Debt service challenges continue for American Dream mall

Bonds

After dancing with default on a June municipal bond payment, the owners of American Dream megamall in New Jersey face an Aug. 1 payment on another set of tax-exempts.

Two separate municipal bond offerings sold through conduit Public Finance Authority helped finance the mall. The largest, $800 million of limited obligation PILOT revenue bonds, stumbled when the trustee drew on reserves to make a June 1 interest payment.

Triple Five, owners of the mall in East Rutherford, ultimately made that payment, allowing the reserve to be refilled, and a subsequent payment of interest delinquent because of the late payment, according to bond trustee U.S. Bank.

For the $287 million limited obligation grant revenue bonds, a $9.3 million interest payment is due Aug. 1, after the debt service reserve was drained of all but $820 to make the February interest payment.

The bonds are to be repaid using grant payments from a state economic development program, subject to appropriation by the state legislature.

Whether grants will be received in time for the Aug. 1 payment, and for how much, remains in doubt.

Virginia Pellerin, director of marketing and communication at the New Jersey Economic Development Authority, said there is “a certification process that’s largely focused on validating the cost,” and funds would only be available after completion.

“It’s not just like submitting a simple form,” she said. “It’s a process; there’s probably a significant amount of documentation that Triple Five is required to submit.”

The documentation has been in question for months. In February, according to a disclosure notice posted by the bond trustee, an assistance agent to the developer wrote a letter stating that the developer had failed to supply information needed to secure the state grant.

“The Developer has not timely complied with its obligations despite numerous requests and assurances that it would do so,” said the letter from the firm Trimont.

According to the offering document for the bonds, the grant revenue may be capped based on the amount of sales and use tax generated at the mall.

The ‘payment in lieu of taxes’ agreement was supposed to see over a dozen municipalities in the immediate vicinity of the mall receive a portion of its annual revenue. According to officials in East Rutherford, Carlstadt, and Secaucus, that has yet to occur and Triple Five is violating the stipulations of the agreement. 

The matter is likely to be settled in court, according to Marc Pfeiffer, assistant director at the Bloustein Local Government Research Center at Rutgers, who suspects legal teams representing both interests will have to iron out what full occupancy means.

“I suspect somebody’s gonna sue,” he said. “They’ll wind up having to do some form of negotiation.”

Triple Five, which also counts the the nation’s largest mall, Mall of America near Minneapolis, in its portfolio, has struggled to turn profits from brick-and-mortar retailers, with revenues plunges seen during the pandemic slow to recover.

After years of delay, American Dream Mall opened in 2019 only shutter shops months later as COVID-19 pandemic lockdown orders took effect. Last year it operated $60 million in the red, according to a balance sheet statement posted on EMMA.