Developer says public funds critical to Basalt project
December 16, 2015
The president of the company developing Willits Town Center said his firm has invested $75 million in the project so far and is prepared to invest millions more to try make it a success, but it needs help through public funding.
Ryan Anderson of Mariner Real Estate Management said his company can't sink unlimited funds into the project in Basalt. The project is already struggling to enlist new tenants for its retail vacancies. Mariner wants to build more retail to create a critical mass that makes the project more attractive to potential tenants.
But Anderson said the wariness of tenants to pay high leases coupled with soaring construction costs creates a $12 million gap between what Mariner must spend for additional retail space and what it can recoup in rents.
"It's not like we have endless buckets of money that we can go to and grab," he said.
Mariner proposed a sales tax revenue sharing plan with Basalt to close that $12 million gap. The proposal gained initial approval Dec. 8 in a 4-2 vote by the Town Council. It goes for a second and final review Jan. 12.
Under the plan, Basalt town government agrees to share sales tax revenues beyond the 2015 baseline level. Retail sales are expected to be $45 million this year at Willits. That would produce $1.35 million in sales tax revenue. The town will keep revenues up to $1.35 million in 2016 and share when it crosses that threshold.
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Basalt is the first local government in the Roaring Fork Valley that has been willing to share sales tax revenues. Therefore, the plan has raised questions about helping fund a developer.
Mariner born during recession
Mariner Real Estate Management was created in 2008 and is based in Kansas City. The company's news releases note that it is an affiliate of Mainer Holdings, also if Kansas City.
Mariner acquired about $1.5 billion in real estate and loans in 33 states during and after the recession, according to a Jan. 16, 2015 article in the Kansas City Business Journal. If often paid pennies on the dollar for the acquisitions, the article said.
Mariner purchased Willits Town Center at a deep discount in 2011 after a foreclosure sale by Bank of America. Joseph Freed & Associates of Chicago ran out of financing in 2008 and defaulted on loans two years later.
"With mechanics' liens and everything, we ended up paying about $20 million," Anderson said. The bank held loans for about twice that amount, he said, but the value of the property dropped during the recession.
Mariner promptly completed the Whole Foods building, constructed the Starbucks building and the structure across the parking lot from Whole Foods. It also teamed with another firm to construct Element Basalt-Aspen, a hotel that opened last week. It is now working on a building with 50 affordable-housing units.
The project was approved for 500,000 square feet of residential and commercial space in 2001. About half has been built. Mariner is seeking approval for another 91,000 square feet, including 59,500 square feet of retail space.
"It's been an OK deal," Anderson said. "I think we've spent a lot more money than we thought we would have to spend, let's put it that way. Our financing has always been tough."
Mariner can borrow on the Whole Foods and Starbucks buildings, but lenders have been wary of other pieces of the development.
Why help the developer?
When asked why Basalt taxpayers should help a development company that acquired $1.5 billion in assets in less than a decade, Anderson said it is a low-risk move for Basalt that will pay dividends through higher sales tax revenue, in theory.
Mariner is going to have to spend millions more to build out Market Street and make some of its existing, unrented space more attractive. About one-third of the building where Kitchen Collage is located remains unrented, five years after Mariner acquired it. The entire ground floor is vacant in the building where Valley View Hospital installed second floor medical offices.
"We would have leased it by now if we could have," Anderson said.
It seems counter-intuitive to observers such as Basalt Councilman Gary Tennenbaum, but Mariner aims to build more retail, rather than pull back, to make its retail space more attractive. There is a risk involved for Mariner, Anderson acknowledged.
"We have to have that retail vibrancy in the back, but you're in the back of the center so tenants aren't willing to pay high lease rates. (Meanwhile) construction costs are high," he said.
The core businesses in Willits Town Center are doing well, Anderson said. But prospective tenants, including national retailers, are reluctant to enter a market with such a low population and high dependency on tourism.
"It's a different market. The way a retailer looks at the market, Basalt is just not high on their list," Anderson said.
The only way to entice them is with lower lease rates than Mariner can afford to charge. That's where Anderson said the town's sharing of future tax revenues can play a role.
"It will allow us hopefully to lower lease rates," Anderson said.
The revenues from the sales tax sharing can only be applied to specific parts of the project with a public purpose. The aid covering those costs will reduce Mariner's gap and accommodate lower rents, according to Anderson.
The sales tax revenue sharing will be in place for five years or until Mariner raises $5 million, whichever comes first. The town council majority also approved a 1% Public Improvement Fee in addition to the sales tax revenue sharing.
Mariner plans to stay involved with the project through construction of all the retail, Anderson said. Building condos in the town center will be the last phase of the project.
Consultant recommends sharing
The town's consultant on public financing issues, Bruce Kimmel, vice president of Ehlers, agrees that the investment is worth it for Basalt. Mariner's resources don't guarantee that it would complete the Market Street area if it couldn't reach its target rate of return, Kimmel said in an email.
"We see examples across the country in which developers and retailers decide to suspend construction or close performing stores, because the rate of return isn't as high as with alternate investment options," Kimmel said. "In this case, we believe Mariner would see a return on investment from Market Street without Town participation, but it would be significantly lower than Mariner's publicly-stated 10 percent return target."