Providence mall owners make case for new 20-year tax discount

PROVIDENCE – The owners of the Providence Place mall made their case Thursday for another 20-year discount on city taxes.

But the arguments did not appear to sway residents and officials who countered with a litany of concerns during the public hearing before the City Committee on Finance.

The city already gives the mall owner Providence Place LLC a discount on taxes as part of a series of state and local incentives offered when the mall opened in 1999. Under the 30-year tax agreement, which runs through 2028, the company pays about $500,000 a year through a payment-in-lieu-of-taxes agreement.

The new tax treaty follows a similar structure but increases the annual payments to $4.5 million in taxes a year through 2048. This represents savings of more than 80% compared with the $25 million annual tax bill the company would pay based on the $708.7 million property value as of 2022.

The new agreement also expands how the property can be used, allowing the owners to redevelop the shopping center with office, education, residential and medical uses, among others. Specific details of how parent company Brookfield Property Partners LP would apply these new uses were vague, but company leaders offered preliminary ideas on Thursday.

Chief among them: revitalizing the Francis Street ground floor with innovative restaurants, entertainment venues,  spas, exercise facilities and even financial services firms, according to Joe Hope, Brookfield’s senior vice president of leasing. The company also wants to add a coworking office on an upper floor and turn the empty, third-floor storefront previously occupied by J.C. Penney into an indoor miniature golf course or American Ninja Warrior-style challenge, Hope said.

Hope described the changes as a way to “keep us relevant, making Providence Place a hub for customers’ daily lives in this community.”

But not everyone was sold on that vision.

Lawrence Mancini, the city’s chief financial officer, opposed the new tax deal.

The existing agreement granted the company an overly generous discount, and negotiations by the city to increase its annual tax payments for the remaining years proved unsuccessful, Mancini said. While the new agreement increases the amount the owners will pay, it’s still about 2½ times less than what other mall operators are paying in city taxes in comparable markets, Mancini said.

Both the existing and new tax treaties also exempt mall tenants from paying tangible taxes, which costs the city about $2 million to $3 million in annual revenue, according to Mancini.

His concerns were echoed by other community members, several of whom questioned the need to consider a new tax deal now when there are five years left in the existing agreement.

Fahim Sayed, vice president of real estate tax and senior associate for Brookfield, pointed to the mortgage loan on the mall, which ends ahead of the tax treaty. However, Sayed could not answer questions about when the loan reaches maturity.

Althea Graves, the newly elected city councilwoman whose ward includes the mall, was troubled by the lack of an answer to the loan maturity date.

“If this was so imperative, you would think that would have been one of the first things they would have led with,” Graves said.

The company defaulted on the final payment on its mortgage loan last year, although it has since struck a new deal to extend the loan and has remained current on its updated payment schedule, according to a Fitch Ratings report in April.

In addition to loan restructuring, the new tax treaty would also help the company prepare financially for upgrades to the parking areas, security, and regular repair and maintenance, said Brian Montague, senior vice president of national operations for Brookfield.

Providence resident Raymond Mathieu described the new treaty as “throwing away tax dollars” and unlikely to save the mall from being repurposed. Mathieu questioned why Providence Place has struggled when the nearby Garden City Center in Cranston appears to be thriving.

The mall has been hard hit in recent years, in part by the departure of anchor stores J.C. Penney in 2015 and Nordstrom in 2019. The COVID-19 pandemic led to the closure of the building for months and accelerated a shift by consumers to online shopping. Visitor traffic remains at 66% of its 2019 levels, according to Sayed.

Fitch Ratings affirmed the company’s “AAA” ratings in April for pass-through certificates on the mall, which are secured through the existing tax deal with the city, but the rating agency also said the mall’s performance continues to “trend downward.”

The hearing did not include any votes, and a timeline for when the treaty will move forward was not immediately available.

Councilwoman Jo-Ann Ryan, who chairs the finance committee, said the hearing was the start of a “lengthy discussion” about the property and that there must be “robust discussions that result in a fiscally responsible and fair plan for the city of Providence.”

The mall, which opened in 1999, was financed through a series of deals including a state bond and a tax treaty with the city of Providence. Personal property taxes have also been largely waived. The state deal used mall sales tax revenue to repay the debt on the bond that paid for construction. The state made its final, $73 million payment on the bond in 2019, WPRI-TV CBS 12 reported.

Brookfield has owned the mall since 2018, when the global commercial real estate firm acquired the previous mall owner, GGP Inc.

Updated at 7:45 p.m. with information and testimony from the City Council finance committee meeting. 

Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.