Details of Burbank Mall Negotiations Emerge : Development: Council members rejected city manager’s advice to take $2-million offer in favor of what became a $10-million deal.

Trying to bring an ill-fated mall partnership to an end, Burbank City Manager Robert (Bud) Ovrom once recommended that the City Council accept a $2-million cash offer from developer Alexander Haagen and not push for any more.

“There is so much . . . for us already on the table that we fear losing it by pushing Haagen beyond where he can be reasonably expected to go,” Ovrom wrote in a confidential memo.

But Mayor Bill Wiggins and Vice Mayor Dave Golonski rejected Ovrom’s advice. They and the rest of the council held out for a better deal before giving up the city’s interest in the financially troubled Media City Center shopping mall.

As a result, the city will receive $10 million over the next two years in a buyout deal that became final earlier this month.

The strong contrast in judgment between elected officials and Ovrom, who has overseen the city’s troubled mall venture from its beginning in 1989, stands out in interviews with key players and documents covering months of negotiations between Burbank representatives and Haagen that were obtained by The Times.

City officials had refused to release the documents, but agreed to do so once the buyout became final Dec. 2.

The papers provide a behind-the-scenes glimpse into what is perhaps the city’s most costly private business venture.

One memo from Ovrom to the council, for example, shows that he and other city employees struggled to find the best way to present the complicated deal to the public.

Less than a month before the deal became public in October, Ovrom wrote to council members in a memo attached to a staff report: “You will recall this is one you said needed to be particularly ‘brilliant.’ ”

The file also shows Haagen’s unhappiness with the mall’s developments. A letter from Haagen to the council in July points out the developer’s frustration over his five-year partnership with the Burbank Redevelopment Agency.

“Never in my wildest imagination did I foresee that the positive working relationship that we have had with the city of Burbank would deteriorate to the degree that it has,” Haagen wrote.

Under that partnership, both sides agreed to split net operating profits from the mall, 50-50.

But the city has not seen any profits since the shopping center opened in 1991. In papers filed with the Securities and Exchange Commission, Haagen stated that the mall has lost millions of dollars in the past two years.

In an effort to raise much-needed capital, the Alexander Haagen Co. went public last December, selling stock and ultimately earning $374 million from investors in the new firm, Alexander Haagen Properties Inc.

More than $90 million of that money went toward paying the remaining $169-million debt on the Media City Center, documents show.

At the time, documents and interviews show, city officials were hopeful they would finally begin to see their share of profits.

Instead, Haagen’s lawyer argued the debt had simply been replaced by new debt to the shareholders of the new company.

Thus, the city would not see any profits until after Haagen’s shareholders earned back their money through dividends.

Haagen and city officials faced the potential for “an enormous lawsuit over who gets what and what goes to whom,” said Tom Clark, a Newport Beach attorney who served as Burbank’s chief negotiator during the life of the mall project.

“It would have been awful,” he said. “It would have been complete chaos with the shareholders.”

The last straw came in June, when Haagen attempted to pledge the Media City Center as collateral securing a $75-million line of credit. Only $15 million was to be used on the mall, according to city documents.

At that point, a senior vice president for Haagen, Fred Bruning, suggested a buyout of the city’s interest in the shopping center to resolve the disagreements.

Haagen’s first offer was to pay $2 million in cash, reduce a $51-million loan to the city to $38 million and give back to the city sales taxes generated by 34 of the 149 mall stores and by a nearby Circuit City, Office Depot and restaurant.

City officials had earlier given those revenues to Haagen for 10 years or more.

The city’s negotiating team--made up of Clark, Ovrom, Assistant City Manager Steve Helvey, City Atty. Joe Fletcher and Community Development Director Bob Tague--countered by asking for $3 million in cash, along with everything else.

It was at that time that Ovrom advised the City Council to settle for Haagen’s first offer. In an interview, Golonski described how, for one of the few times during the Burbank-Haagen negotiations, the elected officials felt comfortable.

“This was one of the only times where the risk of not reaching an agreement would not have been the end of the world for us,” Golonski said in an interview. “To accept a $2-million settlement just wasn’t worth it.”

Last week, Ovrom said again that at the time he believed $2 million was a fair deal.

“We had financial consultants who were telling us $2 million-plus was a reasonable deal. To me, it was an immense victory that we walked away with $10 million,” Ovrom said.

Ovrom also said that the discussion in the documents of presenting the deal in the best light was not a matter of exaggerating its benefits, but of explaining it clearly.

“We were not trying to sugarcoat it,” Ovrom said in an interview last week. “The problem we have with lots of things is, how do we translate all this complexity into a way a person can understand?”

Playing a critical role in watching over the negotiating team were Wiggins and Golonski, who acted as liaisons between the city’s negotiating team and the council and sat in on the final crucial meetings with Haagen’s representatives.

Had Haagen not agreed to more than his $2-million offer, Golonski said he and others with the city were willing to go to court to settle the issue of remaining debt on the property.

“Putting everything aside, the biggest benefit of this ($10-million) deal is it removed the uncertainty for the city,” Golonski said. “The city was in a position where it may not have gotten anything.”

The buyout deal gives Haagen the right to develop two remaining parcels near the mall and continue leasing the mall land for just $1,000 a year for 95 years. Meanwhile, the city gives up its share of the mall’s profits.