Burbank Ends Its Ties With Media City Center : Development: Only $10 million invested in troubled shopping mall is recovered. Deal is likely to make little difference to patrons.

The Burbank City Council voted unanimously Tuesday to end the city’s involvement with the financially troubled Media City Center shopping mall, recovering for the city’s treasury only $10 million of at least $69.2 million Burbank invested in the project.

For shoppers at the mall, the deal is likely to make little difference.

But for city officials, a $10-million payment for Burbank’s interest provides a quick cash infusion from a project that--by some estimates--was not expected to turn a profit for the city until at least 2013 anyway.

Under the city’s present agreement with developer Alexander Haagen, Burbank is supposed to collect 50% of the net operating income from the center’s revenues after debt payments.

But the Media City Center has not generated any money for the city--aside from $1.5 million annually in sales taxes--since it opened in 1989. City officials blame revenue shortfalls of about $35 million so far on the recession, a weak real estate market, and the mall’s vacancy rate of between 30% and 40% this year.

“Ten million dollars is a good return to the city. It’s wiser to accept it now,” said Community Development Director Bob Tague. “The alternative is not to do anything and get nothing . . . No one ever anticipated anyone would get repaid 100% for our investment.”

That argument does not impress City Hall observer Ted McConkey, who says city officials are trying to bail out of a bad business deal that allowed Haagen an exemption from city property taxes, among other things.

“We are, in Biblical terms, essentially selling our heritage for a mess of pottage,” he said. “We’re taking pennies on the dollar for that project.”

The buyout plan is the latest twist to Burbank’s long and often frustrating quest for a vibrant, thriving mall.

At least $120.7 million was poured into the project in the hope that a new shopping mall, with its adjacent properties developed as well, would revitalize downtown Burbank. Some $51 million of the amount was in loans the city expects to be repaid.

To some extent, it’s worked. Restaurants and movie theaters in Burbank Village, for example, enjoy strong weekend crowds. Yet most of the mall is virtually empty on weekdays and whether it will ever fully come alive is open to debate.

Originally, city officials envisioned a first-class shopping center with a sit-down restaurant, a top-notch hotel and high-rise office towers with plenty of white-collar workers needing a place to shop and dine.

The proposed hotel and offices were believed to be crucial for luring potential consumers to ensure that city officials would one day see a profit.

But that plan was scaled back considerably during the recession, with council members allowing Haagen to build a fast-food eatery and Circuit City and Office Depot stores near the mall instead of the restaurant, hotel and office towers.

To help repay about $133 million of debt on the project, the Alexander Haagen Co. went public last year, raising $374 million in capital from investors around the world by offering stock. Haagen placed almost all his Manhattan Beach-based firm--which has 36 properties throughout Southern California--into a real estate investment trust and sold shares in the trust.

A REIT works somewhat like a mutual fund: Money from a number of investors, who buy stock, is pooled to buy property or make loans. REITs are attractive to some because they offer potentially high dividend yields and the shares can be bought or sold in stock markets.

While the REIT settled the issue of long-term financing for the Media City Center, it raised another question: Did going public with the Alexander Haagen Co. constitute a sale of the mall, which would have required the city’s permission.

Tague and Fred Bruning, a senior vice president for Haagen’s company, said the buyout was just one way of settling the matter, by compensating the city and bypassing the issue.

“We honestly felt it was a sale. The city felt it was a financing,” Bruning said.

As it stands now, the city still owns the 41 acres that the shopping center sits on and will continue to collect millions of dollars in sales taxes, but forfeits its right to lease payments for the land in return for the $10-million settlement.

“If our project was not built, the city would be getting zero return,” Bruning said.

Tague acknowledged that the Media City Center was not expected to generate profits for the city immediately, and would never bring in more than $10 million in net operating income for the city under current projections.

Consequently, he added, the $10-million buyout makes sense.

“We think this is a good opportunity,” Tague said. “There’s no one to blame. There’s nothing wrong with this deal.”