City May Buy Auto Mall Share : Palmdale: Officials may use money earmarked for building a civic theater to purchase an interest in the car sales center.

Palmdale officials are negotiating to buy out a private investor who developed the city’s auto mall--a decision that could cost taxpayers more than the $5 million already invested in the struggling project and derail longstanding plans for a civic theater, city officials said Monday.

The mall’s developer, William Royster, has asked city officials to purchase the undeveloped portion of the 68-acre Antelope Valley Auto Center, as well as his company’s future share of profit from the project. City officials estimate that the proposal could cost Palmdale between $5 million and $8 million.

The outcome of the talks will probably hinge on whether Palmdale proceeds with its long-planned 400-seat civic theater. If bids for that project exceed its $4-million budget next month, as some expect, the theater could be canceled and the money used for the mall, city officials said.

The budget-strapped city cannot afford to build a theater and buy Royster’s share of the auto mall, which opened last year in the middle of a recession that has hurt sales and prompted three of the mall’s eight dealers to abandon plans to open. Four dealers are there now, with a fifth dealership under construction.

Although talks have been under way for several months, city officials have repeatedly refused to disclose any specifics. They agreed to discuss the issue publicly for the first time Monday after The Times learned of the details.

The auto mall, in which Royster said his company has a $14-million investment, is on the west side of the Antelope Valley Freeway between Avenue P-8 and Avenue Q. Royster also has a planned commercial project to the west along 5th Street West.

A decision to invest in the mall at the expense of the long-planned civic theater would be likely to raise controversy in next month’s City Council election. Voters will fill three of the council’s five seats in the April 14 election.

Palmdale initially spent an estimated $2.6 million to open the mall in 1991. Last month, citing the recession, the city approved spending $1.2 million on advertising to promote the mall and $1.25 million in loans to help the five dealers through the recession.

Royster, while refusing to discuss price, confirmed that he is asking the city to buy his share of the development.

Some city officials said they believe that Royster may be facing financial troubles. Officials said Royster’s firm is late on property and other tax payments to Los Angeles County for its auto mall holdings. Royster refused to say whether he is late on his tax payments.

Royster said the deal would not cost taxpayers, saying the profit share he would sell the city is worth an estimated $35 million. That money would come from a share in sales tax revenues from the auto mall that the city gave Royster in exchange for him developing the project.

Although the details have varied, the latest discussions revolve around the city buying the remaining 28-acre undeveloped portion of the auto mall site, along with Royster’s share of sales tax revenues, city officials and Royster said. The five existing dealers would continue to own and operate their sites.

Royster, president of Trakell Corp., managing general partner for the auto mall, said it will survive and be profitable regardless of whether the city buys his interest. But Royster said he wants to sell his share because his company needs cash to proceed with development of its adjoining 77-acre commercial project or face losing that land.

Royster said he has been making the following argument to city officials: Why spend $4 million to $7 million on a theater center that will likely lose the city money each year? Royster said the city would benefit more by giving him the money and allowing him to develop more commercial property that he promises will bring jobs and money to Palmdale.

To further link the two projects, Royster said he has offered the city two sites within his planned commercial center. He said he will donate five acres, which could be used for a theater, and sell the city an 11-acre site that could be used for senior citizen housing.

Palmdale officials say they are interested in obtaining Royster’s stake in the auto mall at a potentially bargain price. But redevelopment manager Danny Roberts said they remain “worlds apart.”

The developer’s earliest offers several months ago called for the city to spend up to $19 million for the buyout, two city sources said. The price being discussed has gradually dropped to the present range, they said.

And other city officials said they are not ready to cancel the theater.

Councilman Joe Davies, the theater’s strongest backer on the council, confirmed that a city consultant has estimated that construction bids could exceed $7 million, far over the originally estimated cost. But Davies said he wants to wait for the bids before making any decision on where to spend the city’s money.

The Palmdale City Council originally approved the auto mall in 1989 in a move that brought most of the auto dealers and their lucrative sales tax revenue to the city from Lancaster. The five auto mall dealers are expected to generate $1 million a year in total sales tax revenue.