Let the shopping wars commence
by Sito Negron
Posted on September 16, 2008
After 5 hours of debate, and on a 5-4 vote, with Mayor John Cook breaking the tie, one of the largest economic development deals ever in El Paso was approved this afternoon.
The proposal is to develop the Farah Building into a "power center" with "lifestyle amenities" and a "lifestyle component," terms used to describe shopping centers and their components. City Reps. Susie Byrd, Emma Acosta, Steve Ortega and Beto O'Rourke voted in favor; Anne Lilly, Melina Castro, Rachel Quintana and Eddie Holguin opposed.
The developers, Florida commercial real estate company Regency and Paul Foster, the Western Refining principle who also is investing millions in Downtown, asked the city for $8 in sales and property tax rebates.
They plan to ask the county for $4 million, although that decision has been postponed. Click here for the ABC-7 piece on commissioners postponing the discussion until Sept. 29.
The total, $12 million, is what the developer claims is cost associated with removing the blight -- the Farah Building, which was declared blighted in 2004. The developer will pay the up-front cost, and be paid back over the term of the contract from the sales and property tax rebates. The actual payback over the life of the 10-year contract could be as much as $18.75 million.
Dozens of people were signed up to speak for and against the proposal, which was tweaked up until the last minute.
In fact, several speakers -- both city staff, as well as proponents and opponents -- made reference to the fact that the final proposed contract was not emailed to parties until midnight Monday.
The final contract included a provision that was the sticking point in negotiations -- the rule that if more than 10 percent of the shopping center's tenants were relocations, defined as shops that closed to join the new mall, the deal was voided and the developers would owe the city any money they had received.
The developers said that was a deal killer, and proposed instead a relocation rule that if an anchor tenant, defined as 75,000 square feet or more, moves to the new center, the developers would be liable to pay the property taxes on the old location until the old location is leased.
City staff left the 10 percent rule in the contract, but told City Council Tuesday that they concurred with the developer's suggestion.
The fact that the contract on the agenda was not acceptable to the developers, although Council clearly wanted to make a deal, led to amendment of the contract on the floor. The City Council took up three amendments prior to approving the contract.
One was by Lilly, who said she could not support the agreement because it took out the city's "sovereign immunity," which shields it from lawsuits. Sylvia Firth, a city attorney who works for the mayor's office, said in response to a question from Holguin that the city never has waived sovereign immunity before, but that she was asked to work with the developer. Holguin did not ask Firth who directed her to negotiate the issue.
Byrd made the motion to approve the limited version of sovereign immunity. O'Rourke seconded; Acosta and Ortega voted in support, and the mayor broke the tie.
Acosta made a motion to substitute the developer's proposal for the 10 percent rule, but making it applicable to stores of 30,000 square feet or more in a large shopping center of 500,000 square feet or more. That passed 7-1, with Holguin opposing.
The third proposed amendment: Acosta made a motion, which was seconded by Ortega, that the developer get a 100 rebate for stores that already have a location, as long as the existing stores don't close within five years. The contract initially said, "for the term of the contract," which is 10 years. Her motion failed 5-3, with Byrd, Acosta and O'Rourke in support.
Another amendment, by Quintana, would have increased the amount for traffic management from $600,000 to $1 million. Her motion died for lack of a second.
Finally, Acosta made the motion to approve the contract, with the amendments approved by Council. The motion was seconded by Byrd, leading to the 4-4 vote, broken by the mayor.
The center promises to be more "upscale," although the term variously has been used to describe the appearance of the center itself and of the potential tenants.
West Miller, the Regency executive who has been involved in negotiations with the city, has said that the center will be unique in appearance in El Paso; for example, it will use multiple building materials, elevations, and other features.
But it likely will not have the retailers, such as Crate and Barrel, that consistently have come up as new to the market. Muddying the waters was an editorial in the El Paso Times that used the term "high-end" five times to describe the proposal.
The agreement does contain a requirement for a "lifestyle component" of 10 percent of the developed area to be built within 60 months. The agreement defines it as buildings finished on all four sides with "distinctive architecture" and "beautifully appointed design features ... outdoor pedestrian plaza(s) and the opportunity for alfresco dining overlooking unique water features, lushly landscaped walking areas, special ground architecture elements and a common gathering area."
The contract also mandates that Foster remain a partner in the project. In fact, a good portion of the council's support for the project appeared to be Foster's involvement -- he was mentioned several times, in his presence and after he left.
Foster, who has been relatively quiet publicly about the project -- although he did take out a full-page ad in the El Paso Times Sunday -- made a brief appearance in which he said that he wanted to create a project "that all El Paso can be proud of."
He opened his remarks with a joke, saying that he's afraid if "I own it too long they'll call it the Foster property."
He said that he deliberately had not visited with council members because he wanted the project to stand on its own merit.
He emphasized that he was happy with his selection of Regency as his partner, an implicit response to the critique from Artemio de la Vega, Foster's brother-in-law and the owner of Las Palmas, that Foster might not be familiar with the details and that Regency had gone beyond what was good for the community.
He asked that council approve the agreement, then said he had to leave.
Cook stopped him, and said some council members had questions.
I was afraid of that, Foster said, to laughter.
Castro asked if Foster knew the property was blighted when he bought it. Some members of the audience groaned.
Foster said he did know, but thought it was one of the best properties in El Paso, although he was criticized at the time for paying too much. (Five properties that make up the Farah Building plus some adjacent property are valued at a total of about $24 million, according to the CAD website.)
Foster said that he could make a "return on investment" in other ways, but those would not be best for El Paso.
Acosta challenged him to bring "new and upscale" to El Paso.
When Dorothy Parks, another Regency representative, came to the podium, Acosta asked her why de la Vega could bring in more than 90 percent new tenants to Las Palmas but Regency would not commit to bringing in new-to-market retailers.
Parks referred to the compromise being offered by Regency that would force the company to pay property taxes for relocations above a certain square footage.
Although Acosta questioned Parks and others strongly about the 10 percent relocation rule, even bringing up the possibility of a compromise at 20 percent, she already had made a motion at the beginning of discussion on the item to accept the Regency proposal.
Multiple speakers from other large retail centers opposed the Regency proposal to take out the 10 percent relocation rule. They argued that the penalty for relocations of large stores did nothing to prevent large-scale relocations of smaller stores, which would follow the larger stores. So even if Regency paid a penalty for a few larger stores, it would benefit from the smaller stores that followed, they argued.
Those speakers included Rod Vosper of Simon, which owns Cielo Vista, Mark Miller of Bassett Place, and de la Vega.
"We cannot support tax dollars going to a power center that's going to do nothing but shift tenants around town," Miller said.
And de la Vega repeated his argument that the removal of blight, which is what the agreement really addresses, is a small part of the cost to which the city was agreeing. Mike Hutson, de la Vega's lawyer, also added that Acosta's suggestion only addressed the three major opponents -- Simon, Bassett and Las Palmas -- but did nothing to protect smaller shopping centers, in particular, Viscount, which has a Best Buy and Barnes and Noble. He also argued that the city needs to have a policy governing retail subsidies.
But a series of business-related supporters also spoke, including Dan Olivas of the Realtors association, Joe Gomez od the Associated General Contractors, Richard Dayoub of the Greater Chamber, and Richard Amstater of RJL Real Estate Consultants, who had been involved in prior similar proposals.
And Jack Chapman, a Kemp-Smith lawyer who does legal work for Foster -- although he said he was present because of the issue, not the affiliation -- said it would send a "terrible message" to businesses outside El Paso to turn the project down.
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