Liberty Center falling short on revenue pledged to bond payments

Liberty Center rings up $127M in 2017 retail sales
Liberty Center falling short on revenue pledged to bond payments
Posted at 9:46 AM, Nov 30, 2017
and last updated 2017-12-02 12:13:16-05

LIBERTY TOWNSHIP, Ohio - The Liberty Center project in Butler County is generating less than half of the expected revenue from a retail sales tax that was established to cover debt service, but the project's lead developer insists there is no danger of missing bond payments.

The problem was disclosed in September to bondholders who financed $20.2 million in infrastructure improvements at the massive mixed-use development in Liberty Township.

The Butler County Port Authority sold the bonds in 2014, telling investors that revenue from the project would cover debt service. The bonds require $43 million in principal and interest payments over 29 years, including $1.5 million in this year.

But a Sept. 1 disclosure by the Liberty Community Authority – which collects revenue from tenants and property owners at Liberty Center -- shows the project will raise $1.4 million in 2017. That's about $113,000 short of what's required for principal and interest payments in 2017. 

The project's lead developer, Columbus-based Steiner Associates, said the difference will be made up by cash reserves established in the original bond issue - not by seeking additional payments from tenants, owners or taxpayers.

"There is no shortfall," said Beau Arnason, Steiner's executive vice president for asset performance. "The bonds were set up to build up cash in the early years along with capitalized interest."

Arnason hasn't responded to additional questions.

Liberty Community Authority (LCA) - 2017 Financial Information - ER1087218-ER850925-ER1251592 by Dan Monk on Scribd

It’s the second time since August that the project has fallen short of a lender's expectations. New York-based construction lender, Apollo Commercial Real Estate Finance Inc., cited concerns about retail occupancy rates in a conference call with Wall Street analysts.

On Nov. 2, Apollo CEO Stuart Rothstein told analysts that Liberty Center’s occupancy rates have risen from the low 80 percent range in August to the “mid to high 80s.” Apollo, which holds the $165 million construction loan on Liberty Center, wants occupancy rates above 90 percent by the time the loan comes due next May.

“Talking to a bunch of the shops there and employees there, I would say foot traffic appears to be picking up,” Rothstein said in Apollo’s third-quarter earnings call. “I would say people are optimistic about the upcoming holiday season but there is still work to be done from the asset management perspective in terms of continuing to drive more leasing activity, more occupancy overall.”

Those improvements could also help with lower than expected revenue from "facilities charges," effectively a half-percent sales tax that retailers collect when customers make a purchase, forwarding the money to the Liberty Community Authority. A prospectus for the 2014 bond issue included an estimate that the project would generate $2.98 million from facilities charges in its first three years.

From 2014 bond prospectus

In reality, less than $1.4 million has been raised to date.

From 2017 bond disclosure

This year’s estimate of $635,000 means Liberty Center is expected to generate $127 million in total retail sales in 2017. That’s 6.2 percent more than last year, but well short of the $264 million that a consultant for the project told bondholders they could expect once the project is fully developed.

Liberty Center is having better success with "Assessed Valuation Charges," which are similar to property tax payments imposed on all non-government real estate owners at Liberty Center. The 2014 bond prospectus said the project would generate $1.3 million from that funding source between 2015 and 2017, but the project actually generated almost $1.6 million in that three-year period.

There is a third funding source that the Liberty Community Center has the power to use if the primary revenue generators aren't sufficient to cover bond payments. That's a second assessment on non-anchor retail tenants and owners. But that assessment has yet to be collected at Liberty Center.