case study

Galleria at Pittsburgh Mills Project

Submitted By: Zack Hicks, Blake Taylor, Javid Farazad, University of Maryland

Location: Frazer Township, Allegheny County, Pennsylvania (18 miles northeast of Pittsburgh)

Development Type: Suburban commercial district

Project Specifications:

The project is a 2,700,000 square-foot multi-use commercial project, including:

A 2,100,000 square-foot single-story mall with 5 anchor tenants

Ancillary commercial development of over 600,000 square feet featuring retail,

entertainment, services, restaurants, hotels, and office components

A new freeway interchange along Pennsylvania Route 28

New and relocated roads and parking facilities

The $285.1 million project was financed with approximately:

$35 million in net TIF proceeds

$5.75 million in FHWA Interchange Funds

$63.23 million in other recoveries, primarily land sales

$54.33 million in developer equity

$126.76 million in loans

Project Web Site: http://www.pittsburghmills.com

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http://www.pittsburghmills.com/

Project Overview

The Pittsburgh Mills TIF was developed to serve an underutilized 340 acres of limited

accessible land within Frazer Township, located 18 miles northeast of Downtown Pittsburgh in

Allegheny County, Pennsylvania. The site is located off of Pennsylvania Route 28 near its

interchange with the Pennsylvania Turnpike. Prior to development, the land served as a junkyard

and generated little tax revenue. The property's assessed value was $1,331,000. The Council of

Development Finance Agency (CDFA) and the developer, Mills Corporation (now a subsidiary

of Simon Property Group), sought to develop this parcel in an effort to generate a tax-based

revenue system through new retail and commercial development. This development required

significant improvements to access and infrastructure along the Route 28 corridor.

The proposed Frazer Mills, now known as the Galleria at Pittsburgh Mills or just

Pittsburgh Mills, would become a massive multi-use commercial project featuring a multiple-

anchor retail and entertainment center of over one million square feet, as well as ancillary

commercial development of over 600,000 square feet. Ancillary uses included retail,

entertainment, services, restaurants, and office components. The development included all on-

site infrastructure and off-site infrastructure, and also included a full interchange on Route 28.

Off-site public infrastructure was the driving initiative in this deal. Improvements include

the purchase of land, the installation of sewers to increase flow capacity, relocation of high

voltage poles, wetland mitigation, and environmental remediation. In addition, a new municipal

meeting space, improvements to emergency services, and a new police force would be

purchased.

The proposed Mills TIF was a General Obligation (GO) Bond of approximately $50

million, with $15 million as issuance costs, capitalized service, and DSR. The post development

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assessed value was projected to meet or exceed $205 million on a 20 year term. The tax body

rate of participation pledged 75% to Allegheny County, 75% to the Frazer Township, and 80% to

the Deer Lakes School District. The CDFA performed a series of studies including a "But For"

study, a study of eligible costs, and a study of the development impact, and decided to proceed

with the deal upon completion of the studies.

The Redevelopment Authority of Allegheny County met with The Mills Corporation and

Frazer Township in 1998 to discuss the proposed development of the Mills project. The Mills

Corporation initially presented this proposal with a series of committed anchor tenant leases

making up over 60% to 70% of the leasable space. This helped create confidence that the project

would be successful. However, as a precautionary measure, the CDFA felt it was necessary to

introduce a Special Assessment Overlay to act as a backstop to the TIF in the event that debt

service could not be repaid. This would be levied in years where revenue did not sufficiently

cover the debt service.

Financing Package

In addition to selling $35 million in Tax Increment Revenue Bonds, the FHWA provided

$5.75 million in interchange funds. $63.23 million were recovered from other recoveries,

primarily from land sales. The developer also provided $54.33 million in equity and obtained

$126.76 million in loans. The insured TIF Bonds are a special obligation of Allegheny County,

secured by a lien on:

Pledged receipts (real property tax and sales tax increment) generated within the Project

Area

Moneys on deposit in a Reserve Account

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Incremental real property and sales taxes generated within the "Mills TIF Area"

TIF Process

Step 1: Pre-Application

Since the Frazer Township did not have the sophistication to deal with a large developer, the

CDFA lead the process by meeting with the community and developer to discuss the overall

impact and proposal in detail.

Step 2: Application

The TIF application was evaluated by the Urban Redevelopment Authority of Pittsburgh (URA)

to determine the project eligibility. The applicant was required to comply with the TIF policy or

public guideline adopted by Allegheny County, the City of Pittsburgh, and the Pittsburgh Public

School Board. Preliminary approval or rejection were given based on the:

The applicant coordinates with local community groups regarding support for the project.

Improvements to be financed with TIF proceeds and the TIF amount.

TIF funds would only be used for infrastructure purposes, per Allegheny County TIF

guidelines.

Projected pledge revenue, assessed value, and tax base.

Estimated Costs of the proposed development including the public infrastructure.

Estimated non-project costs.

Economic Impact Study deemed eligible and tax revenue projections are accurate.

Employment impact of the proposed development.

Proposed changes to all applicable local plans, ordinances, and codes.

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Schedule of TIF District establishment date and duration of TIF District.

Step 3: Negotiations

A Cooperation Agreement between the URA and the affected taxing bodies were executed

before closing the TIF. It took approximately 8-10 weeks for the document to be fully executed.

Step 4: Approval

A public hearing was held for interested parties to express their views on the concept of the TIF,

its district, boundaries, and the proposed TIF plans and benefit to the city. Upon approval, the

URA issued the TIF obligations.

Timeline

Resolution of Intent Frazer TownshipDeer Lakes School DistrictAllegheny County – 1st readAllegheny County – 2nd read

July 2, 2002 July 8, 2002July 16, 2002August 22, 2002

Inducement Resolution Redevelopment Authority of Allegheny County

July 24, 2002

Endorsement of Basic Conditions Report (BCR)

Local Planning August 27, 2002

Approval of BCR Frazer Township August 27, 2002Resolution Certifying Area in Need of Redevelopment

Redevelopment Authority of Allegheny County

August 28, 2002

Notice of Public Hearing Allegheny County August 29, 2002Resolution to Participate Deer Lakes School District

Frazer TownshipSeptember 16, 2002September 23, 2002

Adoption of TIF Plan Redevelopment Authority of Allegheny County

September 25, 2002

Public Hearing Allegheny County September 30, 2002Resolution Creating and Naming TIF District, Approving the TIF Plan, and Agreeing to Participate

Allegheny County – 1st readAllegheny County – 2nd read

October 8, 2002 October 22, 2002

Pittsburgh Mills Neighborhood Improvement District Management

Frazer Township March 3, 2003

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Association AuthorizedTIF Bond Issuance Resolution Redevelopment Authority of

Allegheny County1st Quarter 2003

Neighborhood Improvement District Area, Plan, and Administrators Established

Frazer Township October 7, 2003

Opening of Pittsburgh Mills July 14, 2005Beginning of Amortization Period

2007

TIF Bonds Reach Final Maturity

2023

Results

The project finished on time and on budget in 2008. The Allegheny County Department

of Economic Development was greatly pleased with the TIF process and the project's

preliminary outcome. The developers were pleased with the financing and construction

processes; however, they were ultimately disappointed that they were unable to replicate a retail

and entertainment experience similar to other projects completed by the Mills Corporation such

Arundel Mills and Potomac Mills, namely due to the inability of Pittsburgh Mills to attract large

entertainment tenants. The lack of these large entertainment tenants is believed to be the reason

why Pittsburgh Mills is not attracting as many customers as projected. While Pittsburgh Mills is

suffering from low shopper turnout, the ancillary retail around it is thriving.

Frazer Township benefited greatly from the infrastructure improvements, new sources of

retail, dedicated municipal space, firefighting equipment upgrades, and the addition of their own

police force. From 2005 to 2008, township assessment values increased more than nine-fold

($31,000,000 to $288,000,000). This past year, however, the township reassessed property values

within its borders and the local school district began using a lower millage rate. The property

reassessment caused a decrease in tax revenues, creating many funding shortfalls, including on

TIF repayment. As a result of the reduced revenues, funds from the Neighborhood Improvement

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District Special Assessment Overlay are being used to meet TIF repayment obligations and pay

for administrative costs. Fiscal Year 2016 will be the first time these funds are tapped.

Lessons Learned

This project was largely an example of what happens when plans go accordingly and all

parties are happy with the agreement and its management. Lessons learned on the project mainly

came from the experience gained from working with methods and tools that were new or newer

for Allegheny County Economic Development (ACED).

This project marked the first time that ACED used a Neighborhood Improvement District

(NID) as a funding backstop for any of its projects. Before this instance, all TIF projects in

which ACED took part held reserves to ensure an adequate bond credit rating. For the Pittsburgh

Mills project, ACED opted to push for an NID based on its apparent success in other

Pennsylvania municipalities and the support it had amongst Frazer Township officials and

residents. Though the NID special assessment will not be used to service bond payments until

2016, ACED expressed satisfaction with the security measure’s management up to this point and

the decision to use it for the project. This first use of an NID by ACED toward a TIF issuance

left a positive impression, and it is considered a valid, tested tool to use going forward.

Though the Pittsburgh Mills project did not mark the first time that ACED used a TIF to

finance a project, TIFs were still a relatively new tool being used by the organization. The first

year that a TIF was pursued within Allegheny County was 1999. Pittsburgh Mills was only the

fourth TIF project to ever be pursued in the county. All the projects which preceded Pittsburgh

Mills were either urban or suburban in nature and tackled brownfield and airport corridor

investment priorities. At the time of its undertaking, the TIF project was Allegheny County’s

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largest in area, and the county's most rural venture. Based on the success and approval of all

parties involved with Pittsburgh Mills at its completion, ACED took part in four more TIF

projects within four years, trying to replicate its outcome.

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