Mall of America owner puts megamall on the line for massive New Jersey project

The owner of the Mall of America has put up Minnesota's signature retail destination as collateral in a high-stakes gamble on a new mega-attraction in the shadow of New York City.

Triple Five Group pledged a 49% stake in the megamall as collateral to win a construction loan for its massive American Dream entertainment and retail complex in the New Jersey Meadowlands, a project slated to open in October after several failed attempts by past developers.

Bloomington officials were surprised to discover the 2017 guarantee in bond documents last fall, just as the city was developing plans to finance a water park beside the mall, proposed by Triple Five.

Bloomington staff are intensely interested in Canada-based Triple Five's business dealings, in part because the mall makes up about 10% of the city's tax base. The Mall of America has pressed for and won millions in tax subsidies from the state Legislature in recent years to aid in the mall's expansion, which is making the water park deal possible.

"We would prefer that Mall of America wasn't used as collateral for other projects," said Schane Rudlang, administrator of Bloomington's port authority. The discovery spurred a conference call between city and Triple Five officials to better understand the deal, Rudlang said, and ultimately the city changed its contract with Triple Five to compel disclosure about similar pledges in the future. It highlighted the issue in a staff report in July.

The 3 million-square-foot American Dream project's entertainment offerings will be big even by Mall of America standards, featuring a DreamWorks water park, Nickelodeon amusement park, 16-story ski slope, ice skating rink and an observation wheel facing the New York skyline. With 5.6 million square feet, the Mall of America will remain the largest shopping center in the country, Triple Five representatives said, but a larger share of American Dream is dedicated to entertainment space.

Baltimore-based retail consultant Nick Egelanian said Triple Five's owners are banking on high-profile attractions to stimulate retail sales, and there's no agreement among the industry experts he consults with about whether it will work.

"They are making a huge bet on American Dream and obviously putting part of the Mall of America at risk in it," Egelanian said.

Triple Five's wager comes as malls across the country find themselves imperiled by retail bankruptcies and closures brought on in part by online shopping. "Bricks and mortar shopping malls are in disarray," Triple Five executive Kurt Hagen told Bloomington officials this year, explaining why the Mall of America — which he said is not in trouble — must continue to evolve.

"Mall of America is a proof of concept that destination retail works," mall spokesman Dan Jasper said in a statement. "Triple Five has been proving the success of this development model for more than 35 years, first with West Edmonton Mall and then with Mall of America. We are confident in the vision and in the future because we are experiencing the success every day."

Rudlang said it is not clear what the practical effect would be if another entity assumed minority ownership of the mall. Hagen said in a statement to the Star Tribune that there would be no effect, since Triple Five would retain a controlling interest. Triple Five was a part-owner until 2006, when it took full control.

"There's one school of thought that says there would be no impact, because Triple Five would still own 51%," Rudlang said. "And there's another school of thought where there's a very interested minority owner."

The American Dream project has been dogged by financial troubles and lawsuits since previous developers broke ground on what was then called "Xanadu" in 2004. Construction stopped during the U.S. financial collapse, prompting then-Gov. Chris Christie to call the unfinished and colorfully clad complex the "ugliest damn building in New Jersey and maybe America." When Triple Five took over in 2011, there were still hopes it could be completed in time for the Super Bowl at the nearby Meadowlands in 2014.

But lawsuits and financing hiccups caused further delays. State and local tax subsidies ultimately backed $1.1 billion in tax-free municipal bonds for the project. That was coupled with a $1.67 billion construction loan secured by a 49% interest in the Mall of America and the West Edmonton Mall. JPMorgan Chase was the primary lender for the construction loan, Hagen said, but there are additional lenders.

"Financing approaches like this are quite common in large development projects such as American Dream," Hagen said in a statement. "Construction loans typically require guarantees from a parent company, and since Triple Five is not a public company, this was the most direct way for Triple Five to provide that guarantee. It is strictly a contingent liability and no impact is anticipated on Mall of America."

The American Dream financing was the largest sale of unrated municipal bonds in 2017, according to Bloomberg. Bonds are generally unrated if they are deemed too risky to earn an investment-grade rating, said Maryland-based investment banker Nate Betnun, who specializes in tax-exempt bond deals. Betnun said the bonds far exceed what would be normal for a mall project, which usually ranges from $5 million to $100 million.

"It clearly was a risky venture," Betnun said, adding that the latest leasing estimates show that the project is off to a good start.

"That project has a good chance of succeeding, just based on the tenants they've attracted and the size of the market," said Minneapolis retail consultant Jim McComb. "And when you consider the size of that market and the size of the Minneapolis market or the Edmonton market, they've got a lot better chance of success there than they had with Mall of America."

Triple Five is also in the planning stages of an even larger destination mall outside Miami called American Dream Miami. Asked if the Mall of America would be used as collateral for that project, Hagen said he cannot speculate on future financing arrangements.

Bloomington leaders will hear an update about the Mall of America water park plan on Monday.

Mall representatives say the water park would not earn enough to cover private borrowing interest rates. So the city has developed a complex financing plan aimed at lowering borrowing costs while protecting its credit rating from risk. It is contracting with a Louisiana-based nonprofit that specializes in "lessening the burdens of government" to borrow for and own the water park, which would be managed by a Triple Five affiliate. Tax dollars would pay $50 million for a parking ramp and skyway to the mall, as well as up to $8 million to clean up the site.

The financing plan will be backed by the city's pledge to impose special sales taxes on purchases at the Mall of America if the water park doesn't earn enough to pay its debts.

Eric Roper • 612-673-1732 Twitter: @StribRoper