When Hamilton Place mall was built in 1987, mall owners CBL & Associates Properties Inc. paid nearly $4 million for roads around the shopping complex, including part of an overpass over Interstate 75.
But in preparation for the largest expansion of Chattanooga’s biggest shopping center, CBL wants mall shoppers to pay for infrastructure improvements.
The developer is pushing legislation that would tax a portion of sales to pay for new parking decks and other improvements planned as part of a $100 million addition of shops and a hotel.
“When this mall was built in a 1986 timeframe, and opened in 1987, no one contemplated these types of improvements,” said Michael Lebovitz, senior vice president of development for CBL. “We put (in) loops of utilities and electrical lines, water lines ... to sustain the development.”
CBL officials said Monday that an increase in the sales tax rate for purchases made in and around Hamilton Place would be similar to the way many shopping-center owners are financing other upgrades and expansions of their facilities. As outdoor-directed shops and so-called lifestyle centers are built near existing malls, many developers, squeezed by higher building costs and thinner profit margins, are figuring out new ways to pay for roads, sewers, water and other infrastructure improvements, industry officials said.
“To make this project at Hamilton Place economically feasible, we realized that we needed to look at some models being done around the country,” Mr. Lebovitz said during a meeting with reporters and editors of the Times Free Press. “We’re working in Kansas, Missouri and Florida with state and municipal agencies on some creative financing alternatives, and we took what we learned in those areas and we are bringing them to Tennessee.”
To help fund part of a planned expansion at Oak Park Mall in Overland, Kan., a half-cent increase in the local sales tax rate began in January at mall stores. Mike Mallen, who worked on putting the Kansas deal together for CBL, said the new fee “is working fine” and doesn’t appear to be discouraging shoppers from coming to the mall.
“The fee at Oak Park, as we expect at Hamilton Place, is very nominal — only a half percent,” Mr. Mallen said. “That’s only 20 cents on a $40 purchase and we think the value of the shopping experience will be enhanced much more than what that small cost represents.”
At Hamilton Place, CBL officials expect the new stores, shops, entertainment and possibly a new hotel will end up attracting more shoppers and sales for the entire complex.
CBL Chief Financial Officer John Foy said CBL approached city, county and state officials about making road and parking improvements at Hamilton Place. But with tax-revenue growth relatively stagnant in the current economy, government officials were reluctant to commit to costly new projects, Mr. Foy said.
Developers also are having to guard their dollars in the current market. Rising gasoline prices and falling home values combined to push consumer confidence in March to the lowest level since the Iraq war began in 2003. Retailers from Sharper Image to Ann Taylor are either going out of business or weeding out stores.
The International Council of Shopping Centers forecasts that 2008 store closings could hit 5,770 stores, the highest number of closings since 2004.
Mall operators, however, face the challenge of having to reinvent their properties every 10 years to stay competitive, Mr. Lebovitz said.
Chattanooga City Council member Jack Benson said he is pleased to see more stores coming to Hamilton Place and predicts the proposed half-cent sales tax increase for mall purchases would easily be absorbed by most shoppers.
“Other states have already used these type of fees for infrastructure improvements,” Mr. Benson said. “We’re just behind the times and I’m glad that Chattanooga could be the first to use this type of business development district in Tennessee.”
Mr. Benson said he was pleased that CBL is building on existing mall property, rather than building more retail development in traditionally residential areas of East Brainerd.
Barry Bennett, executive director for the Chattanooga-Hamilton County Regional Planning Agency, said the multistory parking decks and new stores on Hamilton Place’s existing parking lot allows for more retail growth without having to divert more residential land to commercial development.
Developers such as CBL primarily are developing outdoor lifestyle centers and so-called power shopping centers that allow shoppers to enter a store directly from the outside, usually along outdoor sidewalks and landscaped pathways.
Erin Hershkowitz, of the International Council of Shopping Centers, said lifestyle centers are being built around the country, replacing the building boom of shopping malls in the previous generation. No major, new enclosed shopping malls have opened since March 2006, Ms. Hershkowitz said, but hundreds of lifestyle centers have been built across the country.
“It’s an evolution in the industry,” she said. “People like the outdoor atmosphere and the convenience that a lifestyle center creates.”