Bloomington City Manager Jamie Verbrugge and Port Authority Administrator Schane Rudlang hosted a FACEBOOK LIVE Q&A session on Wednesday, June 12, to answer questions about the city’s role in developing the proposed Waterpark at the Mall of America (MOA).
The water park is proposed to be one of the largest indoor water parks in North America. It is projected to cost about $250 million. Its advocates say that it would add to the vibrancy and resiliency of the mall. While open to the public and not contractually connected to any hotel, it would create new demand for hotel rooms in Bloomington’s South Loop and draw greater interest in the amenities offered at MOA.
MOA currently surrounds and encloses one of the largest indoor amusement parks in North America. Why does it need an equally large water park? Triple 5, the commercial real estate management firm that owns MOA, is dealing with the changing reality of large retail malls. New projects that it is developing have about a 50% non-retail component. MOA is about 70% retail today. T5 has added hotels and office space, but believes that MOA needs to further diversify its entertainment and restaurant features.
If the water park is critical to the future viability of the mall, why doesn’t T5 finance the project itself? It owns the land, which is currently serving as an open parking lot. However, it argues that even with the increased customer traffic, it will not generate enough cashflow to cover commercial interest payments of 7-10% and achieve an attractive return on investment.
Enter the City of Bloomington, its Port Authority development arm, and the concept of a nonprofit specifically set up to borrow the funding needed to construct the water park.
Why a nonprofit? The nonprofit can borrow at lower rates (about 5-6%). The theory is that a nonprofit would shield Bloomington property tax payers from potential liability should water park revenues come in under projections.
Why is the City of Bloomington involved? For this approach to work legally, the city needs to lease the land for the water park from T5 and then sublease it to the nonprofit until all debts are paid off. At that point, the ownership of the water park would pass to the city.
Why is the Port Authority involved? An additional parking ramp and a skyway will be built in conjunction with the water park, at a projected cost of $50 million. These are considered public improvements, to be paid through tax increment financing (TIF) generated by the MOA project itself.
In essence, this TIF represents the incrementally higher property taxes that would be paid by the Mall based on the enhance value due to the water park. That increment will go to the Port Authority to pay off the borrowing costs for the new ramp and skyway.
While City Manager Verbrugge emphasized in the Facebook live session that the City of Bloomington has not fully committed to this ambitious project, it should be noted that the city council already approved $7,5 million to complete the design.
Why is this important to Bloomington? MOA is about 10% of Bloomington’s tax base. The City estimates that about 30-40% of the hotel room nights in the South Loop are attributed to the Mall, and the hotels in Bloomington make up about 7.5% of the City’s property tax base. The City’s General Fund also receives about $9 million from existing lodging and admission taxes. Assuming that the current General Fund level is essential, property tax payers in Bloomington would see higher levies if not for the business brought in by the Mall of America.
Will the MOA Water Park obviate the need for an aquatic center in the separately-proposed Bloomington Community Center? That questions did not come up during the Facebook Live session.
What happens if the water park revenue projections are not met? The nonprofit would need an additional source of funding to cover interest payments on its borrowing. The City proposes to contingently impose certain admissions, food/beverage, lodging, and sales taxes solely at the Mall of America and only if the water park does not perform as projected. So if the water park does not prove to be the attraction that is hoped, the retailers and their customers at the Mall will see their costs go up.
The only risk that the Triple 5 Group will face is the loss of revenue that they might have attained if their land had been bought or developed for some other purpose. The plan ensures that they will receive a market-rate for the lease of their land and for the management of the water park.
One clearly hopes that Minnesotans and our outside visitors discover a strong passion for midwestern wave-riding parties and indoor surfing competitions.
For more information, please visit the MOA Waterpark information page.