Work remains on Riverpark mall 06/21/95

By Ted S. McGregor, Jr.

Despite a string of recent successes, backers of the new Riverpark Square mall project will need to clear some more hurdles before shoppers will be able to visit a brand new Nordstrom store in downtown Spokane. Foremost among those is getting the Seattle-based retailer to agree to participate in the deal, which has been specifically designed to fit its needs in regards to parking and square footage. The announcement of Nordstrom's intentions could come any day, says Nancy Goodspeed, spokeswoman for the project, adding that their participation is expected.

Although the project won the support of the City of Spokane - and a $1 million grant through the federal government and the city - and although backers expect to be awarded a $23.8 million loan through a federal Housing and Urban Development program, there are a variety of other issues being processed through the system. The most visible issue is the lawsuit that was filed last week by Spokane attorney Steve Eugster to block the project, but the most difficult may prove to be the vacation of Post Street and the city's purchase and redevelopment of the Riverpark Square parking garage.

Eugster is challenging the financing package used to fund the $80 million redevelopment on the grounds that state law prohibits private interests from taking money from the public trough, which is what will happen here as grants and loans will be made available to Spokane and then turned over to the developers - companies owned by Spokane's Cowles family. Eugster points to the state constitution: "No county, city, town, or other municipal corporation shall hereafter give any money, or property, or loan its money, or credit to, or in aid of, any individual, association, company, or corporation... "

Seems simple enough, but Eugster's is an old argument that has fallen on deaf ears at the state Attorney General's office and in the judiciary for the past 15 years, says Peter Staten, a Seattle architect and columnist who has followed similar developments in Seattle.

"These cases have come and gone, and the challenges in Seattle have gone nowhere. " Basically, he says, the current interpretation is that "any " in the passage "give any money " doesn't really mean any.

But there's a reason. Officials seem to have taken such a stand because otherwise big-time financing would be made more difficult, if not impossible, here in Washington state. A similar HUD loan of $25 million has already been awarded to Seattle to assist with the three-block Nordstrom redevelopment project in downtown Seattle (a project, it is worth noting, to which Nordstrom is contributing $100 million).

"Life in commerce these days is just getting way to expensive for anyone to deal with themselves, " says Staten, who has seen a resulting rise in these kinds of public/private financing packages.

Even Eugster seems pessimistic about his chances of slowing the project, which he opposes on moral grounds, saying it's wrong to enrich developers with Housing and Urban Development money that should be spent directly on middle- and low-income citizens.

The Cowles, along with other downtown property owners, do stand to benefit from the project. A study commissioned for the project shows that values of surrounding property downtown could double (yes, double) as a result of the project going ahead. The Cowles, already among the wealthiest families in America, hold a variety of downtown properties, including an option to purchase the land directly across the street from the new mall, where J.C. Penney used to sit.

But on paper, where the deal has to add up, the return of investment is such that without a financing package like the one put together, they would be wiser to invest their money elsewhere, says Goodspeed. "The return on investment is very minimal. "

Goodspeed says profits from surrounding properties don't affect the viability of the mall project, which will be judged largely by the cash flow it can generate. This world of big-time, public/private financing does have its contradictions, but what the Cowles are putting together here in Spokane is hardly unique, and is in fact considered an ideal use for public funds by the architects of the federal funding source.

In order to make the deal work, city leaders were convinced, the city should become the owner of the parking garage at River Park Square and fund redevelopment there. At this point the city has only agreed in principle and has yet to formally accept the project and a financing avenue. But the plan will never go to a public vote, says City Attorney James Sloan, because it can be financed through revenue bonds (bonds that the city can pay back through the garage's income).

"Total ownership was the only option, " says City Manager Roger Crum. "But we still have lots of blanks to fill in before we're sure it will work. "

It's clear the city is just beginning to learn about the world of parking, however. And that's not surprising because the parking plan was validated with a vote of the City Council after it had been brought before the Finance Committee for the first time only two days earlier. Soon after the vote on the proposal, city officials discovered that it would need to spend $50,000 on studies to proceed.

Sloan says the city has yet to identify a funding mechanism for the project, but it won't involve the general fund. The city is expected to pay $4 million for the garage (not including the property, which isn't part of the purchase) and issue $11 million in bonds to fund additional parking spaces, creating a 1,316-space garage.

The situation also underlies the mass transit doublespeak that has characterized the debate in all cities that go into the parking business (the City of Seattle is similarly raising $60 million to build a parking facility). During business as usual, city leaders here and in Seattle have encouraged mass transit thus the new STA Plaza), but the reality of the marketplace is that everyone needs to be entitled to his or her single occupancy vehicle (thus more parking spaces).

Sloan says the process of developing a hard plan for the garage will take about 90 days, including public hearings. Then the City Council will be called upon to adopt a specific proposal.

Another logistical issue that falls to the city is the vacation of Post Street, which will become the site of the Atrium in the new Mall. The problem is that just about every major utility in Spokane goes under that arterial and most will need to be relocated. It's not that it can't be done, but it will be expensive. Although many seem to expect the developers to should the cost, Goodspeed says who will pay to relocate the utilities is open to negotiation. The cost, many believe, could exceed the $520,000 the developers will pay for the vacated Post Street land.

It also remains to actually fill the mall with tenants. Goodspeed says many national retailers are waiting to hear whether Nordstrom will commit to the project. In Seattle, after Nordstrom committed, Planet Hollywood and Nike Town announced they would come to the party, too.

The developers have retained a national firm to attract retailers. But 25 to 30 percent of the shops will be locally owned and operated, Goodspeed predicts. Rents will be higher, perhaps $1 per square foot more than they are now, but the increased foot traffic will make the merchants' bottom line grow enough to more than compensate, she says.

But where will that "new " foot traffic come from? Backers of the plan say such a mall will retain local shoppers accustomed to traveling to Seattle or Portland to shop and will attract more regional shoppers. Critics say this is wishful thinking, and predict numbers boasted will only be accomplished at the expense of other parts of the town, perhaps including Northtown, which is a major contributor to the city's coffers. It would be a simple reshuffling of the deck, critics say, rather than a net gain. Whether downtown redevelopment would hurt other parts of the city has been a major concern surrounding the Seattle redevelopment project.

It is also feared that this dynamic could affect existing businesses, creating a migration to the new mall, again at the expense of other parts of the town. But Goodspeed says the new mall is expected to attract a new type of business that may not yet have located in Spokane.

Finally, the developers must make do with less money than they had hoped for. Rather than being awarded $3.6 million by HUD to help with the repayment of the loan, they only received $1 million. And the cost of relocating utilities will also add to the bottom line of the project. The developers have also spent hundreds of thousands of dollars on consultants to bring the project this far along, says Goodspeed. But the developers are working with what they are getting and say the project will not be slowed by these shortfalls and potential overruns.

If there's a downside to this project for the city, it's hard to find (aside from the garage becoming a money pit). More retail for downtown, more tax base for the city and the taxpayers won't have to pay for it (except for the 41 million federal grant).

So it's not surprising that the major criticisms of the project tend to boil down to anger that the rich will get richer in the deal and that the average person has no say in the process. As one Seattleite put it, they've found a way to do these deals without the ballot box. (Seattle was recently allowed to double its bonding capacity to support these projects, which has some critics wondering if the city's bond rating will ultimately erode.)

To city officials, the real issue is how Spokane can benefit from the project (it's a given that the downside of losing Nordstrom is huge). The new mall could have the desired effect of redirecting growth and development back to the center of town.

"If someone doesn't work really hard on its urban core, then sprawl will take place and taxpayers simply have to pay more to fund that type of growth, " says developer Don Barbieri, who favors bringing more residences to downtown and its environs.

Additionally the mall could allow the city to fully "Capture its tax base " - a catch phrase for the '90s. Rather than watching retailing and residential areas move farther out, the city, through this project, can take steps to keep tax generating activity within the city limits. In the near future, urban planners expect a sharp reduction in federal funds earmarked for municipalities, so cities will need to be more active in securing their own economic futures. In keeping with this dynamic, the new mall can be viewed as a preemptive strike against long-rumored malls in Post Falls or the Spokane Valley. But success is not yet guaranteed (and since the funding is public, the success needs to be public, too). For one thing, the project runs the risk, already, of becoming what Eugster first feared: a monolith that sucks the life out of the surrounding area. This doesn't have to happen, of course, and smart people are working to see that it doesn't. But the true measure of the project's success will be in how well it complements other objectives for downtown, like making it a place people will want to live.

Or, in the words of the cherished Peirce Report: "...efforts aimed narrowly at averting flight by the department stores might well fail. Broad strategies to make the entire downtown a people place have shown themselves, in city after city, to be retailing's best friend. "

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