January 10, 2014 Updated: January 10, 2014 at 5:41 pm
The Colorado Springs Urban Renewal Authority fell short last month on a bond payment for its North Nevada Avenue redevelopment project, but the financial stumble and an earlier default aren't stopping the corridor's makeover, urban renewal officials say.
The authority, which oversees City Council-approved redevelopment projects, was scheduled to pay $2.7 million in principal and interest Dec. 1 on a $47.1 million bond issue that funded traffic, drainage and other improvements along Nevada, between Garden of the Gods Road and Interstate 25. However, the authority fell $380,000 short on the principal portion of the payment, urban renewal officials say.
The authority was in default two years ago on the Nevada Avenue project when it fell $50,000 short on a payment on a separate, $7.5 million bond issue. No payments have been made on it since.
The missed payments are tied to sales tax revenue generated by stores, restaurants and other occupants at the University Village Colorado shopping center - a centerpiece of North Nevada's redevelopment.
The City Council declared North Nevada an urban renewal site in 2004, and University Village was proposed by Springs developer Kevin Kratt to replace run-down motels and shabby buildings that lined the corridor's west side.
But University Village didn't open until 2009, the height of the recession. By that time, many retailers and other businesses had delayed openings and expansions. As a result, University Village didn't have as many stores and retailers as expected, and its sales tax revenue - the main revenue source earmarked to pay off the bonds - fell short of projections and led to the initial default, urban renewal officials say.
While no payments have been made on the $7.5 million bond issue, the authority continues to make payments on the $47.1 million bond issue, said Jim Rees, the urban renewal's executive director. The authority expects to make its next scheduled payment in full when it comes due June 1, he said.
Sales tax revenue along the urban renewal corridor for the 12 months ending Sept. 30 was up by nearly 18 percent from the same period a year earlier, while property tax revenue - also being used to pay off the bonds - was up almost 5 percent during the same time. More stores and restaurants have come to University Village in recent weeks and months.
"The area is doing pretty well," Rees said. "It's doing what we thought it would do. It's just not doing it as fast as we wanted."
Only property and sales tax revenues generated along the corridor were pledged to pay off the bonds, Rees said. The city of Colorado Springs isn't obligated to pay the authority's debt, and bondholders have no legal right to foreclose on the shopping center or other properties along the corridor, he said.
Conversations have taken place with bondholders and the project's underwriter, Rees said. But it's difficult to renegotiate bond payments until the shopping center is fully developed, he said.
"Definitely, the new stores are adding to it," Rees said. "That's kind of the approach from here on out. There will be more (stores and restaurants) over the next couple of years, and hopefully we'll reach a point where we know exactly what the sales tax will be."
Paul Benedetti, a Boulder attorney considered to be an expert on Colorado's urban renewal law and who worked with Kratt on University Village, said such bond defaults aren't common, yet they have happened.
But because tax revenue from the corridor is the only source for repayment of the debt, bondholders have little recourse but to wait, he said.
"It isn't as if there's no revenue," Benedetti said. "It's just that there's less revenue and will probably take longer to pay off."
The default will not affect the Urban Renewal Authority's ability to sell bonds for other projects, including the proposed City for Champions tourism venues, Benedetti said. Every urban renewal project and bond issue will be judged on their own merits and financial projections, he said.
University Village is expected to be about 650,000 square feet when completed over the next few years. A Costco Wholesale Club, Lowe's Home Improvement Warehouse and Kohl's department store anchor the center, and were joined in September by Stein Mart.
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