Sales Tax Hike, Property Tax Break Proposed For Old Orchard Mall

SKOKIE, IL — Village trustees on Monday are set to consider a pair of resolutions backed by the owner of Old Orchard Mall. One would endorse the shopping center landlord's effort to seek as 12-year property tax cut from Cook County, while the other would begin the process of establishing a new business district at the mall with an additional sales tax.

The proposed property tax break and sales tax hike is aimed at encouraging investments that would be otherwise infeasible, according to a memo from economic development staff, which said village officials have "agreed in concept" to the plan.

First opened in 1956, Old Orchard is the village's largest contributor of sales tax revenue. But in recent years, vacancies at the shopping center have become more numerous and lengthy.

Village staff proposed a "two-pronged approach which will immediately help to stabilize and grow this important asset," according to the memo from Economic Development Manager Len Becker and Economic Development Specialist Leslie Murphy. Old Orchard, it suggested, is at the "precipice of a generational opportunity to become one of the top 5 regional centers in the U.S."

The first prong of that plan is the village's support for a 12-year Cook County 7b property tax incentive for the former Lord & Taylor store, which shuttered in 2018. The incentive reduces commercial assessments from 25 percent to 10 percent for 10 years, before they rise in the final two years of the program.

"Westfield has maintained that extraordinarily high property taxes have and continue to be the key impediment which has and continues to discourage significant capital investment in the Center," Becker and Murphy said. "In fact, Old Orchard continues to have the highest property tax burden levied in the Westfield portfolio globally."

According to the staff memo, the mall landlord's tax burden accounts for 38 percent of its revenue from tenants, compared to a pre-pandemic industry standard of 12 percent. Westfield does not want to invest in the former Lord & Taylor property without the property tax break for fear it would increase assessments, staff said.

"Westfield has confirmed that the receipt of a Cook County Class 7b reduction incentive is critical for the redevelopment to proceed and would trigger the anticipated $27 million needed to make the business more attractive to current marketplace users and economically feasible given the historic and ongoing local property tax burden at the Center," staff said. "Additionally, the anticipated higher taxes that would result once the building were to become fully occupied and specific tenant improvement were to be implemented renders the project as too risky without the County incentive."

There are five eligibility requirements for a 7b incentive: the area must be designated a "conservation, blighted or renewal area," real estate taxes must have declined or remained stagnant, the incentive must be likely spur redevelopment, the redevelopment must not be possible without the incentive, and the designation must be "reasonably expected" to eventually increase property taxes and employment.

According to staff, stabilizing the property and returning it to previous levels of performance will require an investment of about $107 million that would not occur without the property tax break and the additional revenue from a new 1 percent sales tax in the business district.

The 7b incentive is expected to allow for Westfield to spend an additional $27 million improving the former Lord & Taylor site, while the new sales tax would allow for an additional $80 million in investments in the shopping center, according to village staff.

Related:
Old Orchard Barnes & Noble Store To Close As Westfield Ends Lease
The Bagel To Close Old Orchard Location After Over 30 Years
Westfield Old Orchard Owner Sold In Megamall Merger
Lord & Taylor Closing Old Orchard Store Permanently

The designation of a new business district would be the village's second, after the East Industrial Business Redevelopment District, which was approved in 2005. Village Manager John Lockerby said the new district would allow for Westfield to use revenue from a new 1 percent sales tax on goods and services at the mall to pay for new construction, rehabilitation, site preparation and infrastructure improvements.

"Additionally, through this initiative, Westfield will be able to attract new and retain existing retail businesses and restaurants and enhance Old Orchard as a premier experiential destination and key regional amenity," Lockerby said in a memo endorsing the proposal. "Of note, the proposed sales tax increase was determined by an independent consultant to not have a discernible adverse impact on sales at the mall."

Highlights of the consultant's findings included the finding that most Old Orchard shoppers value their time too much to travel to a lower-tax jurisdictions, and using the proceeds from the new sales tax "may at least partially offset the disadvantages associated with a higher sales tax rate," according to an unsigned memo released ahead of the meeting.

According to village staff, the Old Orchard Lord & Taylor opened in 1993 and formerly generated more than $20 million in annual sales.

The site has been leased out to Mass VR, a virtual reality gaming experience, but that was never intended to be a permanent solution, staff said. The mall landlord has had discussions with about 10 viable tenants, but they had several complaints that prevented a deal: "poor site lines (an indicator of obsolete design); high property tax burden; high property tax burden; high cost of business; lack of leasing capital to assist with development; and lack of adjacent parking."

Westfield purchased the mall in 2002 but has not made a significant investment in improving it since 2007, according to the memo.

In 2018, Westfield was purchased by Unibail-Rodamco and became Unibail-Rodamco-Westfield, or URW.

Village staff and mall ownership have been discussing ways to increase investment in the mall since 2019, according to Becker and Murphy.

The 7b property tax incentive request would next be considered by the Cook County Economic Development Advisory Committee.

A public hearing on the proposed business district will be scheduled at 8 p.m. Jan. 18 at Village Hall. The meeting will determine whether "the Old Orchard Center Business District is a blighted area, as set forth in the Law," and will have an opportunity for public comment.