Mills property owners could get hit with $5.4M bill
The perils of tax increment financing could prove to be costly to property owners that are part of the Galleria at Pittsburgh Mills development in Frazer.
They could face a total of $5.4 million in special assessments next year if property tax revenues fall short of what is needed to make the debt payment on the TIF bonds that were floated as part of the mall’s development more than a decade ago.
It’s a potential shortage being driven, ironically, by property assessment appeals filed by some of those very same property owners — including the mall, Walmart and Macy’s — and any tax refunds they would get if they are successful.
If they win their property assessment appeals, there won’t be enough cash to make the debt payment on the TIF bonds and to pay the tax refunds.
In that situation, the development’s property owners — including those that win appeals — would be on the hook to cover the shortfalls. In the mall’s case, at least, the equation could work out in its favor — the tax refund could far exceed the amount of its special assessment.
The 1.1 million-square-foot mall has faced numerous challenges since opening in 2005, including
store closings, a loss of foot traffic, and a foreclosure in 2015 by Wells Fargo Bank. It was auctioned off in January 2017, with the bank taking possession of the real estate on behalf of the lenders in exchange for $100.
Property assessment appeals have been used to reduce taxes on other major developments in the region in recent years, including Century III Mall in West Mifflin. The reductions generally hit the budgets of local municipalities and school systems.
In the case of Pittsburgh Mills, property owners also could feel the pain through the special assessments.
Those assessments are required as part of a Pittsburgh Mills Neighborhood Improvement District set up to guarantee the bond repayments if there are shortfalls.
Herky Pollock, one of the region’s top retail brokers, said the sheer magnitude of the special assessments could have devastating consequences for a development already reeling because of the mall’s woes.
“Unless the state and/or county step in to assist with these impending special assessments, the entire Mills District will spiral downward. Few landlords or tenants can afford what is being required, which will lead to additional closures,” he said.
“Further, the mere addition of these special assessments devalues the properties, which in turn will exacerbate the problem by lowering the real estate taxes that will be due. The end result will be a tremendous blight on the district and the region.”
Mr. Pollock is the coowner of the Pinpoint Frazer Shopping Center, which is part of the neighborhood improvement district. The shopping center, which includes a Starbucks and a Five Guys restaurant, could be facing a $45,895 special assessment next year. It has not appealed its property assessment.
Other property owners that could be hit with special assessments include Lowe’s, PNC Bank, and those with restaurant tenants such as Chili’s, Olive Garden, LongHorn Steakhouse, Eat’n Park and Red Robin, and the Springhill Suites Hotel.
Tim Bish, Frazer solicitor, said the projected $5.4 million in special assessments amount to a worstcase scenario should all of the appeals go in favor of the property owners.
According to documents obtained by the Pittsburgh Post-Gazette, the embattled mall’s new owner, Mason Asset Management, affiliated with Long Island, N.Y.based Namdar Realty Group, is seeking to have the property assessment cut from $148.5 million to $17.5 million.
Walmart is looking for a reduction in its property assessment from $12.2 million to $10.3 million, while Macy’s wants its slashed from $9.2 million to $3.4 million. Another property owner, Pittsburgh Mills Auto Properties, is seeking a cut from $4.5 million to about $2.1 million.
None of the assessment reductions have been finalized. Mr. Bish said all are pending before the county board of viewers.
The township, which collects the special assessments, understands the concerns about the potential impact on the Mills development should the appeals be successful, he added. But it, Allegheny County and the Deer Lakes School District are basically stuck in the middle, Mr. Bish said.
“They are concerned about this. But in the same regard, state law and documents signed by all the parties involved, including the property owners at the site, agreed to the neighborhood improvement district. The township is required to collect the funds,” he said.
The township has been working with the school district and county redevelopment authority to try to mitigate the potential impact.
“Everyone is trying to work together, meaning the taxing bodies and the redevelopment authority, to find a solution. But again, the viable options are very limited,” Mr. Bish stressed
“[The redevelopment authority] has been working, and will to continue to work, with all of the stakeholders to mitigate any impact that changes to the assessments may have, but to lay out any potential solutions at this time would be purely speculative as everything is currently pending,” said Lance Chimka, county economic development director.
One possibility could be a refinancing of the bonds. That would require the cooperation of the bondholders.
About $23 million in bonds are still outstanding under the TIF plan, which totaled more than $50 million when adopted in 2002. Under the plan, the bonds, used to fund road and site improvements, are to be paid off by increased taxes generated by the development.
But such plans can go haywire in situations like this when property assessment appeals reduce the amount of taxes being collected.
In addition to possible shortfalls in tax revenue, the township has to account for another $6.1 million in potential property tax refunds under the TIF plan should the mall and the others win their appeals.
To mitigate that impact, Frazer wants to spread the refunds over four years. If the winners don’t agree, the result could be even higher special assessments.
“Yeah, anything’s possible,” Mr. Bish said. “Our hope is the mall owner will be reasonable and understand the complexity of the situation.”
The mall stands to gain the most in refunds — an estimated $7.2 million— should it win its appeal, with about $5.6 million coming from the TIF. The refund amount would be much higher than the $2.3 million special assessment it would face next year, according to documents.
Namdar officials could not be reached for comment.
Macy’s potentially could receive a $317,272 refund, which is less than the $365,884 special assessment it could get.
This year, property owners in the Pittsburgh Mills Neighborhood Improvement District also were hit with special assessments, but the grand total was $825,000 — far less than what they could confront in 2019.
Namdar, through the Mason Asset Management affiliate, purchased the struggling Pittsburgh Mills mall last spring for $11.35 million.
In addition to the mall, last spring’s sale to Namdar included several vacant commercial properties surrounding it.