Day of Reckoning Nears

[_TAK]

30%.. srsly??

What is the percentage of condos sold??

[_Black Moclips]

Having been in real estate development finance, its hard to say whether 30% (if that is an accurate number) is doomsday or not. When business was booming years ago, there was a "if you build it, they will come" attitude, and it was true to some extent. But then things went bad. You can see some victims of this atttitude in empty strip malls all over. They unfortunately were in construction as things went bad, were completed, and now sit under utilized or completely empty. (Even if you find a tenant, there is huge competition and you end up having to give the tenant a ton of money upfront for their tenant allowance and/or free rent just to attract them). This scenario has killed a lot of developers as there is no way for them to make their monthly payments on their development loans or the monthly operating expenses just to keep the heat on and in showable condition.

So with a huge mall like City Creek Center, you are going to have some decent operating costs to run the place. Unfortunately for the mall, you can only pass those expenses on to your tenants based on their prorata share of the space they occupy (or some other allocable measure). Which means that City Creek eats the difference. Tenants will typically pay rent + their share of common area/operating expenses. So is the rent coming in from the existing tenants sufficient to cover what the mall has to eat in operating and common area expenses? I wouldn't like 30% comes close in a cash flow analysis (it is all about cash here by the way).

Now, it is not uncommon with a big project like this to have losses up front as things ramp up. I am sure there is a whole team of folks tracking this budget. I assume they have continually updated the budget for the general and specific market issues in Salt Lake. It shouldn’t be a surprise to anyone at this point. The question is how long is the cash-drain sustainable. If the church self funded this project and didn’t get any outside financing, then cash losses will largely be buried and unknown, since it can just keep pumping money into the project as its needed. If things don’t turn around in the next few years, I would suspect the church would eventually try to remove itself from the project and sell it for a serious discount just to stop the bleeding.

If the church did get outside financing, then it might be a bit more complicated. Depending on the relationship with the bank, they may be able to negotiate better terms as reality sinks in regarding how profitable the mall will be. But even then, the church could just come out of pocket to make the loan payments. In either case, it is a cash-drain scenario. The question is how patient the church will be and whether they project that future leasing will bring them to break even. This means a lot to the church apparently, so I wouldn’t expect them to give up anytime soon.

[_harmony]

If the church self funded this project and didn’t get any outside financing, then cash losses will largely be buried and unknown, since it can just keep pumping money into the project as its needed. If things don’t turn around in the next few years, I would suspect the church would eventually try to remove itself from the project and sell it for a serious discount just to stop the bleeding.

Ah! The convenience of not having to provide an annual report to the tithe payers. No one will ever know you squandered the Lord's money in a deal with the Devil!

If the church did get outside financing, then it might be a bit more complicated. Depending on the relationship with the bank, they may be able to negotiate better terms as reality sinks in regarding how profitable the mall will be. But even then, the church could just come out of pocket to make the loan payments.

Not if you also own the Bank...

In either case, it is a cash-drain scenario. The question is how patient the church will be and whether they project that future leasing will bring them to break even. This means a lot to the church apparently, so I wouldn’t expect them to give up anytime soon.

Yes, pride is definitely a factor.

[_sock puppet]

The City Creek Center officially open in March 2012. Currently there are only 50 tenants for the Mall leaving it approximately 70% empty.

Given that Malls with less than 60% occupancy are deemed in trouble what should the Mormon Church do about this problem?

Up tithing to 12.5%?

[_DarkHelmet]

If they fast and pray, everything will work out. That's how every TBM I know deals with financial problems.

[_Jersey Girl]

It's a mall. Isn't it going to be opened on Sunday and can't any retailer rent from them?

I'm thinking that the mall ownership can set any contractual terms they want to. If retailers agree to a Sunday closing, then it's a done deal.