Lincoln Mall: Matteson’s multimillion-dollar money pit
By Casey Toner firstname.lastname@example.org January 8, 2014 9:58PM
The entrance to the Lincoln Mall in Matteson. | File Photo
Updated: February 10, 2014 11:47AM
Matteson bet big on Lincoln Mall and lost.
A SouthtownStar review of financial records shows that the village has given nearly $9 million to the mall’s former developer, Realty America Group, which failed to renovate the indoor mall, including a new food court and a movie theater, as originally envisioned in a now-defunct redevelopment agreement.
And even though the company declared bankruptcy and no longer controls the beleaguered retail center, Matteson is on the hook to pay one of the developer’s former partners more than $2 million in property tax revenue from the mall — a leftover obligation from a $10 million IOU Realty America Group received in 2007 to start the mall renovation.
Also, an internal memo from the former village attorney indicates that there were important omissions in the redevelopment agreement, including that the developer did not provide a budget for the renovations, a completion date or any indication of how the public funds specifically were to be spent, among other problems.
Today, the mall, U.S. 30 and Cicero Avenue, is a skeleton of the thriving regional center that opened in 1973. About half of it is vacant, three of its four anchor stores are empty, and what once was a Montgomery Ward store remains an unfinished and unsightly demolition zone.
Making matters worse, the mall is in legal limbo. In August, the village sued its current owner, persuading a judge to appoint a receiver for the property to address several fire and safety violations. A hearing in that lawsuit is set for Thursday at the Cook County Courthouse in Markham.
John Suzuki, president of Collateral Trustee, the mall’s receiver, has testified in court that the mall is losing about $100,000 a month and its owner owes about $1.5 million in unpaid property tax for the past two years.
“I can’t turn back the hands of time,” said Mayor Andre Ashmore, who voted for the redevelopment plan as a village trustee. “It’s one of those hard lessons and an expensive one we had to learn.”
The future of Lincoln Mall looked bright when Matteson entered into the redevelopment deal with Realty America in April 2004. Led by Texas businessman Rives Castleman, the company had bought the mall in 2003 for $10 million and planned to spend $116 million to redevelop the property.
The plan called for stores on outlots, a movie theater, a 5,000-square food court, a recreational path over Cicero Avenue to the mall and five new restaurants, among other amenities. The new Lincoln Mall could generate as much as $60 million in total property tax income by 2026, according to projections contained in the agreement.
“They (Realty America) came in with pretty high hopes, and we bought into those hopes because we wanted the mall to move forward as badly as anyone else,” said village Trustee Sam Brown, who voted for the deal.
Financing for the extensive renovation was to come from three of the village’s tax increment financing districts, which are designated areas that provide special tax breaks to encourage development or redevelopment.
Under the contract between Matteson and Realty America, the village would reimburse the company for project costs by drawing on $6.2 million from the accounts of two of the TIF districts. And the annual property tax revenue generated by the two districts was diverted to a new Lincoln Mall TIF district to fund the redevelopment.
The village also agreed in 2004 to take out a $10 million loan for the project, with a total interest cost of about $2.44 million. The village still owes about $1.36 million in interest and principal on the loan, which is due by December 2017. Money to repay the loan comes out of the Lincoln Mall TIF district.
Additionally, the village in 2007 pledged an additional $9.89 million in future property tax income from the mall to pay Realty America Group over several years for its initial project costs.
Anthony Licata, an attorney for the village, said Realty America Group then sold $2 million of that future tax revenue to a partner, Oklahoma-based W.C. Payne Trust, for upfront money. That agreement calls for the money to be repaid annually out of the mall’s property tax revenue, with a 9.5 percent interest rate.
The loan is due in 2026, but Lincoln Mall isn’t producing enough tax revenue to meet the annual payment and the loan is unlikely to be repaid in full, Licata said.
Banking records show that Matteson has paid Realty America Group a total of $8.7 million, a figure that differs from the $12.9 million cited in a breach-of-contract lawsuit Realty America Group filed against the village in 2009. Licata couldn’t account for the discrepancy but said the village may have paid vendors directly instead of the company for some of the mall project.
Either way, Licata suggested that the spending’s financial impact on the village was limited because the property tax money given to the developer was generated by the TIF districts rather than Matteson’s general revenue.
Tom Tresser, who runs the TIF Illumination Project in Chicago, disagreed with that suggestion.
“For every dollar you peel away from the public treasury and give it to Mr. Mall Owner, that’s a dollar less to give to your schools, your public roads, your library and your police department,” Tresser said. “It’s positioned as if money is created from nothing, like it’s magic beans. These are property tax dollars.”
In 2009, the village tapped its former attorney Kathleen Orr, to review the original redevelopment agreement with Realty America Group. In her report, Orr says the contract did not explain how the TIF money was to be applied to the site and a list of projected costs in the contract included expenses that were not TIF-eligible, such as new construction.
Orr also found that the contract did not contain a timeline for the renovations project, a completion date or a budget for the project, ensuring that the village would not know what proportion of the project the TIF district funds were covering. She also said a clause in the contract left Matteson responsible for the difference between the purchase and sale price of any building on the property.
“The potential for abuse is incalculable,” according to Orr’s report, which urged the village to renegotiate the contract with Realty America Group.
Licata wrote in an email he didn’t think Orr’s assessment of the plan mattered.
“Ms. Orr’s views were written after the deal was negotiated, and it’s always possible, with the benefit of hindsight, to make observations about what might have been done better,” he wrote.
The ambitious redevelopment project, which began in 2005, halted in 2007 when Realty America Group defaulted on its mortgage. That year, a new street was finished, running east from Cicero Avenue, around the mall and then north to U.S. 30. Along the road are freestanding Target and J.C. Penney stores that were part of the project.
That’s all that was accomplished, aside from some demolition on the east side of the mall that has left a potentially hazardous eyesore, according to village officials.
“I think the real source of the problem here is that a cycle ripped through the American economy in 2008 and 2009, and we are still, five years later, coping with the consequences of it,” Licata said. “This is a great example of the hardship and devastation of this (recession).”
Realty America declared bankruptcy in May 2009. Two months later, it sued Matteson to try to recover $13.9 million in reimbursement fees it claimed it was owed. The village settled the lawsuit in April 2012 for $450,000.
Licata said the settlement cleared the village of paying the $7.89 million in future property tax revenue that the village had pledged to Realty America Group.
Lincoln Mall changed hands most recently in June 2010, when New York-based Lincoln Mall Holding LLC bought the property for $150,000 and back property tax. The village threatened to shut down the mall in a lawsuit filed against the company in August, claiming numerous safety and fire violations.
Michael Ashenbrener, an attorney representing Lincoln Mall Holding, said the lawsuit was an attempt by the village to “undue some of the unfortunate results” that occurred regarding the mall during the past decade.
Cook County Circuit Court Judge Thomas Condon allowed the mall to stay open, appointed a receiver and mandated that the owner turn over $200,000 for repairs. So far, Lincoln Mall Holding has only paid for $100,000 worth of repairs.
Threatening to hold the company in contempt of court, Condon last month ordered that an officer of Lincoln Mall Holding attend Thursday’s court hearing to explain why the company hasn’t paid the full $200,000. The money is needed to build fire exits, Licata said.
So far, village officials are encouraged by Condon’s rulings in the lawsuit. Ashmore called the appointment of the receiver the “most positive thing that has happened to the mall in 10 years.” He also said the village would continue “looking forward,” despite the high price it has paid to try to keep Lincoln Mall operating.
“We would like to have some of that money back if we would have known it would have turned out this badly,” Ashmore said. “It was a good sound agreement, but there was a lack of management on the part of the owner, coupled with a bad economy … and it was a recipe for disaster.”