2020 | Gaithersburg

Gaithersburg gives developer extension on Lakeforest Mall purchases

Company failed to buy four anchor properties by deadline

Lakeforest Mall resized

The Gaithersburg City Council at its meeting Tuesday granted a temporary extention to South Carolina Developer WRS, Inc to acquire the mall's four anchor properties


The Gaithersburg City Council is giving a South Carolina company extra time to buy anchor properties at Lakeforest Mall, after a delay that could slow down plans to overhaul the shopping center.

Gaithersburg city leaders have been at odds with the developer the last six months. They think the best course of action for the mall is a planning study of the site to determine the best use. The city’s plan would involve a moratorium, in which the mall could not be redeveloped for 12 months.

City leaders have said the study and moratorium will help the redevelopment process. However, WRS Inc., which bought the mall last year, has said a moratorium on development will drive away investors and lenders.

WRS has also said it worries that to stay afloat financially during the moratorium, it would need to refill the mall’s empty storefronts, which could lead to lengthy leases.

The council on Tuesday granted the developer 90 more days before the city institutes a yearlong moratorium on the property. But some council members did so reluctantly, saying the lack of communication from WRS about its plans for the property and expressing concern about its failure to live up to the promise of meeting the city’s deadline.

WRS purchased the mall last summer for $22.5 million to redevelop it, the Washington Business Journal reported. The developer bought the core of the mall, but not the four anchor store properties.

Sears, Lord & Taylor and J.C. Penney have closed since then, but their parent companies own the parcels. Macy’s remains open, but the company has said it plans to close 125 stores during the next three years.

Some anchor store owners side with WRS in opposing a moratorium.

At a City Council meeting in December, WRS Executive Vice President Kevin Rogers said the company planned, by the end of 2019, to close on the five anchor parcels and start planning redevelopment.

Earlier in 2019, Gaithersburg was going to study the property and impose a temporary development moratorium to change the zoning to mixed-use.

But an agreement between the city and WRS on Sept. 20 delayed the study and moratorium by 150 days. That let the developer determine a future use for the mall and acquire the four anchor properties.

A resolution to do the study and moratorium were on Tuesday’s agenda, but the council voted to table it and grant WRS a 90-day extension for acquiring the anchor properties.

To redevelop the mall, WRS needs to have the four anchor properties before any changes can be made. A 1970s reciprocal easement agreement requires all owners of the mall to approve any changes to the property.

“Dismantling this old [agreement] by putting all the properties back under the ownership of one single party is the only way there will ever be a redevelopment of the mall, it’s the only way there can be. This is what our company has been working tirelessly to accomplish, the ownership of all parcels,” Rogers wrote in a letter to the city on Feb. 17.

Rogers, during Tuesday night’s meeting, told the council that WRS is still on its way to acquiring the four anchor properties. He said a previous contract fell through when WRS lost a lender.

“We feel good that in short order, we’ll have a new lender to fund the acquisition project,” Rogers told the mayor and council.

About WRS missing the city’s 150-day deadline, Rogers said, “Business is messy. And sometimes it takes a little longer than originally expected.”

WRS is opposed to the development study and moratorium because a delay could hurt the company financially, Rogers wrote in the letter.

“For instance, at considerable expense, we have been deliberately turning away some tenants who would like a space in the mall and they want multiple years on a lease, however we know that giving any new tenant significant lease term would make it considerably more difficult to enact a redevelopment. We have expenses to be paid, taxes and insurance to be paid,” he wrote. “A mortgage to be paid. We cannot put a moratorium on our mall expenses. And we will have no choice but to start refilling the mall and regrettably, but likely, giving some tenants lengthy lease term.”

Rogers added that plans for redeveloping the mall would be hampered if any anchor tenants lease out their space for a while.

On Feb. 17, representatives from both Macy’s and Lord & Taylor wrote to the city, urging leaders to back off on the moratorium in the interest of moving forward with redevelopment of the mall.

Charles Miller, Macy’s’ vice president for government and public affairs, wrote in a letter to Mayor Jud Ashman and City Manager Tony Tomasello that WRS is a “reputable developer” and is in a “good position to propose such a development plan.”

“While completion of our negotiations with WRS has taken longer than we anticipated we remain committee to the process and hopeful they will be concluded soon,” Miller wrote.

Council members were upset about the lack of communication from WRS about its plans for the property. Council Member Ryan Spiegel said from the dais that he was “extremely frustrated by the posture” the city is in.

“WRS is a party to a signed development agreement, which had explicit deadlines. It did not meet those deadlines,” he said. “The agreement required WRS to secure agreements over all four anchor properties. It had the 150 days that we heard about, and it did not secure control over even one of those properties.”

Spiegel ultimately voted in favor of the extension with his four colleagues, but urged WRS to provide “regular and thorough updates” on its progress. He said his “yes” vote was based on the letters from two of the anchor property owners urging the city to not impose a development moratorium.

“Because Macy’s and Lord & Taylor also reached out to us for an extension, that suggests there may be a real possibility of closing on these anchors within a month or two,” he said.

Council Member Neil Harris echoed the concerns about WRS’s lack of communication, but also said he was willing to grant the extension.

“I know you’re busy. You’re talking to lenders. You’re talking to other owners of the parcels. But we’re part of this process too,” he said.

“I’m inclined to move forward and give you some more time, but please stay in touch during the process. Even if you don’t have anything definitive to report, let us know what’s going on.”

Council Member Mike Sesma, in an interview after the meeting, said he envisions Lakeforest Mall ending up being a mixed-use property. But based on WRS’s website, he said, the developer’s definition of that term often means “big-box retail development.”

Sesma said he also worries about WRS’s standing because of its failure to live up to its promise of securing anchor acquisitions.

“We’ve told them what’s gonna happen. The guy said he thought he could close the deal in 60 days. We thought he could close it in 150 days. So there doesn’t seem to be a lot of credibility,” he said.

Dan Schere can be reached at daniel.schere@bethesdamagazine.com