By Richard Gaines
DeMoulas, a supermarket chain acting as private bank, has extended a $33 million line of credit to Sam Park & Co. for the Gloucester Crossing Shopping Center development.
Already used this summer was a $10.3 million loan for pre-construction work on the 33 acre site just off the Blackburn rotary of the Route 128 extension.
Park yesterday called the arrangement typical except for the nature of his banking partner.
He collateralized the loan with the land and buildings, and pledged the rents and leases in the event of a default.
But Michael Kettenbach, vice president of RMD Inc., the real estate division of privately held, Tewksbury-based DeMoulas, said yesterday he thought default highly unlikely.
Ranked by Supermarket News as the nation's 45th largest food retailer, DeMoulas had an estimated $2.5 billion in sales last year. The Gloucester Crossing store would be the chain's 59th Market Basket.
Citing his own company's decision to take on anchor obligations by putting a 55,000 square foot Market Basket in Gloucester Crossing and the signings of Marshall's and Staples as junior anchors, Kettenbach said the project "looks destined for success.
"It's an investment in a good location," he added.
The line of credit in an "assignment of leases and rents" was signed on Sept. 3, less than two weeks before national credit markets seized up or shut down in the financial crisis that threatened the unraveling of Wall Street.
"It seems like a bigger deal now than it did at the time," said Kettenbach. He said the credit freeze and predictions of a long, intense recession have had no effect on the wisdom of the loan.
"I wouldn't second-guess a basically sound decision," he said.
Kettenbach declined to say whether DeMoulas, which owns a number of the shopping centers featuring Market Baskets, has acted previously as a private bank.
But Park said Market Basket was "stepping up to the plate to help finance Gloucester Crossing. This (commitment) should give the City Council comfort that the project will take off."
Nationally, retailers were reining in expansion plans made before the financial crisis descended on the nation last month.
"We will finance the balance ourselves," said Park. In addition, he said the business plan for Gloucester Crossing also assumes $3 million to $4 million in TIFs and grants.
In addition to the $33 million line of credit, DeMoulas has agreed to spend an estimated $10 million on the supermarket and has signed a 99-year lease with Park.
Last summer, Gov. Deval Patrick came to Gloucester to announce the state's decision to give the project a $2 million grant for job creation, estimated to include 45 full and part time Market Basket payroll employees. At build out, including an assisted living facility and business hotel, Park has estimated as many as 200 jobs will be created.
He has not signed the assisted living or hotel providers.
On DeMoulas' behalf, Park has initiated negotiations with an executive-legislative branch committee over "tax increment financing" known as a TIF, which would have the city forgive a portion of the real estate taxes assessed to the project.
Terms in amounts per year and duration are to be determined by the committee which includes representatives of the developer and his private banker as well as representatives of the City Council and Mayor Carolyn Kirk.
Opponents of the tax benefits last week submitted more than 150 certified signatures on a petition that won them a public hearing at the Oct. 28 meeting of the City Council.
Park said the credit of DeMoulas "doesn't change the need for a TIF. At the end of the day, the project must make financial sense."
Project critic Valerie Nelson, who came upon the loan agreement at the Web site of the Essex County Registry of Deeds, said she was disappointed the arrangement was not mentioned at either of the first two meetings of the committee created to negotiate a tax deal with the city.
Nelson also said the TIF would be a gift to a wealthy company. DeMoulas is "flush with cash and doesn't need ours."
Park said the TIF was necessary to complete the project. "A delay could potentially undermine the financing." The city would lose more by a delay than in negotiating a TIF, he added.
"We should welcome DeMoulas to Gloucester with open arms," said Mayor Carolyn Kirk. "I continue to support the TIF for DeMoulas."
Richard Gaines can be reached at rgaines@gloucestertimes.com.
