Sterling considering economic development tool to spur Northland Mall improvements

STERLING – The City Council held a public hearing Monday on a proposal to create a business development district – the city’s second – that would provide economic incentives to anyone looking to improve the Northland Mall site.

The mall, in the busy East Lincolnway business corridor at 2900 E. Lincolnway, is across the street from the city’s first BDD, the former Kmart site. It is in the process of being remodeled into Sterling Crossings, a mixed-use development that will feature several national retailers.

If approved, a business development district at Northland Mall would create an additional 1% sales tax, imposed only within the boundaries of the district, that would be used to reimburse redevelopment costs. That would help the owner and/or developer offer lease terms that are attractive to new retail tenants.

The tax would last the life of the BDD, which would be 23 years.

For now, the proposed district’s boundaries would be limited to the mall property, although it could be expanded to include other contiguous properties, such as, for instance, the former Holiday Inn site between the mall and Wendy’s.

The two BDDs also would be contiguous, meaning the sales revenue they generate could be used to support each other.

The city has discussed various economic tools with Northland’s owner, Dr. Jody Johnson, who also is the owner of Acadia Women’s Health in Crowley, Louisiana, and wants to improve and upgrade the mall.

Johnson is interested in creating a BDD, City Manager Scott Shumard said, so in February, the city agreed to pay SB Friedman Development Advisors of Chicago $21,000 to do an eligibility study, from which the results were presented at Monday’s meeting.

The study found that there were four main areas of redevelopment at Northland that need to be addressed: the rehabilitation of existing buildings; infrastructure and capital improvements; finding resources for new development; and site preparation. Most of those likely would go unaddressed without the creation of a BDD, the study found.

For an area to be designated a BDD, however, the state Business Development District and Redevelopment Act requires that it meet the definition of “blighted,” including – as in this case – that it has “deteriorating site improvements” and that it “constitutes an economic underutilization” of the area.

In addition, the area must suffer a lack of growth and development through private investment; it must show that “but for” the creation of a BDD, the area would not be redeveloped; the BDD boundaries must contain contiguous parcels that are directly and substantially benefited by the plan; and the BDD plan must conform to the city’s comprehensive plan.

The area is indeed blighted, the study found, citing cracking or crumbling parking lots, curbs, drive aisles and walkways; damage to interior and exterior walls; water damage on ceilings; and damage to building soffits.

“Deterioration of surface improvements and building condition may indicate that the proposed business district lacks investment and can make it more difficult to attract new businesses or consumers. This factor was found to be meaningfully present and reasonably distributed throughout the proposed business district,” according to the study.

To show that the mall is economically underused, the study cited a drop in its equalized assessed value, which has “declined 64.9% since 2017, while the balance of the city grew by 23.9%.”

”While Northland Mall has received some recent investment, it has been narrowly focused and does not characterize holistic or transformative investment across the proposed business district.”

—  SB Friedman Development Advisors' eligibility study

Despite what might appear to be a healthy influx of new tenants since June 2022, including the recent openings of new anchor stores Hobby Lobby and Illinois Furniture, the proposed BDD “has been subject to limited investment over at least the last five years,” according to the study. “While Northland Mall has received some recent investment, it has been narrowly focused and does not characterize holistic or transformative investment across the proposed business district.”

As for the “but for” requirement for BDD designation, “given the overall decline in property value, limited new private investment and existing site deterioration, it appears unlikely that significant private investment would occur in the area without the creation of the proposed business district,” according to the study.

The goal of the BBD is to promote the revitalization of Northland Mall by eliminating the conditions that are causing its blight and underutilization. According to the study, the BDD’s objectives, therefore, are:

• To enhance the city’s tax base by encouraging investment and redevelopment within the BDD.

• To foster the construction, improvement, replacement and/or repair of public and private infrastructure.

• To provide improved pedestrian and bicycle access throughout the BDD.

• To promote the improvement of facades and signage.

• To promote private investment within the city.

Now that the study is complete, the next step would be to create a development agreement for the area and win City Council approval of the creation of a BDD, as did Chris Williams, owner and developer of Sterling Crossings.

First BBD appears to be working

In November, the council provided a similar package for Williams; his Highlands Development LLC is spending $14 million to redevelop the former Kmart site.

The Kansas City, Missouri-based company bought the property at 2901 E. Lincolnway, which had been vacant for 10 years, in 2020 for $1 million.

Williams’ goal was to redevelop the site into a mix of business and retail space.

Now not only is Williams remodeling, repairing and updating the old department store and two existing outbuildings, but an outlying building on the west side of the parking lot is getting an addition, and new buildings are being added – one on the east side and two on the north side, closest to Lincolnway.

The development agreement Williams created was contingent upon the city creating a tax increment financing district and a business development district that included the site.

As a result, Highlands will get a share of the 1% sales tax revenue raised at Sterling Crossings for 15 years – in most cases a 50-50 split, but in some cases with some retailers, a 85-15 divide.

So far, Williams has signed four national retailers – Marshalls, Old Navy, Five Below and Shoe Sensation – which are set to open in the fall or early next year, he announced in April.

He said at the time that he also is in negotiations with three or four other national chains and also hopes to hear from local and regional businesses that are interested in opening there.

The Sterling VA Outpatient Clinic, part of the Department of Veterans Affairs VA Iowa City Healthcare System, was the Crossings’ first tenant, opening across 17,600 square feet of leased space in the east end of the former department store in January 2022.

Those interested in leasing space at Sterling Crossings can reach Williams at 913-372-7270 or Chris@Highlandskc.com.