Dreams on Markdown : Media City Center Mall Has Been a Disappointment to the City of Burbank

Five years ago, Burbank leaders were thrilled with the great deal they had just closed that would finally bring a major shopping mall to the city.

Within 25 years, nearly $229 million in sales, property and hotel taxes would be collected from operations of Media City Center and surrounding properties, officials projected.

In addition, Burbank officials exulted, developer Alexander Haagen agreed to split 50-50 with the city the net operating profits from the mall. With Haagen, the operator of dozens of shopping centers in Southern California, at the helm, another $52.7 million would roll into city coffers in those 25 years, officials happily announced.

How things have changed. Officials now say the mall, which opened in 1991 and in which the city invested $120.7 million, won’t produce a dime in profit for the foreseeable future. But they say they have made another great deal, salvaging $10 million--which Haagen promises to pay in the future--while forever surrendering the taxpayers’ right to half the profits.

What happened?

Public records and interviews with former and present city officials show that the partnership between Haagen and the city, working through its redevelopment agency, was beleaguered from the start.

Almost since the beginning, the Manhattan Beach developer has repeatedly made financial demands on the city, records show. And until last June, the city complied, hoping that one more concession would finally make the mall flourish.

In fact, much of the money generated by the shopping center--millions of dollars in tax revenue the city counted on five years ago to make good on its investment--has been diverted to Haagen.

Those now in positions of power in Burbank, including Mayor Bill Wiggins, say they are generally satisfied with how the project has overcome the California recession and a sagging retail market. They point proudly to a revitalized downtown centered on the mall, which draws strong weekend crowds and has generated new jobs.

“This is a phenomenal success to have taken 50% of our profits, which, because the economy changed, was tantamount to zippo, and to translate that into $10 million of guaranteed hard, cold cash is an absolute coup,” City Manager Bud Ovrom said.

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That upbeat view is not shared by those who first made the deal with Haagen.

“I’m glad Haagen didn’t want City Hall, or the City Council would be meeting in a tent,” said Al Dossin, a former Burbank mayor who helped select the developer in 1989.

“That’s kind of a snide remark, don’t you think?” said Haagen, 75, who has 40 years of experience in real estate development. “I think our reputation has been impeccable. If you look at the results rather than the comments, the results of what we did are rather impressive.”

Haagen said sour grapes are behind the negative comments. “The city was as much a participant as we were,” he said. “We have been a productive entity for years. I went to Burbank because the city asked us to.”

The city refused requests by The Times to examine records of negotiations until after the final deal becomes effective Nov. 26. But other sources show that key changes in the project and its revenue include:

* Haagen could not arrange for the construction of four office buildings and a 300- to 350-room hotel near the mall, buildings the city considered crucial to the success of the project. While the city planned on receiving revenue from the projects, the original agreement allowed Haagen not to build without defaulting.

* Both Haagen and the city wanted an upscale anchor store. In hopes of luring Bullock’s, Burbank in 1989 and 1990 borrowed $51.5 million to pay for the building and a new parking structure to be used exclusively by the store. Haagen, who loaned the money, required the city to pledge 80% of the property taxes from the entire mall, and all of the city’s share of sales taxes from Bullock’s and 34 of 149 mall stores, records show. Haagen has agreed to forgive any amount remaining on the loans after 2016.

In a letter to Ovrom in 1989, a senior officer with Alexander Haagen Co. warned that the city risked the chance of never attracting a top anchor store if it did not quickly agree to the terms of the Haagen loan.

* Under another agreement in April, 1993, the city gave Haagen all of its share of sales taxes generated over 10 years by Office Depot, Circuit City and a restaurant, all built on land once reserved for office towers.

The city agreed to do so after claims from Haagen’s company that the money was critical for the overall success of the project, public records show.

The amount of tax revenue to be transferred to Haagen from those businesses is projected to be $300,000 this year, according to Fred Bruning, senior vice president for Haagen.

* Last year, Haagen threatened to leave the mall project unfinished if the city interfered with his plans to raise new capital by taking his company public and offering shares for sale, according to public records. The city eventually consented, and Haagen has raised $374 million by selling 10 million shares of the new firm, Alexander Haagen Properties Inc., since last December.

Haagen owns 55,000 shares of the new firm and serves as chief executive, president and chairman.

* Just six months later, Haagen had another demand. He asked the city to allow him to pledge all of Media City Center as collateral for a $75-million line of credit he said he needed. The city owns the land on which the mall was built, and Haagen has the right to stay for 99 years at rent of $1,000 a year.

It turned out to be the last straw, ending a partnership in a way few at City Hall could have imagined when it began.

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Ask mall tenants how business is doing and the answers are as varied as the merchants themselves.

Most agree that the Northridge earthquake and subsequent closure of major shopping centers in the San Fernando Valley helped bring more people to Media City Center. Prior to January, some said, business was “dead.”

“It’s incredibly slow, but we’re still ahead 150% of last year in sales,” said Manager Shawn DeCloedt of Expressly Portraits. “It may take getting more established. It just seems this mall needs a couple of more years.”

Last year, Haagen’s prospectus for the stock offering listed the mall’s loss at $3.9 million for 1992 and $5.5 million for 1993.

Haagen has had troubles with other municipal partners. He angered officials with the Los Angeles Community Redevelopment Agency earlier this year by trying to end a partnership that helped open the Baldwin Hills-Crenshaw Plaza. Both sides recently settled the dispute by agreeing to go their separate ways in 1996, with a minimum payment of $1.35 million from Haagen to the city of Los Angeles.

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Under the terms of the Burbank buyout agreement, Haagen must pay the city a total of $10 million during 1995 and 1996. In exchange, he obtains the right to develop two remaining parcels that were reserved for a hotel and office tower. The city loses its half interest in any profits, public documents show. Haagen maintains the right to rent the mall for a total of 99 years at $1,000 annually in rent.

“What the city wanted, I did,” Haagen said. “If you look under the rocks, there was nothing but good intentions. We created things no one else has produced. Certainly, we didn’t produce a bad shopping center.”

Media City Center Revenue Diversions

The Burbank Redevelopment Agency and Alexander Haagen Properties Inc., the partners who built the Media City Center shopping mall, have agreed to split up. In a deal that will become final Nov. 26, the city will surrender to Haagen its right to half the profits from mall operations in return for $10 million. But in a series of earlier agreements, the city has already diverted to Haagen millions of dollars in tax revenues generated by the mall.

CASH TRANSFERS

1. Sales Taxes (From Bullock’s and 34 of 149 mall stores) (100%): Alexander Haagen Properties Inc.

2. Sales Taxes (From two adjoining stores and restaurant) (100%): Alexander Haagen Properties Inc.

3. Profits (From Media City Center) (100%): Alexander Haagen Properties Inc.

4. Property Taxes (From Media City Center) (80%): Alexander Haagen Properties Inc.

5. Sales Taxes (From remaining 114 mall stores) (100%): City of Burbank

Notes:

1, 2: Since mall opening, $700,337 has been paid by Burbank to Haagen.

3: When buyout becomes final Nov. 26, all net profits from mall to Haagen.

4: $4,148,612 has been paid by Burbank to Haagen.

5: Approximately $1.2 million annually retained by Burbank.

ORIGINAL MALL FUNDING

For the $250-million project, in millions:

Haagen: $169

Burbank Redevelopment Agency: $69.2

Anchor stores: $11.8*

* Such as Sears, Ikea and Mervyn’s

KEY DATES

Nov., 1988

In a proposal to Burbank City Manager Bud Ovrom, Haagen guarantees at least $100 million in tax revenues and other payments within the first 20 years of operation if it is selected to build the mall.

Sept., 1989

Burbank Redevelopment Agency and Haagen agree to a 50-50 split of mall profits after debt payments. Agency agrees to borrow $18.5 million from Haagen to build parking structure for an upscale anchor store. City agrees to divert 70% of mall-generated property taxes to Haagen until 2016.

Sept., 1990

City officials agree to borrow $33 million from Haagen to build Bullock’s. City agrees to divert an additional 10% of property taxes generated by the mall to Haagen. City agrees to divert all sales taxes from Bullock’s and 34 mall stores to Haagen until 2016.

April, 1993

A third agreement between Haagen and the agency gives the developer the city’s share of sales taxes from Circuit City, Office Depot and El Pollo Loco stores for 10 years.

Dec., 1993

Alexander Haagen Co. goes public, becoming Alexander Haagen Properties Inc.

June, 1994

Haagen asks Burbank officials for permission to pledge Media City Center as collateral for a loan.

Oct., 1994

City Council accepts promise of $10 million from Haagen; in return, city surrenders forever its right to half of mall profits, and Haagen receives right to develop the last two parcels near the mall.

Source: Alexander Haagen Properties Inc.; records on file at city of Burbank. Researched by VIVIEN CHEN / Los Angeles Times