By George Moffatt • Programs Support Facilitator
The $1.2 billion in NJ funds invested in the American Dream mall in East Rutherford might have supported lead detoxification, the clean energy transition, or school construction. Instead, the money appears well sunk into a deepening money pit.
Most recently, owners of the $5 billion mega mall and amusement complex missed an Aug. 1 interest payment of $8.8 million on bonds backed by the NJ Economic Development Authority (EDA).
Although the missed August payment isn’t considered a default, bondholders are concerned. The default relates to $390 million in funding from the EDA, meant to be paid from the sales taxes the project would generate over 20 years. The complex’s owner, Triple Five, also has $800 million in municipal bond debt, backed by payments in lieu of property taxes.
NorthJersey.com reported in May 2022 that the mall had nearly $60 million in losses in 2021 related to the pandemic, store opening delays, and a fire in its Big Snow indoor ski attraction. Mall expenses still far exceed revenues, and total 2021 sales ($305 million) were a fraction (15%) of the $2 billion that the mall owners originally anticipated from first year-revenues. The mall’s first-stage opening was in 2019.
The NJ Chapter of the Sierra Club has opposed the 3.3 million-square-foot mall, calling it “the largest publicly subsidized development project in state history” in 2021.
Repayments of the indebtedness to the state were to come from 75% of the 6.625% sales tax paid by the project’s customers. This procedure is commonly known as “payments in lieu of taxes.” Similar “in lieu” bonding arrangements have been underwritten by several local municipalities. Total mall debts were $2.6 billion in April, according to NorthJersey.com.
An American Dream spokesperson publicly stated the mall has “no financial obligation” to make any payments to the bondholders. Instead, “The bondholders are paid exclusively from sales tax generated from the project,” subject to state approval.
Press reports state that when Triple Five made a $9.3 million bond payment from its debt service account last year, $9.3 million remained in the reserve. But after the developer made another payment this year, the reserve had just $820 left.
Many US malls struggled during the pandemic, although Simon Property Group, the nation’s largest mall owner, said retail occupancy stood at 93.9% on June 31, up from 91.8% last year. Retail openings this year have far exceeded closings, according to Coresight Research, a net of 2,478 openings.