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Pyramid's Financial Projections for the Expanded Carousel Mall

Dana Radcliffe

Revised 12/21/00

The Syracuse Common Council has now approved a proposed PILOT agreement with Pyramid Companies to facilitate expansion of Carousel Center. Instead of paying property taxes for 30 years, Pyramid will make payments to cover debt service on tax-exempt bonds issued by the Syracuse Industrial Development Agency (SIDA) to fund infrastructure required for the expansion.

The national accounting firm of Deloitte & Touche, in its report to SIDA, has now concluded that, in fact, the mall expansion is not feasible without the bond funding. According to Deloitte, without the PILOT, the projected return on equity is only 2.5%, whereas with the PILOT, the return will be 7.7%.

These return numbers are based on Pyramid's own financial projections for the fully expanded mall. In its review, Deloitte did not explain certain anomalies in those numbers:

  1. Pyramid projects that its gross revenues will be $20 per square foot, far lower than the national and regional averages (both around $32) for super-regional shopping centers. Indeed, the figure would put Carousel among the lowest 10% in the Northeast in that category.
  2. Pyramid projects that the total sales at the expanded mall will be $328 per square foot—much higher than the national and regional averages ($227, $233).
  3. Pyramid projects that its expense ratio (ratio of expenses to revenues) will be 47%, when the national and regional averages are in the 30-31% range.

Thus, on Pyramid's projections, total sales and expenses will be extraordinarily high and revenues will be extraordinarily low, with the result being the unacceptably low return on equity of 2.5%.

Given Pyramid's optimistic sales projection, it is reasonable to assume that it would raise rents at least up to industry norms, if not higher. It is also reasonable to assume that Pyramid would want to keep its expense ratio down to a level close to industry norms. However, then the projected return would be considerably more than 2.5%, which would undermine Pyramid's claim that it needs SIDA bond funding.

However, if, for reasons Deloitte does not cite, Pyramid's low revenue figure and high expense figure are well-founded, then the deal is much riskier than other large shopping center projects, which raises serious questions about the feasibility of the $900-million expansion.

When county legislators questioned Pyramid partner Bruce Kenan about these numbers, he responded that the expanded mall will be unique and cannot be compared to other shopping centers. Unfortunately, Deloitte did not agree, since it spent much of its report doing just that.

Although Deloitte & Touche concluded that the expansion cannot be done without a PILOT, its report includes startling financial projections that cast doubt on that opinion.


Dana Radcliffe, a former Senior Real Estate Consultant with Deloitte & Touche, teaches philosophy and applied ethics at Syracuse University and Le Moyne College.

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