HUD loan guarantee is final.

On Friday, the Wall Street Journal reported that a confidential city memo written in November 1997 said the city was at risk from a portion of the lease that would give Nordstrom a substantial reduction in rent - from $1.3 million to $520,000 per year - if occupancy in the mall dropped. The city tried unsuccessfully to minimize the city’s risk, the newspaper said.

It also reported that the developers agreed to pay Nordstrom $1 million as part of the lease agreement.

City officials said the details of the agreement have changed since the memo was written.

“Since November 1997, the city’s position has improved,” Pupo said. The developer agreed to changes before the City Council’s final vote in March 1998, Pupo said, but he refused to detail those changes.

Nordstrom would not comment on the information contained in the article.

Earlier this week, Swinton, the developers’ attorney, had said release of confidential information about the lease could cause “irreparable damage” to the project.

On Friday, Swinton said the information reported in the Wall Street Journal was accurate, but not necessarily damaging to the project.

Betsy Cowles, president of Lincoln Investment and Citizens Realty, said she would not comment on the Nordstrom lease because it is confidential.

The developers will have to analyze whether the project has been damaged and what should be done about the fact that it had been made public, she said.

“The leak of information is going to cost us something, but we’ve got a project to get open,” she said. “It’s under construction, on schedule and the financing is in place.”

The Wall Street Journal story focused on issues that have been debated publicly for more than three years, Cowles said. “But it fails to mention the strong broad-based community support that propelled the project through numerous public hearings and City Council votes.”