On Oct. 6, elected officials, business executives and members of the media converged on a 33,000-square-foot tent built outside the Continental Airlines Arena in East Rutherford, N.J., to commemorate the official start of Mills Corp.'s Xanadu Meadowlands project.
The tent featured five rooms meant to mirror the five districts planned for Xanadu: Children's Education, Entertainment, Fashion, Food and Home and Sports. With “X” logos emblazoned everywhere and large movie screens airing a video previewing the game plan, the posh evening party also featured a fashion show.
Mills, along with its co-developer Mack-Cali Realty Corp., spent $1 million on the day's events. That's just the tip of the iceberg in what will be a $1.3 billion, 5-million-square-foot development featuring 2.6 million square feet of retail and entertainment and 2.2 million square feet devoted to hotel and offices.
In June, the developers began $72 million of pre-construction on the site including electrical, sewerage and other utility work. In late September they officially broke ground.
It was quite a splash. For Mills, the event represented a release from nearly seven years of frustration over developing something — anything — in the lucrative New York metro area.
“We're terribly excited. It's going to be a very good thing for the Meadowlands region in terms of providing a tremendous consumer experience,” says David Douglass, a Mills spokesman. “We think it will spur economic development throughout the region.”
Mills's deal to break ground involved selling another piece of Meadowlands property, called the Empire Tract, to the state and signing a 75-year ground lease for Xanadu with the New Jersey Sports and Exposition Authority (NJSEA) on which it will pay $160 million over 15 years. Several state and federal agencies have given the venture the green light, and it is now 50 percent pre-leased.
“The area can truly benefit from having this kind of a development,” says Joan Cenicola, vice president and retail broker for NAI James E. Hanson Inc. “I'm sure it's going to draw from other areas as well.”
But Mills still faces some obstacles before Xanadu can emerge: A slew of lawsuits from the nearby Borough of Carlstadt, the Sierra Club and from rival developer Hartz Mountain Industries. How those suits shake out will determine what Xanadu will look like in its final form.
Xanadu's roots stretch back nearly a decade. Mills originally bought the Empire Tract and proposed to build one of its typical value megamalls in 1998. Then followed years of wrangling and politicking by state and federal agencies and four separate governors, some of whom backed the plan and some didn't. There were a series of false starts when approval was received from one agency or official, only to hit another roadblock later. The land was never developed.
Meantime, other projects were built nearby, taking bites out of the area's retail market share. Glimcher Realty Trust completed the Jersey Gardens outlet mall in 1999 just 12 miles from Mills's site. There were also numerous malls in the nearby towns of Secaucus and Paramus, including the 2.5 million-square-foot Garden State Plaza, which underwent a series of expansions in recent years. The competition, along with government restrictions, led Mills to scale back its planned Meadowland Mills to 1.3 million square feet from 2.2 million square feet. But it still couldn't get over the hump.
Then just when it seemed as if the developer had reached a dead end, new hope emerged. Several teams at the Meadowlands Sports Complex grew unhappy with their accommodations. The NFL's New York Jets are jockeying for a new stadium in Manhattan. The NBA's New Jersey Nets are battling to get a new arena approved in Brooklyn. The NHL's New Jersey Devils is flirting with Newark.
Facing the potential loss of three of its four pro franchises, the NJSEA and the Meadowlands Regional Chamber of Commerce put out a request for proposals for redevelopment of the sports complex. Mills jumped on the opportunity and along with its partners was eventually chosen, beating two other finalists because of the size of its project and the REIT's deep pockets. Hartz Mountain and Forest City Ratner had proposed a 4.1 million-square-foot, sport-themed convention center, a hotel and about 300,000 square feet of retail. Westfield America, wanted to build Arena Place, a 3.9 million-square-foot development.
Just when things finally seemed to be going their way, it once again got sticky for Mills.
Since emerging the winner, a series of charges have been levied against Mills and the state alleging the process was rigged and that not enough due diligence had been done in assessing Xanadu's impact on traffic and the environment. A series of lawsuits and appeals have been filed. Hartz has repeatedly challenged the plan since losing out on the bid. Some of the suits have been dismissed; others remain in process.
As of press time, no hearings had been scheduled and no injunctions had been issued to stop the deal. Mills and the NJSEA say they are undeterred by the legal challenges and are proceeding as planned.
“We're confident the project will move forward in a timely fashion,” Douglass says. “Our belief is that none of the suits have merit.”
One of the disputes is about terminology. Is it shopping or is it entertainment, or both?
The complex will feature attractions that do not fall easily into a category of retail vs. entertainment. According to Mills, only 600,000 square feet of Xanadu is pure retail. That figure doesn't include 275,000 square feet of attractions like the Cabela's hunting, fishing and outdoor store, a Virgin Records megastore and a “digital playground” designed by Circuit City. There's also 255,000 square feet left to be leased in the same “entertainment/retail” category. Opponents say the project will include 1.1 million square feet, which is more than the NJSEA is allowed to build on the site and a violation of the ground lease agreement.
“The most important litigation right now concerns whether or not the sports complex is permitted to build a large retail development on the site. We are suing because they did not hold the appropriate hearings,” says Ron Simoncini, a spokesperson for Hartz Mountain, which in addition to losing out on the Meadowlands deal, also operates the nearby Secaucus Outlets.
“What it comes down to is did the sports complex meet its obligation to the public in this process?” Simoncini says. “It's going to take time to figure that out.”
Critics have levied other criticisms. Mills and the NJSEA stand by their estimate that the project will create 20,000 jobs, whereas opponents say it will be closer to 11,000.
The sports authority is standing by its decision. “When we analyzed the return to the authority, that was one of the big things. They provided us with the most money for the lease.…Their flexibility also allows us to keep the arena open,” says Jim DeBosh, a spokesperson for the NJSEA. “Mills's bid was the biggest by $60 million. It was a no-brainer. … It's ironic some of the stuff that Hartz is stirring up. The Mills proposal had $65 million in it for traffic improvements. Hartz's had zero.”
Nonetheless, the Borough of Carlstadt is upset with how Mills studied the development's impact on traffic patterns. The company's studies looked at Route 3 and the New Jersey Turnpike, but did not take into account the effects the project would have on other local roads, including routes through the borough that often get jam-packed during Jets and Giants football games.
“We also have a big problem with a government-subsidized mall, which is what we think this is,” says Stuart Lieberman, a lawyer with Lieberman & Blecher, which is representing Carlstadt. “People in Carlstadt are working to subsidize this mall. …There's a lot of public money being put in, and we think there is only one real beneficiary: Mills.”
The Sierra Club estimates that the plan will bring 100,000 more cars a day to an area that is already frequently snarled with traffic. “Our concern is that the project will result in more pollution, more traffic and people having to spend hundreds of millions of dollars later to solve problems that should have been solved ahead of time,” says Jeff Tittel, director of the New Jersey Sierra Club, who adds that he is not completely opposed to the development. “If we want to redevelop cities, we should put Xanadu in Newark, not in the parking lot in the middle of a wetland.”
Despite the rancor, Mills is more determined than ever to plow ahead. “The investor community has supported the project tremendously and many labor unions have endorsed the project,” says Douglass. “There's been broad support throughout the region and communities and it's all because it will bring so many benefits.”
Mills Corp. was stuck with a 587-acre property in New Jersey that it could not get approval to develop, despite years of wrangling. But when the Meadowlands sports teams began looking for new homes, the sports authority launched a competition for redevelopment of an adjacent site.
Mills had been laying the groundwork with officials for years, when the Meadowlands needed a developer. It beat other bidders for the right to redevelop a 4.8 million-square-foot complex — Xanadu — featuring entertainment, retail, offices and a hotel.
The project faces challenges from lawsuits filed by diverse groups, such as the nearby Borough of Carlstadt, rival developer Hartz Mountain Industries and the New Jersey Sierra Club. One concern is the estimated 100,000 cars a day in new traffic that Xanadu will generate.
Mills and development partner Mack-Cali Realty Corp. will spend $1.3 billion to develop the site. The price includes $160 million for a 75-year ground lease.