Hickory Hollow Mall's tumble down the escalator of doom might have started in 2006, when it lost longtime anchor JCPenney. The August 2008 departure of Dillard's probably hastened it. But the mall landed with a thud when Steve and Barry's declared bankruptcy and abandoned the former Penney space in 2009.
By the end of last year, the mall was only 69 percent leased, according to parent company CBL and Associates' most recent annual financial report. Chattanooga-based CBL had devalued the property from $107 million to $12 million. The company still had more than $30 million in mortgage payments to make on the 1.1 million-square-foot property, and ever-diminishing lease revenues weren't covering the payments.
But the company had an idea to salvage the mall.
"The plan contemplates incorporating non-retail uses at Hickory Hollow Mall, and we are in the process of executing this plan," the report says.
Plan executed: Mayor Karl Dean recently announced that his administration has approved the lease of 350,000 square feet of mall property, including the former Penney/S&B and Dillard's anchor spaces.
It's a kind of bailout for the hobbled mall and its owners. "As Mayor Karl Dean stated in September when first announcing the projects, all of these new facilities combined will have a tremendously positive impact on the struggling Hickory Hollow Mall," Metro Finance Director Richard Riebeling wrote in an Oct. 26 memo to the Metro Council.
It also looks like a raw deal for Davidson County taxpayers.
Metro government's capital spending plan, approved by the council in September, dedicates $18 million to convert Penney and several inner-mall sites to innocuous good-government uses, including a community center, library, new Metro Archives and a public health center. After three years, the city will have the option to purchase the Penney building, leased at $690,945 per year, for $4 million. Add the $2 million in lease payments, and that comes to $6 million — or half the fair value of the entire mall, not accounting for utilities and maintenance.
The former Dillard's will be turned into a new Expo Center, replacing the current one at the Tennessee State Fairgrounds. CBL will pay the renovation costs. In total, the three leases come to $1.8 million per year. The council will have its first reading of the bill that contains all three leases this week.
The Dillard's deal is the one that's controversial. After five years, Metro can purchase the building, leased at $1 million per year, for $2.5 million — plus another $2.5 million to reimburse CBL for the alterations. That's $10 million.
In that case, it appears Metro stands to lose money.
This year, all non-fair (read: Expo) activities at the fairgrounds brought in combined revenues of $2.2 million, according to an analysis by fair staff. (Fair revenues were budgeted at $1.4 million.) Expenses will be $2.7 million. Assuming that costs stay the same, that's a $1.5 million loss for Metro after the lease payment. That $2.2 million in revenues also included nearly $200,000 in parking fees and food sales, neither of which will be a factor at Hickory Hollow Mall.
To Councilwoman Emily Evans, who's famously fashioned a niche as the fiscal conscience of a big-project-friendly government, the lease is a gamble that Nashville shouldn't take, mostly because there's no guarantee — or even reasonable evidence — that show operators in general and flea market vendors in particular will be filling the space, paying the rent, and keeping Metro's losses to a minimum.
The bulk of non-fair revenues that the fairgrounds generates comes from monthly flea market booth rentals, which accounted for more than $1.1 million in 2009. Then there are building and space rentals for all other events. If vendors and show operators begin pulling out, losses could be even worse. And it already seems like that might happen.
"I think this is a horrible mistake," says Simon Dickerson, president of the Tri-Star Kennel Association, which holds an annual dog show at the fairgrounds. Next year, he says, the group is moving the show to Wilson County. Though it's a decision he had already made, he toured the Dillard's building last week with other vendors and event operators. He was underwhelmed, saying the building doesn't meet some basic standards for such events.
Evans has the same concern. While the community center lease is for government activity, which will have to remain funded, the Dillard’s lease is entirely dependent on commercial renters, who tend to go where the best deal is, she says.
Regardless, Metro will be stuck with it. The lease’s terms do not allow renegotiation, so the rent stays the same. More importantly, they do not provide for early termination for lack of funds — called termination for non-appropriation — normally a standard clause for municipal leases. According to information obtained by the Scene from the Metro Department of Finance, all eight leases the city now holds have such clauses.
“It’s a glaring omission in the lease,” Evans says. “You see it in the Medical Center lease, but you don’t see it in either of the other leases [the council is considering].” The “fairly routine” clause is important, she says, “for the simple reason that you don’t know what your next council or your next mayor are going to do, and you can’t bind their hands.”
But finance director Riebeling says via email that with CBL putting “at least $5 million” into the acquisition and redevelopment of Dillard’s into the Expo Center, “[i]t is unreasonable to allow Metro to walk.”
“We fully expect to exercise the purchase right after year 4,” Riebeling says.
Email editor@nashvillescene.com.
