St. Charles aldermen tentatively agreed Monday to give developers of the former Charlestowne Mall the largest incentive package in the city's recent history.
The plan rebates up to $20 million in sales taxes to the developers to cover "extraordinary" costs related to changing the infrastructure of the mall site and building, as well as recruiting new tenants.
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Dan Krausz, a member of the development team, told aldermen they will back out of the planned investment in the mall unless the city agrees to the incentive deal.
"We believe this is an all-or-nothing proposition," Krausz said. "We don't see a halfway solution. Radical transformation is going to be expensive."
Transforming Charlestowne Mall into The Quad is more expensive than building on a clear site with no history, Krausz said. The property has had a tarnished image ever since falling into foreclosure in 2005. As a result, attracting new tenants is a major challenge.
"The site has negative goodwill," Krausz said.
The heightened risk to the mall's future success caused by that bad image means the would-be developers need help realizing their return on investment, he said. But the developers want to use the sales tax rebate to also minimize the city's risk.
The incentive plan would split the sales taxes created by the mall 50/50 between the city and the developers for 20 years or until the developers receive $20 million in rebates, whichever occurs first. Likewise, the developers won't receive a penny unless the mall generates actual taxes from sales. The better the mall performs, the faster the developers get the $20 million.
St. Charles officials have agreed to incentive packages to lure business to town with financial obligations tied to similar lengths of time but not at a $20 million value. And most of the other long-term incentive packages, such as the one used to finance the Lexington Club project, involved the city borrowing money via bonds and paying out a large amount of cash up front.
Aldermen didn't hesitate to tentatively agree to the incentive plan Monday night.
Alderman Rita Payleitner pointed to an uptick in economic development near the mall, including the purchase of Pheasant Run, as evidence of the new mall owners already paying dividends for the city.
Alderman Art Lemke said the mall project will benefit from population growth that's occurred since Charlestowne Mall's original opening. He said he expects business growth will continue to follow from The Quad's lead.
"If the glass at Charlestowne Mall was half empty, it's half full now, and it's getting more full every day," Lemke said.
Aldermen must still take a final vote on the incentive package when they meet as a full city council in two weeks.