As we anxiously await the opening of a world-class retail and entertainment complex at the Meadowlands, it is important to recognize the potential it has to dramatically transform the economies of the region and the state. The former Xanadu project, which has been rebranded “American Dream@Meadowlands,” has already generated thousands of construction jobs and will create an estimated 7,000 permanent jobs, approximately $1 billion in annual sales, and an estimated $100 million in annual tax revenue.
The complex was supposed to open in 2007, but even after almost $2 billion in construction and infrastructure investments, it never did. With an exterior design that was unpopular [i] and a stormy recession that left both potential tenants and investors teetering on the precipice of financial ruin, the project stalled. The faltering retail market caused potential tenants to scale down their commitments to leasing space at Xanadu or to pull out entirely. And in 2008, the collapse of Lehman Brothers had a significant impact on the capital stack of the project.
[i] Governor Chris Christie called it, “by far the ugliest damn building in New Jersey and maybe America."
In August of 2010, a group of lenders, which includes Capmark Financial and Credit Suisse, exercised an option — in effect, a foreclosure — to take over Xanadu from Colony Capital, which had been swimming upstream to advance the project against stiff economic and financial headwinds. After an exhaustive process to identify a new development/equity partner, the lender group selected Triple Five LLC, which owns Mall of America in Minnesota and West Edmonton Mall in Alberta, Canada. [i]
[i] At 2.5 million square feet, the American Dream is about half the size of the Mall of America.
Not to be overlooked is the role that Governor Christie’s new administration played in the process. Early in his administration, the Governor appointed an “Advisory Commission on New Jersey Gaming, Sports and Entertainment.” [i] He named a panel of experts to the Commission which had, as one of its mandates, the responsibility for recommending to the Governor how the state should proceed with Xanadu.
[i] Executive Order No. 11 executed by Governor Chris Christie on February
After the Commission issued its report on July 21, 2010, its Chairman, Jon Hanson, played an effective role as the Governor’s intermediary with the Lender Group and potential development/equity partners. The state also agreed to provide $180 million to $200 million in low-interest financing to the developer and to forgo a similar amount in future sales-tax revenue.
It is important to understand that much of this state support will come from future tax revenues driven by the American Dream project itself; e.g., sales taxes and enhanced property taxes from the project AFTER the private sector invests what will turn out to be close to $3 billion and AFTER tax revenues begin to flow at the retail and entertainment complex. Efforts to characterize state support for the project as “corporate welfare” fail to recognize that the financial support for the project will come from tax revenue that would not be realized BUT FOR the development and successful operation of the project.
As the former Secretary of Commerce for New Jersey, as a senior executive in the real estate industry, and as a neighbor whose office overlooks the development project, I appreciate how important the American Dream is to the nascent economic recovery of the region.
In 2010, domestic and international travelers spent $758.7 billion in the US. The US generated a $31.7 billion travel trade surplus. Travel expenditures directly generated $188.4 billion in payroll income for Americans, as well as $117.6 billion tax revenue for federal, state and local governments. [i]
Because travel expenditures produce a “multiplier” impact on the U.S. economy, in addition to the goods and services that are purchased directly by travelers, additional sales are generated (induced output). Total current-dollar travel-related spending was $1.8 trillion in 2010. Total tourism-related employment was 14.1 million. One in 9 U.S. non-farm jobs is attributable, directly or indirectly, to travel and tourism.
According to reports issued by Global Insight for the New Jersey Division of Travel and Tourism, New Jersey’s tourism industry generates tourist expenditures of over $40 billion a year. The total economic impact of travel and tourism represents approximately 6% of the Gross State Product and generates over $8 billion in federal, state and local tax revenue. If tourism did not exist, each New Jersey household would pay approximately $1,500 more in taxes to maintain current tax receipts.
The American Dream project has the potential to become a major driver of this important industry in the region and the nation. The state and regional demographics suggest that American Dream will be immensely successful.
The New York City Metropolitan economy stands at $1.13 trillion, second only to Tokyo among all metropolitan areas in the world. There are only 14 countries with bigger economies than the New York Metropolitan area. The region is one of the world’s most cosmopolitan, drawing visitors from throughout the nation and the world.
And New Jersey continues to lead all states in population density with 1,196 inhabitants per square mile (462 /km2). To put this in perspective, NJ’s population density is greater than Japan’s, India’s, and the People’s Republic of China. Among the 100 most populous countries in the world, New Jersey’s population density is greater than that of all countries except for two (Bangladesh and South Korea).
And according to 2010 Census data on household income, New Jersey ranks ahead of all states in this important category. SNL Financial also projects that through 2015, New Jersey will be among the top 10 states in terms of economic growth.
For all these reasons, I believe that, in addition to its immediate economic contributions, American Dream has the potential to become a global tourist destination; to significantly expand business and employment opportunities regionally and to attract new investment to New Jersey.
[i]Sources: U.S. Travel Association, the Bureau of Economic Analysis, and the U.S. Department of Commerce-Office of Travel & Tourism Industry.