Decades ago, city and state leaders eagerly jumped on a cross-country flight to secure Seattle-based retailer Nordstrom Inc. as an anchor tenant for Providence Place when it was just a proposed mall on the edge of downtown Providence.
The massive retail complex would be crucial to the city’s renaissance, leaders argued, an economic engine that would reestablish the downtown as a shopping destination.
And the help from government officials in getting it built wasn’t limited to a plane trip.
Well before the mall opened in 1999, the state issued a bond to help finance Providence Place’s construction, with the debt to be paid off by sales taxes collected at the mall. And the city agreed to a 30-year tax treaty that shielded mall owners from paying large property and tangible tax bills every year.
These days, however, as the mall faces some long-standing challenges – and new ones, too – those in power haven’t been as eager to help.
Like most malls, the 1.3 million-square-foot Providence Place has suffered through seismic shifts in shopping habits and has been racked by a shutdown and other headwinds caused by the COVID-19 pandemic.
The latest dark cloud: Macy’s Inc. has said it will close 50 stores in the next few months and another 100 over three years. There have been hints that one of the stores targeted for closure will be in Providence. And this comes as the mall owner, Brookfield Properties, has struggled to make payments on its $255 million mortgage.
Two years ago Brookfield, run by parent company Brookfield Property Partners LP, sought to extend its tax treaty with the city – due to end in 2028 – another 20 years. The proposed ordinance would not have only continued the property tax discount but would have expanded how the property can be used.
The measure failed to gain support from the City Council.
Even as the financial difficulties continue, the mall owners haven’t renewed their request. And no one from the city has reached out to them, either. The administration of Mayor Brett P. Smiley acknowledges that City Hall has not been in contact with Brookfield or Macy’s.
Is this an indication of the mall’s diminished economic importance in Providence?
Brookfield declined to comment for this story, but the Smiley administration says no.
“The Providence Place mall continues to be an important part of Providence’s landscape,” said Smiley spokesperson Josh Estrella. “The city is always interested in seeing such spaces thrive, but, ultimately, the owners will drive decisions about the mall’s future.”
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FROM THE GROUND UP: Workers prepare the land that was once occupied by the University of Rhode Island and Amtrak for the construction of Providence Place in the late 1990s.
PBN FILE PHOTO/BRIAN MCDONALD[/caption]
THE EXPERIMENT
Just what the mall has meant to Providence and Rhode Island economically in the 25 years since it opened – and what it means now – is difficult to quantify.
Providence Place was seen as a unique experiment in reviving the city’s suffering downtown economy when it opened in 1999.
“It was something new, something different for the region, for the city, in that it brought along these sort of high-end department stores that have been missing from the area for a while,” said Marion Orr, professor of public policy and politics at Brown University who co-authored a report on the mall’s status in 2000 and whether it was delivering on its promises.
“That was really the purpose of the mall – to see if you can really invigorate the central business district through the huge retailing entity,” he said.
In the late 20th century, downtown Providence’s once-bustling commercial district started to empty as the city lost major retailers. Among these were Shepard’s, which was one of the largest department stores in New England and closed in 1974; the Outlet Co. store closed in 1982; Peerless, a fixture of Rhode Island retail that filed for bankruptcy in 1989; and Woolworth’s located on Westminster Street, which closed in 1993.
Amid these closures, city and state leaders crafted plans to revive the city’s economy.
A major component of this was to build Providence Place on property along Interstate 95 that was being used by the University of Rhode Island at the foot of Smith Hill.
The mall was set to include anchor retailers Filene’s, Lord & Taylor and Nordstrom and was financed with the help of the state bond and tax treaty in hopes it would create jobs and bring sales and property tax dollars back to the city and state.
By many standards, Providence Place has succeeded.
Forecasts before the mall opened predicted it would generate $11.7 million in sales tax revenue for the state in 2002, according to Orr’s report, “Assessing the Providence Place Mall,” which he co-authored with Darrell West in June 2000. The mall fell short of this, generating $10.6 million in sales tax revenue in 2002 but exceeded $11.7 million in 2004, bringing in $12.1 million in sales tax revenue, according to data provided by the R.I. Department of Revenue.
In total, Providence Place brought in $248.7 million in sales tax revenue to the state from 2000 to August 2020, enabling the state to pay off the $73 million in principal and interest on the mall bond on time.
IN IT TOGETHER
Joseph R. Paolino Jr., a former Providence mayor and city economic development director who now controls hundreds of thousands of square feet of downtown commercial real estate, credits Providence Place with providing a boost far beyond the mall itself.
Paolino, managing partner of Paolino Properties LP, says the retail complex rekindled interest in real estate development downtown, noting that several of the old department stores in the core of the city were converted for mixed uses and luxury apartments within a decade of the mall opening.
“The mall was part of the renaissance of Providence,” said Paolino, who traveled to Seattle with then-Mayor Vincent A. “Buddy” Cianci Jr. and former Gov. Bruce Sundlun in the 1990s to persuade Nordstrom executives to open a Providence store.
The mall also has served as a complementary selling point to event organizers considering booking the R.I. Convention Center, which was relatively new at the time.
Providence Place remains a crucial part of the pitch, says Kristen Adamo, CEO and president of the Providence Warwick Convention & Visitors Bureau.
Adamo says she likes to walk potential event planners from the convention center through the attached Omni Providence Hotel and across an enclosed bridge into the mall. It makes an impression.
The connectivity is particularly attractive to sports organizations, including cheer and dance groups. JVC Tournament, a youth volleyball tournament to be held in Providence in February and April, has told Adamo that the walkability between the convention center, the mall and downtown was the main reason for selecting Providence as the host city.
“They’re looking for value and they’re looking for kid-friendly attractions and that’s really where the Providence Place shines,” Adamo said.
Early on, there were concerns that the mall would suck the remaining life out of the traditional storefronts in the downtown area. But business leaders say, in many cases, the mall has been a complement to small businesses offering products and services that can’t be found at Providence Place.
“You have to have diversity,” said Laurie White, president of the Greater Providence Chamber of Commerce.
Also, as more workers return to the office after the COVID-19 pandemic, there needs to be retail and food options available for them, White says.
Although malls have gone through an evolution in recent years, White says she’s confident in Providence Place’s management. “Now, having a retail center would be table stakes for cities,” White said. “It’s hard to imagine a vital downtown without the mall.”
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RETAIL KINSHIP: Craftland Inc. manager Heather Allen assembles gift packages at the boutique on Westminster Street in Providence. She doesn't view Providence Place as a competitor for shoppers. In many cases, it draws people into stores beyond the mall, she says.
PBN PHOTO/KATIE CASTELLANI[/caption]
Heather Allen, manager of gift boutique Craftland Inc. on Westminster Street, would agree.
She says the small independent downtown retailers have a different feel from the stores in the mall, but Providence Place does generate foot traffic for local businesses along the narrow, historic streets in the core of the city.
How? Well, parking can sometimes be difficult along the narrow streets in the downtown’s commercial corridors. But Allen says her customers will often park at Providence Place’s massive 5,000-space garage, shop in the mall, and then take a five-minute walk to the commercial corridor along Westminster Street.
“We’re all connected,” Allen said.
MONEY PROBLEMS
As important as the mall has been to the downtown economy, there also have been doubts about its survival in its current form.
While bringing in big-name anchor retailers was crucial for the mall’s initial success, none of those stores are still there.
Lord & Taylor was the first to go in 2004 and was replaced by J.C. Penney, which moved out in 2015. Filene’s was replaced by Macy’s in 2006, and Nordstrom was replaced by the family-owned department store chain Boscov’s Inc. in 2019.
And now Macy’s future is unclear as the retailer announced it was closing 150 locations across the U.S.
White says she emailed Macy’s executives back in February, when the store closures were first announced, to encourage them to stay at Providence Place. She emphasized that the Chamber would be responsive to their needs and provide any information it can to help.
Macy’s has yet to respond.
Some say losing another anchor store would mark a dramatic shift for the mall, especially as it has been facing financial challenges.
In May 2021, Brookfield – which has owned Providence Place since it acquired the previous mall owner GGP Inc. in 2018 – defaulted on its $255 million loan, which was transferred to a special servicer in anticipation of the failure to pay.
Brookfield was able to push back the maturity date to 2022 along with two one-year extensions, bringing the loan’s final maturity date to May 6, 2024. The following month, Kroll Bond Rating Agency reported that the loan had “matured and [is] non-performing” – meaning Brookfield is behind on its payments – and the company was looking for another three-year extension.
When the loan was first secured in 2011, the mall and parking garage were valued at $558 million. The appraised value had dropped to $240 million by May 2021, according to KBRA. Meanwhile, Brookfield told the city in 2022 that foot traffic was still at 66% of its 2019 level.
The mall can still operate if it defaults on its loans though the owners will need to reach new agreements with debt holders, says Timothy Howes, finance professor at Johnson & Wales University.
Possible solutions include selling off the mall or restructuring debt, but it’s likely some creditors will not get their money back.
“This is bad,” Howes said while reading the KBRA report. “Someone won’t get paid.”
While Howes says the financial picture isn’t cause for immediate concern, if it continues and the mall loses more high-rent-paying stores, then the owners should worry.
“When you begin to lose anchor stores, that’s when you begin to question the long-term viability of the mall,” Orr said. “The loss of anchor stores is really a canary in the coal mine.”
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MONEY GENERATION
Providence Place brought in a total of $248.7 million in sales and use taxes
between October 1999 and August 2020. A portion of these taxes each year
was used to repay state bonds issued to construct the mall and garage.
* Included only nine months of tax collections, beginning in October 1999.
** Included several months during the COVID-19 pandemic when the mall was closed.
*** Only two months of sales tax were tracked at the mall before the state bonds were paid off.
SOURCE: R.I. DEPARTMENT OF REVENUE[/caption]
CHANGE COMING?
Orr says it’s unlikely Providence Place will ever close, but its status as an economic engine for the city depends on its ability to adapt to the new retail environment.
“I don’t see any immediate demise of the mall,” Orr said. “But the way the trends are moving, there really have to be some serious questions about repurposing the mall.”
As shoppers have been visiting brick-and-mortar stores less frequently, observers have suggested malls move toward “lifestyle” offerings. At Providence Place, that shift can be seen in the opening of Level99 in January – a 40,000-square-foot entertainment venue that features “challenge rooms” and dining located in a space vacated by J.C. Penney nearly nine years ago.
Matthew DuPlessie, CEO and president of Level99, says the venue’s performance has been strong in its first 10 months, with ticket sales higher than expected. He didn’t provide specific figures but says foot traffic has surpassed the Level99 location at the Natick Mall in Massachusetts.
And even if Providence Place loses other major tenants such as Macy’s, DuPlessie isn’t worried.
“It looks like a good choice that we went there,” DuPlessie said of Level99. “You can’t get it delivered to your house; it’s a social in-person experience where you have to go out.”
A survey conducted by Level99 earlier this year across all locations shows that 95% of customers were what’s called “destination customers,” meaning they visited the mall primarily to go to Level99.
“It helps lift all the other tenants when you put in a destination that folks are willing to get off their couch for,” DuPlessie said.
When considering the mall’s future, DuPlessie says it’s best for Brookfield to diversify its tenant mix and offer other establishments and activities people can’t get online.
As of now, despite the financial difficulties, the metrics indicate Providence Place mall tenants are performing well overall. According to KBRA, the mall averaged $748 in sales per square foot for the year ended September 2023, where sales of between $400 and $800 per square foot are considered good. (When removing the sales figures of the Apple Inc. store – the mall’s fifth-largest tenant and responsible for 3% of base rent – that sales per square foot drops to $536, KBRA said.)
Orr and others believe housing should be incorporated into future plans for the mall.
And that’s what the owner of Providence Place had in mind when it sought to extend its tax treaty in 2022, proposing an agreement that would have given Brookfield more flexibility for how the space can be used. Instead of just retail, as it is under the current agreement, the deal would have allowed the owners to add space for office, education and medical uses, and housing, too.
Also, the proposed deal would have increased annual payments from around $.1 million to $4.5 million. Without a new tax stabilization agreement, the property will be subject to full taxation all at once starting in 2028, which could mean an annual tax bill of up to $25 million.
The proposal didn’t garner much support from residents and city officials, who have long grumbled that the existing tax stabilization agreement offers an overly generous discount. Brookfield found no allies in the mayor’s office, either.
Smiley’s resistance to extending a tax treaty with the mall is long-standing, dating back to his time as the city’s chief operating officer in the previous administration of Mayor Jorge O. Elorza.
“The challenge we face is there are no shortage of businesses now that are struggling to make it, and they’re paying a full [tax] load,” he told Providence Business News in 2016. “It’s difficult for us to continue to subsidize one business that’s had a 30-year subsidy, while another business, that maybe has the same struggle, is paying their full tax bill.”
City Councilman John Goncalves, whose Ward 1 covers much of downtown but doesn’t include Providence Place, says he’s willing to listen to Brookfield if and when it comes to the city seeking a new deal.
When asked if he would support a treaty similar to what Brookfield had proposed previously, Goncalves was noncommittal, saying everything is on the table and it would come down to details of what is introduced.
Goncalves says the council is interested in seeing the mall thrive but has not reached out to the mall owners because it is their responsibility to ask for any help.
The way Orr sees it, both the mall owner and city leaders will have to talk at some point.
“There really has to be some serious discussion about how you repurpose that mall to fit for the 21st century,” Orr said.
(SUBS 8th paragraph to correct to two years ago when Brookfield sought to extend its tax treaty.)