Mills’ Bills

In 1997, I visited Arizona Mills near Phoenix, then the newest of the burgeoning Mills Corp. malls.

The parking lot was huge, but it didn’t matter. It filled up in no time. Throngs of shoppers were drawn to this new-age retail environment, a combination of state-of-the-art theming and old-as-the-hills discounting.

Inside the cavernous hallways, large and colorful graphics led shoppers to what they needed to find, primarily bargains. Ann Taylor Loft, Saks Off Fifth, Polo Outlet, Neiman Marcus Last Call, Nike Factory Store – top brands at enticing prices.

Shoppers didn’t seem to mind the miles of walking, hauling around full shopping bags. In the booming late 1990s, who didn’t want some Calvin Klein or Ralph Lauren, especially if the price was right?

Other Mills projects thrived, as well. Chicago’s Gurnee Mills, halfway to Milwaukee, became the city’s Number One tourist attraction at Christmas. Special buses ferried holiday shoppers back and forth from the Loop on practically an hourly basis.

Mills said it was looking at sites in all of the major U.S. metropolitan areas and beyond, in Canada, even in Europe. It went into Rome. It went into downtown Chicago. It opened the first enclosed mall in Toronto in 14 years. It opened in Madrid, with a 17-story snow dome for indoor skiing.

It began building a project in New Jersey’s Meadowlands, called Xanadu. Oops on that choice of names. Remember what happened to that other stately pleasure dome?

This one appears to be crumbling. This summer, Mills Corp. announced it was selling off three of its foreign enterprises, in Canada, Scotland and Spain, to begin paying off debt accumulated on its joyride to the top. Even with that, it will still have to run fast to stay ahead of its creditors. It has a $1.9 billion due bill at Goldman, Sachs, payable Dec. 31, 2006.

The company that was a media darling in 1985, when it opened Potomac Mills in Prince William County, Va. (the first large mall in the U.S. to feature factory outlet stores and no department store anchors), is now generating different kinds of headlines. This summer, it filed a document with the Securities and Exchange Commission revealing a series of accounting errors. It will reduce the stated value of its assets by as much as $315 million. It also revealed that the 2.2 million-square-foot Xanadu, on 104 leased acres of New Jersey swampland, has cost overruns of $800 million.

It’s facing a number of shareholder suits. It’s searching for a buyer, but the company has lost 70 percent of its value in about a year. It fired its president, a former Goldman, Sachs managing director.

What happened? As Mills grew, its projects became more ambitious and the building costs escalated on the sites it chose, such as in Chicago’s Loop or on the site of the former Mercati Generali fruit and vegetable market in Rome. It also bought a number of tired U.S. malls past their primes, including Del Amo Fashion Center near Los Angeles; Southdale Center in Minneapolis; Forest Fair Mall in Cincinnati.

After buying Del Amo, one of the largest malls in the country, in 2003, Mills planned a $300 million expansion and renovation. Three years later, that project appears to be stalled.

It could sell properties, of course. But who’d spend $2 billion for a Meadowlands Xanadu that has an estimated initial annual rate of return of less than 4 percent? And can Mills even withdraw from the project? New Jersey has authorized $350 million in bonds for Xanadu and has committed about $60 million more for road improvements.

Besides, remember that huge parking lot filling up in Phoenix? Well, those drivers today are paying upwards of $3 a gallon for gas. Doesn’t make the Calvin jacket as much of a bargain anymore.