BusinessTN

As development dollars continue to dry up because of skittish investors and tightened lending policies, many projects nationwide have stayed on the drawing board. But thanks to the flexibility of a Tennessee statute, the much-needed revitalization of Nashville's Bellevue Mall has found a foothold by blending private development with city support.

This summer, California-based developer Foursquare Properties unveiled plans to invest $130 million in a facelift for the Bellevue property, turning an empty mall into an open-air lifestyle center. Key to the project is an agreement with Nashville officials that will allow developers to use $12 million of tax increment financing (TIF) to underwrite project costs--the first instance in Nashville of TIF involved in a retail development. In return, Foursquare will include a new $12 million public library as the centerpiece of the new project. Viewed by many as a win-win for both public and private spheres, the project has potentially set a new standard for statewide development.

"The developers believed that, in order to do it at the level that would most impact the area, a collaboration with the city was required," says Tom Jurkovich, a partner at Waller Lansden Dortch and Davis, the firm representing Foursquare in the deal. "To the credit of the developers and city officials," adds Jurkovich, the former director of the Mayor's Office of Economic Development, "they were able to find an imaginative approach to the challenge of revitalizing a moribund shopping mall."

TIF, as outlined in the state's statute, rests on a simple process: When a project is built on a piece of land, it raises the value of the land, which in turn leads to an increase in the property taxes generated by the parcel. TIF allows the project to keep the increment between the new tax value and what the land was taxed at originally, and put that money toward project costs. It's an approach that has found frequent use in downtown redevelopment--many of the new high rises popping out of Nashville's downtown residential boom involve TIF. In recent years, amendments to the statute have opened the possibilities for TIF usage beyond downtown.

"This is the first time in Nashville proper that TIF has been used outside the urban core, and it's probably one of the first times in the state it's been used to revitalize a retail project of this sort," Jurkovich says. "It's a very useful tool for its flexibility and creativity. As developers and public officials become more aware of how the statute is used, you'll see more of it across the state, particularly as we head into an economic down cycle."

Initially, city officials were wary about providing TIF for a retail development. "The first concern I had was that every developer--potentially an unlimited number of people--would start coming and beating on the door asking for TIF," says Metro Finance Director Richard Riebeling.

To prevent this, the city set some criteria that projects must meet to be considered for TIF. First, projects must involve an underperforming or declining property. Second, a major dollar commitment is required from developers. Finally, the direct public benefit to the city must meet or exceed the value of the money authorized through TIF. Bellevue, a property that has reportedly lost $40 million in value during the past decade, easily met the city's threshold.

Library officials were also wary of the idea of having a branch in a retail district. However, due to the community-minded nature of the project, officials quickly saw Bellevue as an exciting new opportunity.

"As I told the developers, we're going to bring traffic to the mall," says library director, Donna Nicely. "When you open a public library, that's all ages from the tiniest to the oldest, so we will be a huge magnet for the mall."

The 32,000-square-foot facility will also act as a testing ground for the library system's new ideas. "We're going to have something called a technology commons," Nicely says. "It's a place where everyone can come in and learn about the newest technologies and try using them."

The coupling of private retail and public interest has raised eyebrows, particularly among other area developers. The question of when and where TIF is appropriate has come to the forefront as other projects ask for consideration. In August, developer Newton Oldacre McDonald sent a letter to the city requesting retroactive TIF for its $125 million Nashville West mixed-use project.

"I haven't said yes or no to that, but without more information, I probably wouldn't look favorable on that request," Riebeling says.

Regardless of the potential controversy over future TIF-related projects, the Bellevue Mall redevelopment could be a game changer for Tennessee. At the very least, it shows retail developers from both in state and out that Tennessee can be pretty flexible when working with private enterprises.