Pending Old Capitol Town Center sale would double UI spend on mall

With the University of Iowa’s pending $20.6 million purchase of 45 percent of the Old Capitol Town Center — making it full owner of the nearly two-block former mall — the campus will nearly double what it already has spent buying the first 55 percent.

Purchase documents provided to The Gazette show the campus since first inking ownership deals with the Old Capitol Group in 2005 has paid more than $20.8 million through three deals — a total that doesn’t include update and maintenance expenses for the 206,558 square feet it owns.

That total also doesn’t include the more than $1 million the university has paid the group since 2015 to lease space in the 374,463-square-foot center for its UI Health Care downtown Quick Care location, UI Department of Public Safety, UI Student Disabilities Services, and the campus’ CoWork Commons on the second floor.

At $20.6 million for the remaining 167,904 square feet of center space the university doesn’t yet own — mostly on the first floor, occupied by restaurants and shops — the university would pay about $123 per square foot.

“You couldn’t come close to duplicating that cost per square foot to rebuild,” David Kieft, UI senior director of university business and real estate, told the Board of Regents — which on Thursday approved the sale, sending it unobstructed toward closure.

City tax implications

When the university bought its first 68,000 square feet of town center space in 2006, it paid $165.50 per square foot — or $11.3 million. That agreement involved several options to buy more space, which the university exercised in subsequent years — paying another $8.5 million for 101,185 square feet and then $1.14 million for 12,623 square feet previously occupied by a theater.

Regarding the new $20.6 million agreement, Kieft said the university will cover its initial 10 percent down payment with reserve funds.

“The remaining 90 percent will be funded by a commercial loan the university will take out,” he said. “The university cannot use any sort of tax exempt financing bonds to acquire property with commercial income-producing leases.”

As part of the deal, the university has agreed to take on the center’s existing leases and only make changes, upgrades, and improvements as “funding avails itself in the coming years, and as the retail and restaurant environments continue to evolve.”

Although UI officials haven’t said how many leases it might acquire through the purchase deal, the Old Capitol Group currently lists in its directory more than 25 businesses — including Chipotle, Buffalo Wild Wings, and CVS.

When asked about possible tax revenue implications for the City of Iowa City of the sale from a private entity to a tax exempt public university, Kieft this week said “ongoing discussions” are happening both internally and with the city.

The university, he said, aims to keep real estate tax revenue going to the city — so long as there are commercial income-generating leases in the space.

“Whether it's a payment in lieu of taxes deal, where we keep a certain part of the building on the tax rolls, it's our intent to keep those taxes flowing to the city on the commercial part of the building,” Kieft said. “It's certainly not our intent to take it off the tax rolls.”

  Buy Photo

‘Last thing the university wants to see’

That goes to the town-and-gown connection the mall has had with the university from its inception in 1981 adjacent the campus. In its prime, the facility was renamed the Old Capitol Mall in 1995 and featured anchors like J.C. Penney and Younkers.

Other stores at that time included The Buckle, Claire’s, Foot Locker, Express, and Victoria’s Secret. But the shopping hub ran into trouble upon the Coral Ridge Mall’s debut in 1998 — pulling away its anchors.

“And back in 2003, the mall was rescued from collapse and bankruptcy by a consortium of local investors,” Kieft said.

The university’s relationship with that consortium has grown and become an important partnership — including during the 2008 flood, when the university tapped space in the mall for its bookstore and displaced student union.

“We don't immediately need the space,” Kieft said. “But this is less about the short- or long-term need for the first floor commercial space in the building and more about the university acquiring control of a significant footprint in the heart of our campus.”

The parties agree a sale would benefit the owners, university, and city, Kieft said.

“As the ownership management team looks for other investment opportunities and to move past their ownership of this building,” Kieft said, “the last thing the university wants to see is the management and remaining ownership passed to outside investors.”

Vanessa Miller covers higher education for The Gazette.

Comments: (319) 339-3158; vanessa.miller@thegazette.com