Apartments, other services may come to Providence Place as owners look to extend tax break

PROVIDENCE — The owner of the Providence Place mall warns that retail trends threaten its business as it seeks to extend its 1996 property tax treaty another 20 years while working to "reinvent" the downtown shopping complex.

The original tax deal is set to expire in 2028, and if no new deal is signed before then, building owner Brookfield Properties' tax bill would soar as mall revenue, like most brick-and-mortar retail, continues to languish.

This year, the mall paid the city $1,006,234 under its existing tax agreement. Without a deal, the tax bill is estimated to rise to up to $25 million per year.

"... due to the growth of e-commerce, which has been accelerated due to the COVID-19 pandemic, more people are shopping for traditional retail items online, and national retail department stores are closing locations, including the Nordstrom and JC Penny locations in the Providence Place mall," the text of the proposed deal introduced in the City Council Thursday says, "and the competition for retail mall tenants in the marketplace is challenging the viability of the Providence Place mall."

The proposed tax treaty extension would start in 2028 and have the mall owners pay $4.5 million in taxes each year until 2048. The deal also would allow the tax payments to rise or fall 10% every three years if mall income rises or falls by 10%.

The city has granted property tax breaks to numerous large commercial properties in recent years, but usually those deals are made in exchange for new development expected to create additional economic activity.

The proposed mall tax break would reward the mall for, essentially, not going out of business.

"As city leaders, we are responsible for listening and allowing the owners to present the facts,” Council President John Igliozzi said in a news release on the proposal. “The city and its residents cannot afford to see the mall abandoned and shuttered, but any tax agreement needs to reflect equity across the board.”

The deal is one of two high dollar value and high profile proposed tax breaks the Council is considering as it nears the post-election "lame duck" period between Nov. 8 and the swearing in of new members next year.

The other is the 30-year tax treaty for the Industrial Trust tower, which is part of a $220-million redevelopment plan to convert the 26-story office building into apartments. By way of comparison, the proposed "Superman Building" treaty would see its owners tax bills remain less than $1 million through 2042 and max out at $2.2 million in 2052.

Apartments, services may be coming to Providence Place

The proposed mall treaty says to preserve business, Brookfield wants to "reinvent" the shopping complex by adding apartments, as well as service businesses and medical facilities not found in traditional malls.

The mix of uses in the building could include retail with "office/workplace, dining, entertainment, health and wellness facilities, arts, education, residential, medical [and] community fulfillment services," the proposed ordinance says.

Brookfield did not respond to questions about how, specifically, it wants to change the mall.

Unlike many tax deals presented to the Council, this one was not put together by Providence Mayor Jorge Elorza's administration.

And term-limited Elorza, who is leaving office at the end of year, on Friday made it clear he is not eager to rush through a mall tax deal before his successor, presumably unopposed Democrat Brett Smiley, takes over.

"This is something we have been working on for years and our last contact with the mall was more than a year ago," Elorza said Friday. "We told them that if they are looking for some kind of extension, they are going to have to pay more."

While Elorza said he is trying to resolve as many "hassles" as he can before the next mayor takes over, he sees the expiration of the mall tax deal as a big opportunity.

"My default thinking is that this is a long-term thing that won't kick in until 2028 and the next administration is going to have a lot more leverage in negotiating terms," he said.

Chicago-based Brookfield Properties purchased the mall and other assets of prior owner General Growth Properties in 2018.

Elorza recalled their reaction at one meeting after the sale had gone through and he mentioned that the full tax bill would be more than $20 million without a new treaty. 

"I don't know if I was reading the room correctly, but they gasped," he said. "I walked away with the idea they had no idea what the tax bill would be."

What does Smiley think about extending the mall's tax break?

"As I said on the campaign, I want to better understand the vision and plan for the mall long-term before committing to the right tax structure moving forward," Smiley wrote in an email. "Malls have changed over the years and we need to adapt to those changes. Even still, the Providence Place Mall is a major infrastructure asset and investment in the heart of our downtown."

Last year after the pandemic shut down malls for months, Providence Place's mortgage went into default and Brookfield looked to refinance.

"Operational performance of the Providence Place Mall asset has continued to trend downward due to the effects of the coronavirus pandemic," ratings agency Fitch wrote in April, adding that "net operating income in 2021 has yet to stabilize to pre-pandemic levels, falling 16% from 2020 due to lower parking and other income, as well as higher operating expenses."

panderson@providencejournal.com

(401) 277-7384

On Twitter: @PatrickAnderso_

This article originally appeared on The Providence Journal: Providence Place mall seeks new business model, apartments and tax breaks