15
May
2001
Sometimes things with good intentions end up
huge mistakes. That might be the case with
an agreement between Wal-Mart and the City of Davenport dealing with the store the company will likely be abandoning in a little more than a year.
The stated purpose of the agreement is noble. As 6th Ward Alderman Bob McGivern put it, "How do we ensure that store gets re-developed?"
But the resulting document has so few teeth that it seems inevitable the store will sit empty for at least two years. And then it will be the city's responsibility to find a buyer or tenant.
McGivern said he wanted the agreement to prevent what happened when Hy-Vee bought a Cub Foods store. "That property was left intentionally dark for a long, long time," he said - three years.
The agreement with Wal-Mart Stores (the owner of the property, according to the Scott County auditor's office) is meant to prevent the same thing from happening when the company leaves its current store on Elmore Avenue for a new, larger building at Elmore and 53rd Street. The city council is scheduled on Wednesday to vote on the final ordinances needed for that development to move forward.
The "dark store" pact gives Wal-Mart two years to try to sell or lease the property, at which time the city can buy the property at market value or assign that option to a third party.
According to McGivern, it's not unusual for businesses to keep old stores vacant once they've relocated. Wal-Mart, McGivern said, isn't "going to turn arounAd [after it opens its Super Wal-Mart] and sell that [vacated store property] to Super K." But if the current Wal-Mart store stays dark, the city's gain in jobs and sales tax from Super Wal-Mart is reduced significantly.
McGivern said that the agreement he wanted was substantially different than what the city staff negotiated. He told the River Cities' Reader that he wanted the time provisions of the agreement to take effect as soon as it was signed. Under that formulation, the store would have sat empty for less than a year before re-development began, because the Super Wal-Mart store isn't scheduled to open until summer 2002, and because the city's option on the land would be available in May 2003.
"That's what I envisioned," he said. "But as it came about, that is not what we got." The agreement specifically states that the city picks up the purchase option "in the event that Wal-Mart is unable to sell and/or have leased at least 75 percent of the floor space of the Wal-Mart Parcel two years following the opening of the new Super Wal-Mart."
McGivern said THF has told him that the current Wal Mart will be "substantially leased" within nine months of the store closing. But the agreement provides no guarantee of that, and little assurance that the property will be sold in the two years before the city acquires the option to buy.
The agreement requires Wal-Mart to make "reasonable best efforts" to sell the old store property, but what does that mean?
"I don't believe we've defined them in the agreement itself," Davenport Corporation Counsel John Martin told the River Cities' Reader. The agreement includes "language that may require interpretation." Martin reiterated those statements at Monday's Committee of the Whole meeting.
Other components of the agreement are similarly vague, and the city hasn't required specifics from the developer or Wal-Mart.
The agreement, for instance, states that Wal-Mart does not have to sell the property at less than its "book value" on the date the store closes. Martin would only say that the "book value" is determined by Wal-Mart. "How they arrive at that I don't know," he said.
Michael Staenberg, president of project developer THF Realty, said Wal-Mart has provided his company with a book value based on depreciation of the property, but he would not say what that value was.
Most troubling is that the agreement allows Wal-Mart to reject any offers less than the "book value" it determines, but it does not explicitly require the company to accept reasonable offers. When asked if a Wal-Mart rejection of an offer at or above book value would constitute a violation of the dark-store agreement, Martin said, "I don't know if you can say that with any degree of certainty. ... There may be an issue [whether] they were using commercially reasonable efforts."
THF attorney Tom Pastrnak said that under standard definitions, Wal-Mart would be required to keep an activity log detailing the number of parties interested in the property, the number of offers, and negotiations. But he conceded that the company would not have to accept offers at or above book value within the first two years.
With such vagueness, the city could be setting itself up for a dispute about legal language. And considering that Wal-Mart could tie up the dark-store agreement in court for several years - thus making it virtually meaningless - citizens should be concerned.
At Monday's Committee of the Whole meeting, Alderman Wayne Hean asked city staff to try to re-craft the agreement with language to compel Wal-Mart to sell the property in the first two years if it gets a fair-market-value offer.
"To us, that agreement has already been negotiated," Pastrnak countered. If the city council wants to change it, "I'll have problems with Wal-Mart."
If the store sits empty for two years, Davenport has the option to buy the property at its "market" value (determined by two or three appraisals, depending on whether the first two appraisals are close to each other).
Staenberg said he doubts the store will be empty long enough for the city to pick up its option. "Wal-Mart is not in the business of keeping stores dark," he said.
But Wal-Mart has hundreds of empty stores around the country. According to the smart-growth group Sprawl-Busters, the number of empty Wal-Mart stores jumped from 330 in February 1999 to 390 in October 2000. On the Web site for Wal-Mart Realty, approximately 360 stores are currently listed as available or soon-to-be available.
Critics of the massive chain claim Wal-Mart wants to keep its old stores vacant. If an attractive retail site remains empty, Wal-Mart benefits from less competition.
McGivern said Wal-Mart was tough in negotiations. "What they don't want to be cornered into is allowing their competitor to slide into that existing store," he said. But the alderman had no response when asked why Wal-Mart should get such consideration after choosing a location across the street from Super Target.
There's another reason the current Wal-Mart store will probably not be sold or leased in the first two years; Pastrnak said that generally "book" value is less than "market" value, meaning that Wal-Mart has an incentive to hold onto the property so it can get full market value after two years.
McGivern said the first two years of the agreement aren't as important as the city's option. "It was only reasonable to give them a normal marketing time," he said. The crucial part of the agreement is the city's ability to "trigger" a sale with its option after two years. "That's all I'm looking for," he said.
But what will the city do with its option to buy?
McGivern said that about six months before the option kicks in, the city would put out a Request for Proposals from local and national developers. "The city would never purchase the property," he stressed; Davenport's option to purchase is necessary to allow the city to transfer that option to the developer of its choosing.
And under that scenario, the city would be taking a very active role in the development of prime commercial real estate. City government is normally reactive to developers, approving or turning down specific requests. In this case, though, the city would decide who develops the old Wal-Mart store, and what they do with it.
McGivern said he was unsure whether that site would be best suited to another retail development or something else. But if the developer chosen by the city to buy the property wants to demolish the building, the cost would not be picked up by the city.
Last week's story exploring the controversy surrounding the creation of Self-Supporting Municipal Improvement Districts for THF developments is available on this Web site.
The stated purpose of the agreement is noble. As 6th Ward Alderman Bob McGivern put it, "How do we ensure that store gets re-developed?"
But the resulting document has so few teeth that it seems inevitable the store will sit empty for at least two years. And then it will be the city's responsibility to find a buyer or tenant.
McGivern said he wanted the agreement to prevent what happened when Hy-Vee bought a Cub Foods store. "That property was left intentionally dark for a long, long time," he said - three years.
The agreement with Wal-Mart Stores (the owner of the property, according to the Scott County auditor's office) is meant to prevent the same thing from happening when the company leaves its current store on Elmore Avenue for a new, larger building at Elmore and 53rd Street. The city council is scheduled on Wednesday to vote on the final ordinances needed for that development to move forward.
The "dark store" pact gives Wal-Mart two years to try to sell or lease the property, at which time the city can buy the property at market value or assign that option to a third party.
According to McGivern, it's not unusual for businesses to keep old stores vacant once they've relocated. Wal-Mart, McGivern said, isn't "going to turn arounAd [after it opens its Super Wal-Mart] and sell that [vacated store property] to Super K." But if the current Wal-Mart store stays dark, the city's gain in jobs and sales tax from Super Wal-Mart is reduced significantly.
McGivern said that the agreement he wanted was substantially different than what the city staff negotiated. He told the River Cities' Reader that he wanted the time provisions of the agreement to take effect as soon as it was signed. Under that formulation, the store would have sat empty for less than a year before re-development began, because the Super Wal-Mart store isn't scheduled to open until summer 2002, and because the city's option on the land would be available in May 2003.
"That's what I envisioned," he said. "But as it came about, that is not what we got." The agreement specifically states that the city picks up the purchase option "in the event that Wal-Mart is unable to sell and/or have leased at least 75 percent of the floor space of the Wal-Mart Parcel two years following the opening of the new Super Wal-Mart."
McGivern said THF has told him that the current Wal Mart will be "substantially leased" within nine months of the store closing. But the agreement provides no guarantee of that, and little assurance that the property will be sold in the two years before the city acquires the option to buy.
The agreement requires Wal-Mart to make "reasonable best efforts" to sell the old store property, but what does that mean?
"I don't believe we've defined them in the agreement itself," Davenport Corporation Counsel John Martin told the River Cities' Reader. The agreement includes "language that may require interpretation." Martin reiterated those statements at Monday's Committee of the Whole meeting.
Other components of the agreement are similarly vague, and the city hasn't required specifics from the developer or Wal-Mart.
The agreement, for instance, states that Wal-Mart does not have to sell the property at less than its "book value" on the date the store closes. Martin would only say that the "book value" is determined by Wal-Mart. "How they arrive at that I don't know," he said.
Michael Staenberg, president of project developer THF Realty, said Wal-Mart has provided his company with a book value based on depreciation of the property, but he would not say what that value was.
Most troubling is that the agreement allows Wal-Mart to reject any offers less than the "book value" it determines, but it does not explicitly require the company to accept reasonable offers. When asked if a Wal-Mart rejection of an offer at or above book value would constitute a violation of the dark-store agreement, Martin said, "I don't know if you can say that with any degree of certainty. ... There may be an issue [whether] they were using commercially reasonable efforts."
THF attorney Tom Pastrnak said that under standard definitions, Wal-Mart would be required to keep an activity log detailing the number of parties interested in the property, the number of offers, and negotiations. But he conceded that the company would not have to accept offers at or above book value within the first two years.
With such vagueness, the city could be setting itself up for a dispute about legal language. And considering that Wal-Mart could tie up the dark-store agreement in court for several years - thus making it virtually meaningless - citizens should be concerned.
At Monday's Committee of the Whole meeting, Alderman Wayne Hean asked city staff to try to re-craft the agreement with language to compel Wal-Mart to sell the property in the first two years if it gets a fair-market-value offer.
"To us, that agreement has already been negotiated," Pastrnak countered. If the city council wants to change it, "I'll have problems with Wal-Mart."
If the store sits empty for two years, Davenport has the option to buy the property at its "market" value (determined by two or three appraisals, depending on whether the first two appraisals are close to each other).
Staenberg said he doubts the store will be empty long enough for the city to pick up its option. "Wal-Mart is not in the business of keeping stores dark," he said.
But Wal-Mart has hundreds of empty stores around the country. According to the smart-growth group Sprawl-Busters, the number of empty Wal-Mart stores jumped from 330 in February 1999 to 390 in October 2000. On the Web site for Wal-Mart Realty, approximately 360 stores are currently listed as available or soon-to-be available.
Critics of the massive chain claim Wal-Mart wants to keep its old stores vacant. If an attractive retail site remains empty, Wal-Mart benefits from less competition.
McGivern said Wal-Mart was tough in negotiations. "What they don't want to be cornered into is allowing their competitor to slide into that existing store," he said. But the alderman had no response when asked why Wal-Mart should get such consideration after choosing a location across the street from Super Target.
There's another reason the current Wal-Mart store will probably not be sold or leased in the first two years; Pastrnak said that generally "book" value is less than "market" value, meaning that Wal-Mart has an incentive to hold onto the property so it can get full market value after two years.
McGivern said the first two years of the agreement aren't as important as the city's option. "It was only reasonable to give them a normal marketing time," he said. The crucial part of the agreement is the city's ability to "trigger" a sale with its option after two years. "That's all I'm looking for," he said.
But what will the city do with its option to buy?
McGivern said that about six months before the option kicks in, the city would put out a Request for Proposals from local and national developers. "The city would never purchase the property," he stressed; Davenport's option to purchase is necessary to allow the city to transfer that option to the developer of its choosing.
And under that scenario, the city would be taking a very active role in the development of prime commercial real estate. City government is normally reactive to developers, approving or turning down specific requests. In this case, though, the city would decide who develops the old Wal-Mart store, and what they do with it.
McGivern said he was unsure whether that site would be best suited to another retail development or something else. But if the developer chosen by the city to buy the property wants to demolish the building, the cost would not be picked up by the city.
Last week's story exploring the controversy surrounding the creation of Self-Supporting Municipal Improvement Districts for THF developments is available on this Web site.
