January 25, 2012
The high-profile North Nevada Avenue redevelopment project, where shabby motels and other buildings were transformed into a shopping center anchored by Costco, Kohl’s and others, has run into financial trouble.
University Village Colorado, which opened in late 2009 as the centerpiece of the redevelopment effort, has failed to generate projected revenues because of the economic downturn. That has caused the Colorado Springs Urban Renewal Authority to default on a repayment of the money it borrowed for the project, the authority acknowledges.
The authority made an approximately $650,000 payment last month on $7.5 million in 25-year bonds issued to help pay North Nevada redevelopment costs — but the payment was about $50,000 short of what was owed, said Chuck Miller, a former city planning official and an authority consultant. The authority doubts it will be able to make the next scheduled payment in December of this year on the bond issue, he said.
The authority remains up to date on twice-a-year payments it’s making on a second, much larger 25-year bond issue of $47 million and expects to remain current on those payments through this year. But Miller said he doesn’t know about payments in 2013.
Being in default, however, isn’t like a homeowner who’s missed a mortgage payment and risks losing a property to foreclosure, Miller said.
In this case, investors who purchased the bonds cannot take title to the shopping center, he said. Instead, the authority intends to launch talks with bondholders to restructure the debt — a common practice by special districts, private businesses and others who have had trouble making loan payments.
“The deal was good. The deal still is good,” said Scott Hente, president of the Colorado Springs City Council and an authority board member. “Look at what we did to that section of Nevada. We took an area that was just beat up, blighted, and look what’s there now.
“But you made assumptions based on the economy at the time,” Hente said. “You didn’t make assumptions based on the fact that the economy was going to go in the toilet. But we’re going to get through this, and we’re going to get through it with a part of town that is significantly improved over what it was.”
The North Nevada project was supported by the City Council and several other community groups, intended to make over a stretch of North Nevada, from Garden of the Gods Road to Interstate 25.
The corridor’s west side was populated by tiny motels, a trailer park and other small businesses. A developer began buying up property with an eye toward developing a shopping center, and the Springs City Council declared the area an urban renewal site in 2004.
The urban renewal project includes property owned by the University of Colorado at Colorado Springs on Nevada’s east side, where the school has envisioned a series of new buildings and facilities to serve the growing campus.
For now, however, University Village Colorado was counted on to be the project’s economic engine. About $55 million in bonds were issued to fund $40 million worth of Nevada Avenue improvements, land acquisition, construction of a retaining wall along Monument Creek and other costs associated with cleaning up the area. The rest of the bond proceeds were put in reserve and used to fund the issuance of the bonds themselves, among other costs, Miller said.
Costco, a Lowe’s Home Improvement Warehouse and a Kohl’s department store were developed at the shopping center, along with dozens of restaurants and smaller retailers. But when the economy tanked in 2008, many retailers who were poised to sign leases backed away, said Kevin Kratt, the shopping center’s developer — something that happened at many other retail centers around the region. The shopping center is about 75 percent complete and about 70 percent occupied, he said.
Likewise, while several of the retailers at the center are doing very well, sales by others haven’t necessarily met Urban Renewal Authority revenue projections because of the economy, Kratt said.
As a result, Miller said, sales and property tax revenues being generated by the center total about $2.3 million a year, far short of the $3.9 million required annually to pay off the bonds. The authority already has depleted its reserve funds for the $7.5 million bond issue. The authority will have to tap into its reserves this year to make payments on the $47 million bond issue, Miller said.
Among the authority’s next steps: Analyze the project’s finances, determine how much revenues it expects to receive from additional retailers in the coming years, prepare new market studies and present the information to bondholders with the hope the debt can be restructured — potentially changing the bond payment schedule or negotiating a new interest rate.
“I don’t want to minimize this, I don’t want to trivialize it, but I don’t think we panic,” said Hente. “I think we figure out a solution and work it, and make it so we can correct the problem. Panicking is probably the worst thing we can do.”
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