Pending Hawthorn Mall pact calls for $46.5 million 'pay as you go' incentive

Vernon Hills plans to pay $46.5 million in incentives to help bring about the redevelopment of the 1970s-era Hawthorn Mall, long considered the village's retail centerpiece.

That amount emerged after lengthy negotiations with mall owner Centennial Real Estate. The Dallas-based company is proceeding with a $252 million plan called Hawthorn 2.0 to reinvent the 1.3 million-square-foot center at Townline Road (Route 60) and Milwaukee Avenue (Route 21).

Village contributions are the meat of a pending redevelopment agreement, which details conditions, schedules and obligations of both parties. The bulk of the payments would come from a tax increment financing district fund that grows as the value of property increases.

The village also is pledging 40% of the sales tax generated by the planned retail/commercial additions at Hawthorn.

As negotiated, Centennial will fund construction and other costs upfront and then receive the incentives as the project's three phases are completed.

"The village isn't putting any money into this. It's pay as you go," Village Manager Mark Fleischhauer said.

The agreement is laden with safeguards to protect the village from owing payments unless what has been promised is built. The deal also includes penalties to reduce payments if the work falls short, according to those involved in the process.

"I can't stress this enough - they have to finish the project, each phase, in order for them to avail themselves of the village resources," said Robert Rychlicki, president of Kane, McKenna and Associates Inc., the village's economic development consultant.

"It's in effect self-sustaining - the proverbial carrot and the stick," Rychlicki said during a recent overview of the agreement, first introduced publicly last week.

Top executives with Centennial introduced the grand plan two years ago but said some type of incentive would be needed to proceed. Village officials agreed and designated much of the mall property as a tax increment financing district to provide that funding.

A TIF district is an economic development incentive in which property tax disbursements to local governments are frozen, typically for 23 years. Any additional tax revenue generated by rising property values as a result of development goes into a special fund to pay for improvements within the district.

How much TIF money Vernon Hills designates for the mall project and how it is disbursed have been topics of a complicated negotiation that has involved dozens of people and hundreds of hours.

Village officials described the agreement as "fair and equitable" to all parties.

In fact, Hawthorn Elementary District 73 potentially could receive nearly $18 million over the life of the TIF district - much more than required by state law.

"There's a tightrope between making sure that you get the private investment in the area and also contributing just enough to make it work," Rychlicki said.

Centennial's initially asked for $58 million, but the deal was negotiated down to $46.5 million, he said.

The project is planned for three phases. Phase 1 is pegged at $152 million and calls for the former Sears anchor store to be demolished. In its place would be 313 luxury apartments, 83,342 square feet of commercial space, a 12,500-square-foot patio for public entertainment and other activities, and a 570-stall parking garage along a new Main Street-style mall entry called Hawthorn Row.

Only the slab of the Sears remains and construction of new features should be visible in mid-May. The retail portion is expected to open in summer 2022 followed by the apartments that fall.

Phase 2 envisions 249 more apartments and Phase 3 calls for the former Carson's anchor store to be demolished and replaced with 100,000 square feet of commercial space. According to the agreement, Phase 3 must be complete by Jan. 1, 2028.

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Work to create 'Hawthorn 2.0' officially begins in Vernon Hills

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