Sacramento Bee

BY DALE KASLER AND PETER HECHT
dkasler@sacbee.com

After 15 years of waiting for its big shopping mall to materialize at the south end of town, Elk Grove thought it had found the ideal development catalyst for the stalled project: a $400 million Indian casino to lure shoppers to the area.

Now opponents have begun circulating petitions to launch a ballot referendum to block the casino along Highway 99. Community leaders and the mall’s developer said Monday the referendum, if successful, could prove fatal to the planned outlet mall as well.

“They’re trying to kill the development agreement on the mall, which stalls it again,” said Joshua Wood of Region Business, a group representing area construction companies. “Why do they want to kill this mall?”

The Howard Hughes Corp., developer of The Outlet Collection at Elk Grove, blasted the petition drive and called the Wilton Rancheria Indian tribe’s casino an important component of the mall project.

“We believe it is essential for continuing our leasing momentum as well as serving as a critical demand generator, bringing thousands of additional visitors to the destination year round,” the company said in a prepared statement.

As if to underscore the mall’s struggles, the Hughes company is now being sued by movie theater chain Regal Cinemas Inc., which is planning a 14-screen cineplex. Regal accused the Dallas developer of dragging its feet on the mall project, which it said amounts to a breach of contract.

Wood said the petitions were being circulated by Stand Up for California, a Penryn group that has been fighting tribal casinos for years. Stand Up’s leader, Cheryl Schmit, insisted she isn’t behind the effort and doesn’t know who is. But she’s aware of the effort and applauds it.

“The citizens will support a shopping mall,” Schmit said. “They just don’t want a casino, at least the ones that are calling me.”

City spokeswoman Kristyn Nelson said city officials are aware of the petition drive. “I don’t think we have anything to comment on just yet,” Nelson said. She said the group needs at least 9,000 valid signatures to qualify the petition for the ballot.

The city wouldn’t comment on the Regal Cinemas lawsuit. But Nelson acknowledged the city has “been very anxious” to see the mall move forward. “We’ve wanted to see that go up sooner rather than later,” she said.

The lawsuit and petition drive come eight years after original developer General Growth Properties halted construction on the mall during the financial meltdown, leaving a cluster of half-built structures that quickly became a civic eyesore. Hughes inherited the fenced-off site after General Growth went bankrupt and announced its plans in 2014 to turn the development – which originally had been planned as a traditional, regional shopping center – into an outlet mall.

Although at one time Hughes indicated to city officials that The Outlet Collection at Elk Grove could open by late 2015, the company has never announced a groundbreaking date.

 
In September the mall project seemed to get a boost when the Wilton Rancheria tribe made a deal with the city to build a $400 million casino next door. Hughes agreed to sell a portion of its property to make room for the casino, pending approval of the U.S. Department of the Interior and the National Indian Gaming Commission. The tribe also would need to negotiate a gambling compact with Gov. Jerry Brown or his successor.

In October, the Elk Grove City Council approved an amended development agreement with Hughes, allowing the Texas company to sell the tribe part of the property that had been earmarked for the outlet mall. The Wilton tribe agreed to pay the city $132 million over 20 years to deal with the impacts of the casino. City officials said the financial agreement with the tribe would more than offset any lost tax revenue from reconfiguring the mall.

Hughes officials said they were happy to accommodate the tribe even if the land sale meant surrendering four buildings that had already been constructed for the mall. The tribe’s plan includes a 12-story, 302-room hotel, plus a convention center and entertainment venue.

The city doesn’t have the authority to approve or deny the casino, since tribal affairs fall under the federal government. The petitioners seeking to block the project are targeting the City Council’s decision to let Hughes sell off a piece of its land to the tribe.

The mall project has long been an emotional issue in Elk Grove, a potent symbol of its aspirations as a community and a motivating force in its successful drive for cityhood in 2000.

Originally known as Lent Ranch Marketplace, the 1.3 million-square-foot mall was rejected in 1999 by Sacramento County officials because they deemed it too close to the county’s urban growth boundary along Kammerer Road. After Elk Grove was incorporated a year later, with the Lent Ranch property now sitting just inside the new city, the City Council approved construction of the project.

Litigation prevented a quick groundbreaking. A judge in 2002 overturned the City Council’s approval in response to a lawsuit filed by the state Department of Conservation and environmental groups over the loss of farmland and other issues. It wasn’t until 2004 that a state appeals court revived the project by overturning the judge’s ruling.

In 2008, with construction finally underway, General Growth put the project on hold and later filed for bankruptcy as the economy collapsed.

The bankruptcy ended with Howard Hughes, which had been a General Growth subsidiary, spun off as an independent company. The Elk Grove site became one of its assets and in 2013 the company approached city officials about building an outlet mall on the property as early as 2015. An official announcement came a year later, with Hughes saying it was committed to the project but declining to offer a timetable for construction. The outlet mall has been pegged at 525,000 square feet, less than half the size of the original shopping center.

In its suit, Regal said it’s been talking to Hughes for more than four years about a theater at the Elk Grove site. An agreement to build a 14-screen cineplex was announced in October 2015. But Regal says Hughes failed to keep the development timeline outlined in its agreement.

The suit, filed in late October in Sacramento Superior Court, says Hughes failed to secure construction bids for the cineplex, as required in the agreement. The developer also failed to meet specific milestones for the rest of the mall, including getting leases or letters of intent for at least 55 percent of the retail space and hammering out deals with at least two sit-down restaurants.

At some point this year, Hughes told Regal that because of inflation, it “could no longer afford to construct the theatre within the contemplated budget,” the lawsuit says. However, Regal said it believes “these excuses are merely a ruse” and Hughes is trying to get out of the lease terms. The lawsuit added that Hughes has begun talking with another theater operator.

Hughes declined comment on the case. Officials with Regal’s parent, Regal Entertainment Group, weren’t available for comment.