NWA Mall owners sue to lower property value millions

Posted: January 28, 2018 at 1:10 a.m.

NWA Democrat-Gazette/ANDY SHUPE Traffic passes Thursday along College Avenue past the Northwest Arkansas Mall in Fayetteville. Owners of the mall have sued the county claiming the property is overvalued and they should pay less in county taxes.

FAYETTEVILLE -- The owners of the Northwest Arkansas Mall have sued Washington County to lower its property value so it pays $250,000 less in taxes.

The county is fighting to keep three parcels, totaling 111 acres of prime real estate, from falling in market value from $64 million to $39.5 million, County Assessor Russell Hill said.

Fast facts

The Northwest Arkansas Mall opened in 1972 and was renovated in 1996. The 820,645-square-foot building sits on 111 acres at 4201 N. Shiloh Drive in Fayetteville. Dillard’s, one of the anchor tenants, owns 222,422 square feet in two stores.

Source: Washington County Clerk’s Office

County Collector Angela Wood said the mall's tax bill is about $708,000 and would be about a quarter million dollars less if the value is lowered.

The mall's owners, Northwest Arkansas Mall Realty, Northwest Arkansas CH and Northwest Arkansas Nassim, filed three lawsuits covering the three parcels Dec. 7 in Washington County Circuit Court.

The owners sued the county, assessor, collector and equalization board, saying the county puts too much value on the mall property. The owners appealed last year to the equalization board, which reviews property values for owners who object to the county's estimation. The board lowered the value by $2 million, Hill said.

Board decisions can be appealed to the county judge, which the mall owners did. County Judge Joseph Wood upheld the decision in November. The only other option is to appeal in Circuit Court, county officials said.

The lawsuit claims the 820,645-square-foot mall is overvalued based on its last sale price and tenant income per square foot.

The companies paid $39.5 million for the mall in December 2015, according to the suit. Not counting the three anchor stores, tenants had sales of about $250 per square foot in 2016, according to records filed with the County Clerk.

Experts say that amount puts the mall in the category at risk of closing. Green Street Advisors, a real estate research group, reports about 300 malls nationwide are in that category. Korpacz Realty Advisors, a group that provides consultations on real estate, defines malls with less than $350 in retail sales per square foot as less desirable.

J. Douglas Gramling, an attorney for the owners, said Thursday he did not have permission to speak about the lawsuit.

'Prime Property'

The location and amount of acreage is worth more than what the mall owners claim, Hill said.

"It's still a prime property," he said. "The land and the structure, itself, is worth more than $39 million. That area is booming in Fayetteville."

Potential buyers would not pay what the county appraiser says the mall is worth, according to the lawsuit and documents at the County Clerk's office. The lawsuit claims the property was bought in a regular transaction at "actual market value." County records show the property was purchased from creditors who got the property back under duress in 2011.

The companies bought the mall in a bundle with a mall in Colorado Springs, Colo. The total sales price for the deal was $60 million, county records show. Having the malls linked makes it difficult to divide the purchase amount, Hill said.

Documents filed as part of the appeal to the county judge show the owners paid $20 million for the Colorado mall.

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Hill said the Washington County appraiser in charge of commercial property calculated the value by using comparable property and the mall's revenue, just like any other commercial appraisals. Hill said the companies dispute how the value should be calculated.

The mall's value has changed over the past 20 years, county property records show.

The Assessor's Office valued the mall at $66 million last year, down from $150 million in 2007. The property was valued at $94 million in 1998, county property records show.

The mall has good visibility on a high-traffic road, surrounded by commercial businesses and high-end construction developments, including condominiums, Hill said.

"They are trying to say this ($39.5 million) is what they paid for it, but they picked it up at an auction," Hill said. "Even if the mall is not working out out there, the land is prime real estate."

The mall's property is in a central location, surrounded by box stores, apartments and restaurants, said Mervin Jebaraj, director of the Center for Business and Economic Research at the Sam M. Walton College of Business at the University of Arkansas, Fayetteville. It's also property that could have a variety of uses, he said.

"Here's the issue," Jebaraj said. "The land itself is a prime location, but malls aren't very popular right now. So, it's current use isn't as prime as it used to be -- like when malls were the central shopping place in the city."

Sears Connection

The lawsuits come after it was announced the Sears store at the mall was going to close. Its lease would have been up Feb. 28, 2019, county records show. Nearly 30 percent of the mall's lease contracts will be up the same year.

A Sears spokesman did not return a message left at the media relations number Thursday. An employee helping with close-out sales at the store Thursday said Sears is expected to close today.

JCPenney and Dillard's remain anchors at the mall, but Dillard's owns both of its stores. County property records show Dillard's has 6.5 acres for one store and 6.3 acres for the other. Each are appraised at $6 million. The company's estimated taxes on each property is $63,000, assessor documents show.

The mall had 13 vacancies on Jan. 25, 2017, according to county records. Twelve stores were empty as of Thursday.

Sears occupies 137,125 square feet, or nearly 17 percent of rental space at the mall, county records show. The store had nearly $12 million in sales in 2014, according to records filed with the County Clerk.

Losing Sears shouldn't affect the mall's 2017 value, which is what is contested, Hill said. Sears was a paying tenant throughout 2017, he said. Assessments and tax collections are done a year behind, meaning 2017 taxes will be paid in 2018.

Despite the lawsuits, the mall does not seem to be struggling, Steve Clark, president and CEO of the Fayetteville Chamber of Commerce. The anchor stores and others seem strong, he said.

"The mall, as far as I know, is still thriving," Clark said. "The mall is still an important part of the retail sales environment of Northwest Arkansas, not just Fayetteville but Northwest Arkansas."

An appraisal filed by the mall's attorney with the County Clerk's Office shows tenants paid the mall about $6 million in 2016.

If an appraiser uses only the mall's annual income, after expenses, then the mall is worth $36 million, according to an appraiser's report filed with the mall's financial documents at the County Clerk's Office.

Jeff Bishop and Travis Ramay, senior general manager and operations manager respectively, said they had no comment about the Sears space or the overall health of the mall. Ramay said the mall's leasing agent plans to release information soon.

Clark said he didn't know what the plans are for the Sears space, but retail stores are facing major changes.

Malls need to give shoppers more of an experience, more entertainment, more gathering places and more services, if they want to survive long term, according to a 2014 report by the National Retail Association.

NW News on 01/28/2018