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After 20 years, RI is done paying for Providence Place – but what’s next?

Target 12

PROVIDENCE, R.I. (WPRI) — Soon after Gov. Lincoln Almond took office in 1995, he assigned his legal counsel, Joe Larisa Jr., a tough task: renegotiate the pending deal to build the Providence Place mall, with the goal of “taking the taxpayers off the hook.”

“That’s how Governor Almond wanted to do business: no risk,” Larisa told Target 12.

By then the mall had already been a hotly debated issue in Rhode Island politics for eight years — even The New York Times had taken note of the project’s “tumultuous history” — and as the Republican nominee for governor in 1994, Almond had been an outspoken critic of his Democratic predecessor Bruce Sundlun’s approach.

After months of discussions, Almond and Providence Place’s developer struck a deal. The state would float a bond to help pay for construction of the mall and its parking garage, and the debt would be repaid with sales tax generated by the mall once it opened.

The public wasn’t thrilled; a Brown University poll in September 1995 showed 66% of Rhode Island voters opposed Almond’s mall deal. But the governor muscled it through, insisting Providence Place would bring in more than enough sales tax to pay off the debt.

He was right. Since opening its doors 20 years ago, Providence Place has generated $249 million in sales tax receipts — and last month the state of Rhode Island made its final payment on the $73 million in principal and interest on the mall debt.

“It worked perfectly,” Larisa said. “The developer won, the taxpayers won, the city of Providence won, the state won. We had a beautiful mall and the taxpayers were not on the hook, and it resulted in tens of millions of dollars of economic development and progress for the state.”

“It’s a Rhode Island success story,” he added.

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Today, though, executives at Providence Place face growing challenges as they seek to continue that success for another two decades. In addition to countering the rise of online shopping, they have had to deal with the closure of prominent upscale stores and the relatively weak economic picture in the Providence metropolitan area.

The most high-profile blow was the closure last January of the mall’s flagship, the high-end department store Nordstrom. At the time, that retailer’s decision to be part of Providence Place was seen as so crucial to the project’s success that Sundlun and then-Mayor Buddy Cianci flew to Seattle in November 1993 to lobby the Nordstrom family personally.

Within a year of that trip, though, something else happened in Seattle that would have a profound effect on Providence Place: Jeff Bezos founded a new online bookstore called Amazon.com. The explosive growth of e-commerce in the quarter-century since has left legacy retailers like Nordstrom, and the malls they operate in, struggling to find their footing.

The Providence Place Nordstrom was in steep decline in the years leading up to its closure, with customers complaining about a sparse and limited selection of merchandise.

Documents obtained by Target 12 show Nordstrom’s Providence store generated $38 million sales in 2009, at the height of the Great Recession. But by 2017, the final year before the store’s closure was announced, annual sales had plunged to $19.5 million.

“We look at our business market-by-market to understand opportunities and see how we can be as efficient as possible at serving our customers,” a Nordstrom spokesperson told Target 12. “When we looked at our business in the Providence market, we determined it made most sense for us to end our lease.”

A different technology company has supplanted Nordstrom as Providence Place’s biggest draw: Apple, which opened there in 2006 and expanded to a bigger location in 2017. Documents show that over the same eight years that Nordstrom’s Providence sales dropped 49%, sales at Apple’s Providence store jumped from $25 million to nearly $43 million. (Apple did not respond to a request for comment.)

“The Apple Store I would definitely consider an anchor store,” said Diane McCrohan, a marketing professor at Johnson & Wales University. “It has the entertainment factor, which is what malls need to bring in and what stores need to bring in, as well.”

Providence Place benefits from having the only Apple Store in Rhode Island, with the company’s nearest location 30 miles away in Dedham, Massachusetts. McCrohan said if Apple ever opened a store at the open-air Garden City Center in Cranston, “that would be a problem for Providence Place.”

Still, Apple appears to be the exception rather than the rule for the mall.

A Target 12 analysis of state data shows sales tax revenue at Providence Place peaked at $14.3 million in the 2011-12 fiscal year but has declined notably more recently, falling to $12.3 million in the 2018-19 fiscal year that ended June 30 — a 14% drop.

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In addition to growing competition from online shopping, McCrohan said the mall has suffered from the loss of multiple retailers that gave it a high-end feel, including original anchor stores Nordstrom and Lord & Taylor as well as Pottery Barn, Crate & Barrel and Williams-Sonoma. (The latter three chains now have locations at Garden City.)

At the same time, McCrohan said it was a good sign that Providence Place immediately found a new tenant for the space Nordstrom had occupied: Boscov’s, a Pennsylvania-based regional chain that opened in September. And Macy’s — which in 2006 took over Filene’s, the other of the three original anchor stores — still occupies 207,000 square feet of space.

“It is a different demographic than what was originally planned for Providence Place,” McCrohan said. “It was originally thought of to be a high-end mall, and now really it’s more of just your middle-class mall.”

Providence Place is now owned by Chicago-based Brookfield Properties, which purchased its former parent company, General Growth Properties, last year after the latter went through a complex bankruptcy restructuring. (General Growth acquired the mall when it bought The Rouse Co., which had bought it from the original developer in 2004 for $522 million.)

Executives at Brookfield declined Target 12’s request for an interview, but spokesperson Lindsay Kahn said in a statement the mall sees itself as “the community’s destination for shopping, dining and entertainment.”

“In 1999, Providence Place filled a void that did not exist in the market,” Kahn said. “While change is a constant and happens at a rapid place in the shopping center industry, Providence Place continues to maintain longevity by remaining current with the ever-changing demographic.”

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Despite changes in Providence Place’s mix of stores, overall occupancy at Providence Place remains strong: 97.4% of the mall’s gross leasable area was leased as of Sept. 30, according to a regulatory filing by Brookfield. (Its footprint of 1.151 million square feet is smaller than it once was, in part because much of the old JCPenney was turned into additional parking.)

Kahn noted that Apple and another of the mall’s stores, H&M, have “expanded into flagships” in recent years. She also highlighted Tiffany & Co., Lego and The North Face as “brands that resonate with the consumer,” and pointed out that Providence Place got the first local Zara, a Spain-based clothing store. The mall is now home to a CycleBar fitness center, as well.

“I think the Providence Place mall is going to be here for a while,” McCrohan said. “They’ve been successful in getting an anchor in, they’ve been successful in getting stores in — it might just look a little different in the future as far as, like, office space or more entertainment.”

And Providence Place is clearly in better shape than other local malls.

The 30-year-old Emerald Square mall in North Attleboro — whose ability to lure Rhode Island shopping dollars over the border helped motivate state officials to back Providence Place — saw its occupancy drop from 94.3% in 2014 to 87.4% last year. A spokesperson for Emerald Square declined to comment.

Others are faring even worse. The Swansea Mall closed its doors in March and is now slated to become a mixed-use development of apartments, retail and office space; Taunton’s Silver City Galleria was recently described by the local newspaper as seeming to be in “a rapid death spiral.”

Kevin Hively, an economic development consultant who worked on the mall project as an adviser to Governor Almond, said the local shopping centers’ varied experiences show what’s happening in retail is complex.

“The story about malls isn’t a universal death sentence to them,” Hively told Target 12.

“Well-programmed malls that really understand their markets do well, and malls that are lower-level — particularly with a management team that doesn’t really understand the local market — tend to do really badly,” he said.

Hively also agreed with Larisa that Providence Place has been successful.

“It accomplished its objectives, one of which was to repatriate retail dollars that were bleeding over into Massachusetts,” he said. “It brought those retail dollars back into Rhode Island. It paid for itself; the deal didn’t go bad. And it filled a major hole in the downtown which the city, frankly — given what’s happened with development over the last 20 or 30 years — now would probably be struggling to fill.”

One person who still thinks the mall can do more for Providence is Mayor Jorge Elorza.

Under a 1996 tax treaty reluctantly signed by Cianci, the mall has paid the city just $300,000 annually for the last 20 years — a far cry from the $25 million it would owe if it had to pay on its full assessed property value of $683 million. The payment will rise this year, but only to $970,000.

The tax treaty does not expire until 2028, but Elorza’s administration and Providence Place executives have already had initial talks about what should happen when it does. Records show the mall has already hired three lobbyists to make its case at City Hall.

Elorza said he sees an incentive for Providence Place to negotiate a new deal before the current one ends.

“I mean, if their payment’s going to balloon to 20-something million dollars, that will likely knock them out of business,” he told Target 12.

The mayor would like to see a revised deal that yields more revenue for the city. “The idea is they increase their payments over the next 10 years, and after 10 years it doesn’t go back down to what it is now, but it’s less than that $25 million,” he said.

Yet Hively expressed skepticism about whether Providence Place is worth the $683 million that the city’s assessors say it is. “I would be really surprised if the valuation that’s sitting on the books could withstand any kind of real scrutiny,” he said.

“The city needs to be careful, because the retail industry’s in transition and the value of the property is a function of what people are willing to pay in rent,” Hively said. “As the tenant base changes from one kind of price point to another, the ability to sustain that level of rent is going to be different. And at some point somebody’s paying that tax. And the question is if it gets too expensive to occupy space in there, people simply won’t do it.”

Elorza said he is looking for more than money from Providence Place going forward, describing the mall as “an important gateway” between downtown and the Woonasquatucket neighborhood that his administration is looking to revitalize. He noted the area behind the mall by the river is currently “kind of dark and dreary.”

“There’s a lot we can do in partnership so that the space under the mall and then behind the mall, that it feels connected and almost inviting for people to explore beyond downtown and get out into the neighborhood,” Elorza said.

Ted Nesi (tnesi@wpri.com) is WPRI 12’s politics and business editor and a Target 12 investigative reporter. He is a weekly panelist on Newsmakers and hosts Executive Suite. Follow him on Twitter and Facebook

Copyright 2019 Nexstar Broadcasting, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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