Eagle considers big box store | SteamboatToday.com

Eagle considers big box store

Town's consultant: Financial projections are in 'good faith'

Edward Stoner/Vail Daily

— Town officials and consultants say Eagle would get a good financial deal out of the Eagle River Station project. Critics of the $346 million project, which would bring a Target to Eagle, say they’re still not sure.

The complex would include dozens of stores as well as hundreds of homes and a hotel. It would be built on 88 acres on the eastern end of town, south of Interstate 70.

The developer, Trinity RED Eagle Development, based out of Colorado, Missouri and Arizona, said the town of Eagle would get about $2.5 million in sales-tax revenue until the bonds are paid off, which will take as long as 25 years. After that, they would get $8 million to $8.5 million per year in sales tax per year.

The deal also would use tax money produced by the project to build $62.5 million in infrastructure, including a new Interstate 70 interchange east of town, two new roundabouts, a new water storage tank, sewer upgrades, $5 million to improve the town’s water system

The town also would get millions in one-time fees, including construction use taxes and impact fees.

Consultant Arne Ray, of Ray Real Estate Services, said the developer’s estimates seem to be in “good faith.” Ray, who said he has analyzed about 50 different retail projects during the past 20 years, was hired by the town to examine the financial aspects of the proposal and to ensure that the town’s interests would be protected.

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“If the town proceeds anywhere close to what’s been proposed, it will be financially beneficial to the town,” Ray said.

In some ways, the deal is more attractive than other development deals between municipalities and developers, Ray said. Ray said it’s reasonable to expect a 10.4 percent rate of return for projects of this scope or size. The developer’s planned rate of return is lower than what’s typical for projects of this scope and risk, Ray said.

In addition, 18 percent of the cost would come from public funds, whereas comparable projects often use 40 percent or more, Ray said.

Also, under the deal, a metropolitan district, not the town, would be on the hook for the project’s debt. Eagle would not have to worry about defaulting on loans, which could deliver a devastating blow to the town’s ability to secure bonds in the future.

“This is the most preferred structure of any to protect the town,” Ray said.

Will it fill up?

Critics zero in on the developer’s occupancy projections, wondering whether the mall can achieve the 95 percent that the company expects. That occupancy rate would be critical to ensuring the tax revenue that the developer promises.

The company’s projections of $2.5 million per year have “no substantiation whatsoever,” said Jan Rosenthal-Townsend, an Eagle businesswoman who opposes the proposal.

“That kind of sales projection and occupancy won’t happen in these economic times,” she said.

Rosenthal-Townsend added that the company hasn’t updated its projections in light of the recent deterioration of the economy.

The developer said it expects 95 percent occupancy at the project, while its best-case scenario is 100 percent occupancy. RED Development’s shopping centers that had been open for a year, which include sites in Lee’s Summit, Mo., and Kansas City, Kan., operated at 91 percent occupancy in 2008.

“Those numbers are lower than what we would typically expect because we’re in a very difficult economic cycle now,” said Mike Hans, development manager for RED Development. “Given that the country is in a very difficult economic cycle now and tenants are closing stores at a much more rapid pace, occupancy levels today are depressed over what you would typically expect to see.”

The project, now slated to begin in spring 2010, wouldn’t start until the economy “turns the corner” toward improvement, Hans said.

Hans said 50 percent occupancy would be an “absolute disaster” and something he “can’t even imagine” but that the town would still realize more than $1.25 million in sales tax revenue per year.

By the numbers

What Eagle would get

– $62.5 million in public infrastructure, including a new Interstate 70 interchange, two new roundabouts, sewer lines, roads and a new water storage tank.

– The money collected from the town’s 4 percent sales tax would go toward paying off the $62.5 million in public infrastructure. Bonds would have to be paid off within 25 years.

– A 1.3 percent “public improvement fee” would be tacked on to purchases at the shopping center. That money would go to the town, generating about $2.5 million per year.

– About $3.5 million in real-estate transfer fees would be generated for the town on initial home purchases.

– The town would get $17.5 million in up-front fees, such as use taxes and water fees.