Item Number: 20
City Council / Board of Directors
Written Communications
Meeting of: July 16, 2024
Submitted By:
Carmen Cun, Finance Director / City Treasurer
Subject:
Macerich Assistance Payment Year 11 - Mall of Victor Valley Development Agreement Recommendation:
That Your Honorable City Council authorize assistance payment as provided for in the Development Agreement with Macerich Victor Valley LLC in the amount of $360,674 for Calendar Year (CY) 2023.
Fiscal Impact:
This item has a fiscal impact of $360,674 out of the General Fund. There are sufficient funds in the FY 2023-2024 budget for this expense in the account below:
Account Description Available Budget
1000010-52300-97029 General Fund Contract Services - Macerich $480,000.00 Strategic Plan Goal:
This payment aligns with Goal C, Strategy 7 in the City of Victorville Strategic Plan 2023- 2026 by working in partnership with the Mall of Victor Valley by assisting in meeting performance measures to attract new businesses.
Background:
At the City Council meeting of July 17, 2012, the City Council adopted Ordinance 2291 approving a Development Agreement with Macerich Victor Valley LLC, owners of the Mall of Victor Valley (the Mall). The Development Agreement was approved resulting from Council’s recognition that the Mall had experienced declining gross sales since 2007 which directly correlated with a reduction in sales tax generated to the City and available to fund its essential public services, including police and fire. The analysis at that time had shown that gross sales at the Mall had decreased from $175 million in 2006 to $106 million in 2010.
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Pursuant to the Development Agreement, the Mall is permitted to receive the tier one maximum amount until the $18.89 million threshold is reached. Upon approving the subject Development Agreement, the City required, as a condition to its assistance, that the Mall would perform redevelopment that would reposition the Mall to becoming a destination for the diverse shopping demographics of the valley and keeping it fresh and attractive for future tenants of the Mall. Among the required performance measures, the Mall was required, pursuant to Article 5 of the Development Agreement to: 1. Successfully relocate into expanded space and cause for the public opening of a reformatted JC Penney; 2. Successfully cause for the opening of a new Macy’s as a fashion retail anchor;
3. Complete the remodel of all exterior entry ways; and 4. Sign leases for up to 25,000 square feet of space (that was the former JC Penney anchor pad) with planned occupancy within 9 months from the date of the signed lease.
To assist in off-setting certain costs to achieve the aforementioned performance measures, once those performance measures were achieved, the City agreed to provide assistance payments in annual amounts equal to the sales tax received by the City that is in excess of a baseline to be retained by the City of $1 million. The agreement allows an aggregate collection of up to $18,886,644.00 in payment assistance or for a period of 28 years, whichever occurs first. If the maximum of $18,886,644.00 is not reached by the end of the 28 years, the City of Victorville has reached the conclusion of the assistance agreement and no additional payments will be made. The performance measures were satisfied by the Mall in calendar year 2013, therefore, 2013 became the measurement year where City assistance was to be commenced. Notably, the Mall added Dick’s Sporting Goods to satisfy performance measure #4 and has exceeded the space requirement of the Development Agreement.
Discussion:
City staff employs HDL Companies to conduct sales tax analysis for all tenants at the Mall, including its anchor tenants. In the aggregate, that analysis is represented with the following:
Calendar Year 2023
Sales Tax Generated at Mall of Victor Valley $1,364,674 Sales Tax Threshold ($1,000,000)
Assistance Payments Due (Gross) $364,674
Ex C-10 Contract Maintenance Fee ($ 2,000)
Ex C-11 Sales Tax Analysis Fee ($ 2,000)
Due to Mall of Victor Valley $ 360,674
Attachment A shows the charts provided for in the original agreement which reflects a predicted erosion of Sales Tax as well as Sales Tax Increment Sharing proposal by Macerich Victor Valley LLC. Attachment B shows actual sales tax payments since the start of this development agreement. If approved, this payment will bring the total payments to $3,260,879 of the $18.8 million threshold.
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Calendar year 2020 shows no payment as the COVID-19 related “stay at home” orders resulted in the shutdown of the mall for a large portion of the year, therefore the sales tax generated at the mall did not exceed the threshold deduction. During calendar year 2021 there was a surprising turn around in spending, which resulted in much larger than previous generation of sales tax and an increased payment to Macerich. Despite the dramatic increase during calendar year 2021, calendar year 2022 and 2023 has decreased due to possible factors such as the rising interest rates, in which, it has impacted consumer spending habits.
Staff remains available for any questions council may have.
Attachments: A. Macerich Development Agreement 2012 Charts B. Payments Distributed to Macerich to Date