We are at zero hour. If GGP is not allowed to move forward the anchor tenants will likely drop out. And we, Norwalk, will lose the best development prospect we’ve ever had. The question is, are we going to chase away a $400 million investment in Norwalk? All because we did not realize that we don’t understand the dynamics of the commercial real estate market.
Let’s ask and answer the key questions.
Can a hotel can work here? Answer, yes, but only if you scrap the Mall.
As designed, with the hotel perched on top of Bloomingdale’s, the construction costs are too high. The resulting room rates needed to cover the construction costs are above what the market would support. We know that since 12 different hotel operators have walked away from this opportunity. The margins are too thin, and the risks too high.
Some will argue that the entire project should be redesigned to accommodate the hotel. But then you lose the $400 million investment that will happen starting next month and defer it for how long? Another decade?
Is $3.5 million payment for not building the hotel enough? Answer, yes, and maybe too much.
While sitting in the Common Council Planning Committee meeting this week I ran some numbers to answer this question. Unfortunately I was not allowed to speak at that point. Here is what I did.
I looked at the future value of $3.5 million paid to Norwalk today and assumed a 5 percent reinvestment rate. I considered its value 10 years out, 15 years out, 20, 25 and 30 years out. I did not account for the delay due to the enterprise zone. Basically, the future value of $3.5 million dollars paid today is the equivalent of receiving $475,000 to $525,000 per year in taxes, assuming tax payments start this year. That’s a range of $5.58 to $6.17 per square foot using the hotel’s 85,000 square feet.
To provide some context nearby high end hotels have the following taxes per square foot.
- Double Tree: $2.44 per square foot.
- Hilton Garden: $3.20 per square foot.
- Stamford Marriott: $5.56 per square foot.
Looks like a good swap for the City. What troubles me is that I did this analysis in two minutes, but the City has not done this yet.
Is the Internet killing retail? And by default, will it kill this mall? Answer, no, it’s just creating new opportunities.
I think they said the same thing about the Sears catalogue when it first came out in the 1800’s. The Internet is facilitating retail sales, just as the Sears catalogue did. And yes some retailers will fall by the wayside due to this disruptive change, but overall retail sales are growing and the retail industry is more efficient and better suited to catering to its customer base.
Class A malls are thriving. Class C and low-end B malls are being closed simply because their time has passed and demographics have changed. Old malls are losing market share to newer, higher quality malls built nearby.
The bulk of the brick and mortar disruption will be visited upon power centers (concentrations of big-box stores) and big-box stores in general.
It is highly unlikely that a Class A retail mall anchored by Bloomingdale’s and Nordstrom will go out of business. This would only happen if Connecticut itself got into such economic trouble that it chased away large portions of our businesses and wealthy citizens.
What’s the Bottom Line?
We already lost two good developers here over the past 20-plus years. Let’s not lose GGP and another decade.