WNYC: From Tax Codes to Traffic, a Megamall’s Risks

The company behind American Dream, Triple Five of Canada, is detailing its vision for a mall-entertainment destination in the Meadowlands in New Jersey — and the hazards that could derail the project.

Since the concept of a shopping destination on state-owned marshland was first green-lit in 2003, the mall has encountered many problems. Two earlier developers gave up on the project, formerly known as "Xanadu."

Now, Triple Five is looking to raise $2.8 billion to finance the final phases of construction. More than half of the funding will be arranged privately through J.P. Morgan Chase. The remaining $1.1 billion is expected to come from the sale of tax-free, unrated, government bonds.

For that bond sale, two preliminary offering memoranda are now in circulation: one is for an $800 million bond package backed by payments in lieu of taxes (PILOT); the other is for a $300 million bond package backed by sales tax receipts generated after American Dream opens. The bonds are being sold by the Public Finance Authority of Wisconsin, which is serving as a middleman between the New Jersey Sports and Exposition Authority and investors.

The documents — over 1,800 pages of them — disclose a wide array of risks that potential investors will have to consider.

Transit is one. Roads and trains are both already heavily congested and could get worse: According to the PILOT bond memo, “The difficulty, expense, unfamiliarity and time-consuming nature of these transportation options, especially for persons carrying numerous purchases, may present a special risk."

An even greater challenge may be the seeming end of America’s love affair with malls. A study by Credit Suisse recently suggested 20 to 25 percent of U.S. malls could close by 2022. “To the extent that these trends continue and have a material adverse effect on the American Dream Project, tenants and customers of the American Dream Project may find the American Dream Project less attractive, which may have a material adverse effect on the generation of sales taxes and on the operating income of the American Dream Project,” the offering memo states.

If the mall fails to meet revenue projections, bond investors will have little recourse: their claims can be made only after the J.P. Morgan lenders have been compensated.

Sixty-nine percent of American Dream's 2.9 million square feet of space has been leased to tenants like Saks, Lord & Taylor, and Primark. There will also be a Nickelodeon amusement park and a DreamWorks water park.

Still, says Lisa Washburn, a credit research analyst for Municipal Market Analytics, the project should give any investor pause.

“I still remain skeptical about the ability for success for the project generally and specifically very concerned about the risks to bondholders,” she said.

Triple Five expects American Dream to open in early 2019.

by Ilya Marritz

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