Sunday, April 23, 2000

Nordstrom price tag seems worth it

Department store has power to lure other merchants

BY Robert Anglen
The Cincinnati Enquirer

        When city officials go shopping for big-name retailers, their wallets are fat with taxpayer money.

        What they come back with are promises of revitalization and commitments to turn derelict districts into trendy shopping meccas.

        Using incentives like charge cards, officials ring up debts for land and building improvements, tax-increment financing and low-in terest loans.

        In downtown Cincinnati, nearly $100 million in public money was spent to attract and keep Saks Fifth Avenue and Fountain Place — two key developments created in the retail core during the past 16 years.

        Now city officials are attempting to create a $50 million incentive package for a Nordstrom at Fifth and Race Streets.

        “That's about par for the course,” said Michael Beyard, vice president and senior fellow at the Washington, D.C.-based Urban Land Institute. “I've heard of even more being asked (elsewhere). They (Nordstrom) can drive a hard bargain because people want them.”

        He said the Cincinnati proposal does not appear to be too elaborate, adding that infrastructure and parking costs could push the price on a Nordstrom development to $100 million.

        Mr. Beyard said he is of two minds on whether the Seattle-based merchant can revitalize a downtown.

        On one hand, he said, a Nordstrom helps drive up rents and downtown retail sales because it attracts other high-caliber tenants that trust its market research.

        But, he said, some of Nordstrom's mystique can be attributed to marketing and hype.

        “Their brand has just become so powerful, it's legend,” he said.

        And that brand, he said, carries a cachet that just can't be bought.

        But that's exactly what city officials hope to do with a package that includes: $25 million from the city for parking and building improvements; $9 million from tax increment financing, which allows bonds to be sold that are repaid with property taxes generated by the project; a $5 million low-interest loan from the state; and $10 million from a private equity fund generated by downtown businesses.

        While some city officials have questioned the value of such an investment, Bob Smithwick, former development director of Norfolk Va., said Nordstrom has invigorated Norfolk's his downtown since it opened six years ago.

        Was it worth $32 million the city put up for the building in addition to the bonds sold to pay for a parking garage? “Yes, absolutely,” he said.

        Nordstrom is one of three tenants at Norfolk's MacArthur Center, and Mr. Smithwick said it has returned the city's investment in less than seven years. He said Nordstrom — which operates 72 stores — has never failed.

        Although Cincinnati officials and developers negotiating with Nordstrom for leasing rights on the city-owned site are mum about the specifics of the deal, Mr. Smithwick said he doubts a store here would be smaller than 180,000 square feet.

        “They have done all the things you could imagine,” Mr. Smithwick said Friday. “Downtown is nothing you would have imagined here before.”

        Assistant Cincinnati City Manager Richard Mendes, who oversees economic development, said Nordstrom has been sought for several years and is considered “the key strategy to complete the core of retail” downtown.

        He said subsidies and incentives given to other downtown businesses have helped create an atmosphere that would attract Nordstrom.

        The financial package for Saks Fifth Avenue, an adjoining Hyatt Hotel and parking came to more than $17 million in 1984, mostly from a federal loan and tax increment financing.

        About five years ago the city council approved a $2.3 million deal aimed to keep Saks downtown. To help pay for a five-year, $5 million “reinvestment program,” the city agreed to kick in $1.5 million and forgive $635,661 in principal owed on an outstanding loan. City officials estimated another $200,000 would be lost on interest.

        About $68 million went to Fountain Place, which bought the city a new Lazarus, Brooks Brothers and Tiffany & Co. The city spent $42 million on the Fountain Place block to buy land, demolish buildings and dispose of asbestos. The city put about $27.8 million into the Fountain Place project, and agreed to pay $227,175 a year in county property taxes for 65 years.

        Former Mayor Arn Bortz, a partner with Towne Properties — which is a co-owner of Fountain Place — said Nordstrom is an important anchor for downtown.

        He also said the incentives make sense, adding that the store will contribute millions for improvements. Even with the incentives for Fountain Place, Mr. Bortz said developers are paying back construction bonds and making tax increment payments to the city equal to the property tax payments.

        As with the Nordstrom site, the city owns the land at Fountain Place.

        Mr. Bortz cautioned the city, saying it “must set the table properly” around Nordstrom. He said the Fifth and Race site is hemmed by other buildings that don't leave room for the outgrowth of small retailers that make shopping districts thrive.

        He is especially concerned about the city's decision to pay $3.7 million to relocate Walgreens behind the Nordstrom site at Sixth and Race — less than a block from its original location.

        Cincinnati Mayor Charlie Luken said the city has been “moving pieces” around downtown to make room for Nordstrom or another major department store. That's why the Walgreens needed to be relocated.

        He acknowledged the $50 million incentive package — which will have to be approved by the council — is high.

        “Any time this much subsidy is involved the council should at least be careful,” he said. “Maybe even reluctant.”

        But after years of dreams by the city, he said, Nordstrom is only weeks away from making a concrete proposal and now is not the time for the council to change direction.

        “This is the conclusion we have waited for,” Mayor Luken said Friday, a day after Nordstrom officials confirmed they were looking at the downtown site.

        Like any shopper who has spent hours preparing for the big purchase, Mr. Luken said, “I would hate for us to blink now.”

        Enquirer reporter Lisa Biank Fasig contributed to this story.



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