Council OKs Trinity lease move

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By Arin McKenna and Keven Todd, Publisher

In a move that puts the town’s most prized commercial frontage squarely in the hands of the nation’s largest retail grocer, the Los Alamos County Council voted 5-2 to assign the Trinity Site lease to the development arm of the Kroger Company.

“Perhaps the third time is a charm,” Council Chair Sharon Stover said as the special council session opened Monday evening. The reference was to failed attempts by two other developers to make a financial go of the Trinity Site redevelopment which has been years in the making.

The most recent developer to opt out was North American Development Group, which made the proposal to assign its lease to Kroger after NADG spent a six month due diligence period determining that the financial return on the project was not sufficient to continue.

The county and the Los Alamos Public Schools have partnered in the unique lease arrangement for the land which is designed primarily to generate long-term revenue for the school district.

With Kroger’s development division now in control of the project, one thing is almost for certain: the 110,000-square-foot Smith’s Marketplace will be built. Smith’s officials on hand for the meeting said the company’s due diligence would begin almost immediately in order to determine if, indeed, there are any issues that could prove to be deal breakers.

The company has an initial due diligence period of six months once the lease is officially assigned.

Smith’s, which already owns the Mari-Mac shopping center where its current Los Alamos store is located, will now effectively control both sides of Trinity Drive at the eastern entrance to the town’s retail sector.

With the exception of councilors Mike Wismer and Geoff Rodgers, who voted against the proposal, the rest of the county council was cautiously optimistic about making the lease assignment.

“We’ve been burned and I’m nervous about this,” Stover said before the council vote.

Smith’s has been a backseat driver positioned as the “anchor tenant” as two developers — Boyer Company and most recently NADG — each took a turn at making the county’s largest single retail development fly.

The thing that makes this more “bankable” now is that it becomes more like an owner-occupied kind of arrangement, Councilor Rick Reiss said.

Steven Sorensen, Smith’s vice president of corporate development was present at the meeting and told the council that top brass at Cincinnati-based Kroger Company have signed off on the deal and he has a green light to begin due diligence as soon as the ink dries on the lease assignment.

As it stands now, all of the elements in the lease with NADG will remain intact as Topvalco, a development division of Kroger, assumes the lease and reimburses NADG its $250,000 earnest money deposit.

A factor that has ratcheted up the complexity of the deal involved structuring the lease so that it would generate hundreds of thousands of dollars a year in revenue for an increasingly cash-strapped school district. That lease revenue could then be used to fund anything from additional teachers to general operations.

Initial rent was set at $511,000 with escalating rents to adjust for inflation beginning six years into the lease for “base” tenants and 26 years in for Smith’s.

LAPS will receive 62 percent of the revenue, escalating by two percent over 10 years to 82 percent. The agreement was expected to raise $43 million in revenues for the schools over its 73 year duration. At the end of that period, the land and all improvements are owned by the county and schools.

Most of the public comment was in favor of moving forward, with an emphasis on the need for retail development in the community.

Council candidates Pete Sheehey, Marc Clay and Kristen Henderson all spoke in support. Henderson was on the Trinity Site Revitalization Project Advisory Committee.

“Given the nine years I’ve been working on this and the 15 years Andrea (Cunningham) has been working on this, I think another six months is not a problem,” Henderson said.

Andrea Cunningham, who also sat on the committee, said Smith’s had proven their ability to fill retail space at the Mari-Mac Center.

“Smith’s has been a player from the very beginning. They’ve ridden the wave, just as we have,” Cunningham said. “So now they’re in the position of being a primary driver. They have plans; they’ve invested money already in setting this up. They’ve contemplated this over many years. They’re looking at investing $24 million in our community.”

Stover posed a question citizens have asked: why not just build the Smith’s Marketplace in the Mari-Mac center?

“We’ve contemplated that, and as a real estate guy, I would love to do that. We own Mari-Mac. We have to lease Trinity,” Sorensen said. “But all the stars would really have to align. All the leases would have to come to conclusion so we could get rid of a lot of tenants. We’d have to vacate the center, tear the store down and start over. If it was a nine to ten month construction process, there wouldn’t be a grocery store or a pharmacy in Los Alamos. So we’ve just not seen it as a viable option.

“We’re in the business not to sit on vacant, idle, non-producing real estate. We own real estate to make money. We’ve no desire to move across the street and let Mari-Mac sit fallow,” Sorensen added.

Councilor Vincent Chiravalle made the motion to accept the contract, which Councilor Frances Berting seconded.

“Kroger/Smith’s has demonstrated a record of working in our community with local businesses. They’ve been in our community, they’re working with local businesses. I think they’ll give local businesses a chance to be on the Trinity Site,” Chiravalle said. “With Kroger/Smith’s as the developer, they will have the most invested in this project, and they will have more vested interest than any other entity in making this project succeed.”

Councilors Mike Wismer and Geoff Rodgers opposed the motion.

“It appears to me our new economic development strategy is last developer standing,” Wismer said. “We’ve tried this formula a number of times. It’s time to revisit this. It’s not feasible to work. It’s not going to work. I think there are other ways to incentivize Smith’s to build a Smith’s Marketplace here. “

Wismer was also concerned about how Smith’s non-compete clauses for filling the other retail space would affect local businesses.

Rodgers said Los Alamos could not compete with what was available in Santa Fe or online. He called the plan “a suburban model from the 1970s.”

“National chain brick-and-mortar retailers simply aren’t going to locate here. They already have our business and they know they have our business and they don’t have to come here to get more,” Rodger said. “If we proceed with this, what we’re going to get is a larger Smith’s, a larger parking lot, and around the perimeter of that parking lot will be fast food franchises, a drive through bank and a few other things like that. You can call that anything you like, but I would not call that progress.”

Smith’s officials indicated plans to begin due diligence work this week. Their hope is to have the site work completed, the site plan finalized and approved by council and the store design completed by the end of the six month feasibility period. As the timeline stands now, they anticipate opening the new superstore in the first half of 2014.