The Pyramid formula

The Pioneer Valley will soon be bidding adieu to one of its most controversial corporate citizens.

Syracuse, N.Y.-based pyramid Companies, owner of the Holyoke Mall and the Hampshire Mall, is selling those properties along with the rest of its huge portfolio. And as the conglomerate that changed the retail landscape of the Pioneer Valley prepares to exit the regional stage, BusinessWest looks at the legacy the company will leave in its wake.

Both the mall and Pyramid have their share of supporters and detractors lined up along familiar battle lines; members of Holyoke's business and political establishment generally consider the mall an economic plus and Pyramid a good corporate neighbor, while various citizens' coalitions believe the mall has drained the life out of downtowns throughout the Pioneer Valley and that Pyramid has ripped the city off blind. It is probably fair to say that most of the mall's 14 million annual visitors don't think about it's impact on the region, one way or the other.

Much ink has been spent on Pyramid, from the New York Times on down to the local dailies in communities where the company has a presence. A picture emerges of a hugely successful organization that pursues its interests with single-minded intensity. Pyramid Chairman Richard Congel appears as a Robert Moses-type but without the Master Builder's sense of aesthetics. Whereas Moses obliterated New York neighborhoods to build parks and bridges, Congel deposits malls. Choose your adjective; Pyramid has been described as a "mall-building juggernaut," a "Goliath," a "ruthless, unscrupulous giant," and as "the worst kind of corporate citizen."

Certainly, Pyramid has beaten back almost every challenge to its development and expansion plans. Whether it was buying elections, overriding environmental concerns, beating back abutters' resistance to expansion, or challenging tax assessments, Pyramid's deep pockets and powerful legal muscle have proved too much for small communities to handle.

Pyramid brings to the table a sophisticated knowledge of land-use and zoning laws and a mastery of local political processes to achieve its ends. A common tactic is to employ litigation as a means of forcing cities and towns, where tax assessment offices are often undermanned and poorly equipped, to lower tax obligations on Pyramid properties. But whether it is exploiting election law loopholes in New York or end-running environmental protection statutes in Massachusetts and Vermont, even the company's opponents generally concede that Pyramid appears to operate within the letter, if not the spirit, of the law.

Locally, abutters and tenants recall numerous horror stories of being bullied by Pyramid. And no less an authority on the subject than former Holyoke Mayor Ernest Proux once said of the company, "you were dealing with a group that would cut your heart out and eat it for lunch."

It was Pyramid that motivated Ward 3 City Councilor Helen Norris to get into politics in the first place.

"One of the reasons I ran for office was to look at the tax assessing office and some of the practices there regarding the mall," she said. "I found that the mall was not appropriately assessed and, as a result, small businesses in town were subsidizing it."

Money Talks

"You shouldn't be able to do what we did in Poughkeepsie," said Congel in response to a report by the New York State Commission on Government Integrity that found Pyramid had funneled $776,967 to four candidates in 1985 Town Board elections. The four candidates supported a zoning change that Pyramid needed to develop a mall, and the company's massive infusion of funds -- in elections where all candidates combined spent around $20,000 - was enough to put its chosen few over the top.

Poughkeepsie is a good case study of the lengths to which Pyramid will go to get its way. Operating through three political committees -- The New York Republican State Committee, The New York Republican Federal Campaign Committee and Building a Better New York -- Pyramid channeled the funds without ever disclosing its role and, according to the commission, "embarked on a massive litigation strategy in an effort to keep the company's involvement from public view."

Leaving nothing to chance, Pyramid also hired an attorney who was council to the New York State Election Law Committee, the very body that was later called upon to investigate the campaign contributions.

Powerhouse lobbying firm Campaign Strategies was also hired, which distributed massive amounts of literature through direct mail and door-to-door campaigning. The literature, avoiding any mention of Pyramid or its plans, focused on the two issues -- lower taxes and better planning -- found to be of paramount interest to voters. More than 80 different brochures and letters were mailed to voters during the three-week campaign.

In an internal memo from Campaign Strategies, the company stated that "effective, sophisticated research reveals public perceptions and guides us in changing those perceptions." The direct mail "allowed us to create artificial issues" that enabled Pyramid to "reposition itself and the mall as concerned members of the community rather than as an alien presence concerned only with economic gain."

The strategy was successful, and all of the Pyramid-supported candidates won. They voted for the zoning change, and all lost their seats in the next election, after Pyramid withdrew its presence and its funds for new hunting grounds.

"They went straight to the center of power and played a bigger league political game than this town has ever seen," former Poughkeepsie Town Supervisor Anna Buchholz told the New York Times. "It startled us to discover that outside money could have such an impact and it shattered people's illusions about the sanctity of local government."

Congel had a different take. "It was a choice we made and I'm proud of it," he was quoted as saying. "We need predators and we need prey. All things are needed to keep the balance."

In the Pioneer Valley, the predator moved in different ways. While there is no direct evidence that Pyramid influenced local elections, the company's presence was certainly felt by local officials, mall tenants, and abutters.

Lease on Life?

Perched on 47.25 acres at 50 Holyoke Street, the Mall sits just off Exit 15 on I-91. Just as the Connecticut River used to bring commerce into the city, that function is now served by the Interstate, the route by which shoppers arrive from Vermont, Connecticut and Western New York State. Multi-lane exits, access roads and well-coordinated traffic lights seamlessly steer shoppers into the mall's free parking lots.

The mall has 208 stores, restaurants and kiosks, including such plums as Filene's, Filene's Basement, Lord & Taylor, Toys "R" Us, J.C. Penney and Sears. Tenants are often bound by long-term leases of up to 10 years, and also make percentage-of-sales payments to Pyramid, as well as paying into common funds to cover costs for parking, maintenance, utilities, association fees and other charges.

Those numbers Can be substantial. Though Pyramid keeps its leasing information secret, details were revealed in a 1987 article in the now-defunct Holyoke Transcript-Telegram of a lawsuit brought against the mall by Taco Lindo, then a tenant. Holyoke City Councilor Norris said she recalled that, after the article was published, most mall-based advertising was withdrawn from the ill-fated newspaper.

The lawsuit -- for allegedly breaching an oral agreement that no other Mexican restaurant be allowed to open, and for allegedly allowing mice and other rodents to thrive in the mall's basement -- revealed that the small restaurant was paying $1,550 per-month in rent, an 18% administrative fee, 9% of its gross sales, a 3% management fee, maintenance fees, a percentage of shared operating costs, and an additional $35,000 for its share of building costs.

Those fees may have been a little too hefty. In 1995, 18 merchants -- including many from the Holyoke Mall and Hampshire Mall, where the issues were first raised -- filed a $192 million lawsuit against Pyramid in Northern District Federal Court in Syracuse, N.Y. The suit alleges that Pyramid "fraudulently and systematically" overcharged merchants for rent, utilities, property taxes and other fees. At least one of the claims is filed under the Racketeer Influenced and Corrupt Organizations (RICO) Act.

The suit includes seven tenants of the Galleria in Buffalo, N. Y., who claimed the company had defrauded them "through deliberately duplicated and grossly exaggerated ... common area costs and real property taxes." One tenant in the action claimed to have paid more than $100,000 in "excessive common area costs" over a five-year period.

And in 1993, Edison Brothers (Oak Tree, Chess King), filed suit over the same issues; in 1994, New York-based retail conglomerate Melville Corporation (Kay-Bee Toys, CVS), also filed suit over the same issues, followed by Transworld Entertainment (Record Town, Coconuts) in 1995.

The latter suit alleges that Pyramid steadfastly refused to open its books, contrary to common industry practice, or discuss with tenants how it arrives at the fees. Additionally, Pyramid is accused of being particularly heavy-handed in collecting the fees.

And while Pyramid is a tough customer with its tenants, it can play even rougher with the communities that play host to its malls.

Taxing Situation

The impending sale of the Pyramid portfolio is of critical importance to Holyoke. The city relies on taxes from the mall to survive and the new owner will be under intense scrutiny to see if it behaves like its predecessor. The total tax assessment on Pyramid for fiscal 1998 is $5,581,306, or an astronomical 19.7% of Holyoke's total tax levy for this year. According to Key Seyffer, president of the Holyoke Taxpayers Association, the mall is easily the city's largest taxpayer, far surpassing Northeast Utilities, which pays less than $1 million in taxes.

Holyoke is desperate to increase its tax base. Linda Morneau, a Holyoke assessor, said at a June meeting of the Federal Energy Regulatory Commission that the city lost $50 million in tax revenues from its industrial base over the last eight years. That number is catastrophic when one considers that the total 1997 tax levy was only $25,569,540, or just over 31% of the city's total budget, with the remainder coming from state aid.

Moreover, a 1996 survey of Holyoke bonds by Moody's Municipal found that "a declining tax base ... will continue to present a significant challenge" to the city. Moody's also said that "following a revaluation in 1995, the city recorded a 22% decrease in assessed valuation, putting the city close to its Proposition 2 1/2 primary levy limit."

The devaluation was another severe blow to Holyoke, one of 178 Massachusetts cities and towns at or near its tax levy limit. Because of Proposition 2 1/2, the amount the city can raise through taxes is restricted to 2.5% of the city's total valuation; that number is close to $1.2 billion, and 2.5% of that is around $29.6 million. When the city's total valuation goes down, the amount of money it can raise through taxes -- divided amongst retail, industrial and residential taxpayers -- goes down as well.

"If the levy is reached the only way to go around it is an override, and we'll never see that again," said Seyffer. "Through tax classification you can spread the $29.6 million between residential, commercial and industrial. Someone has to pay more."

Given this backdrop, the question -- is the mall paying its fair share of taxes? -- takes on greater significance. But to answer it requires two pieces of information; how big is the mall, and what is it worth?

Pyramid has gone to extraordinary lengths to withhold the data that the city needs to answer those questions. According to Anthony Dulude, Holyoke's chief tax assessor, Pyramid has never allowed the city to see its leases or income and expense statements.

In 1993, then-mall manager Maurice Molod received a notarized request from the Board of Assessors asking for that data. "Failure of an owner to comply with such request within 60 days shall bar him from statutory appeal," the letter read, citing the relevant Massachusetts law.

Pyramid never responded, and to this day no one in Holyoke knows what those numbers are. And although it is impossible to put a fair value on the mall without that information, Robert Bateman, Director of the Holyoke's Office of Economic and Industrial Development, is unconcerned.

"There's nothing unusual about that," he said. "The mall doesn't have to share that, it's proprietary. Any large taxpayer questions their assessment. It's standard practice. It's one of the ordinary day-to-day things that a large business does."

Thomas Ripa, a former interim town conservation officer and an activist with numerous citizens' coalitions, differs with Bateman's assessment. Ripa said that numerous state laws and DOR regulations require all taxpayers to supply that information. He also thinks the city has an obligation to tax the mall using the same rigorous standards that are applied to homeowners and that, at a minimum, undervaluing the mall has cost each residential taxpayer between $1,000 and $1,400 over the past 10 years.

"There has been a catastrophic failure of the civil service in Holyoke -- tax assessors, the legal department, the building department and code inspectors -- to perform on even a minimal basis," he said.

Norris said the Assessor's Office has improved its operations over the years, but not necessarily in terms of putting a fair value on the mall. It was through her own efforts, she said, with assistance from Ripa and others, that resulted in the mall's taxes being raised from around $1.8 million in 1994 to more than $3.5 million in 1995.

"It took me literally five years to make any impact on valuation, to get it close to where it should be, but I am not convinced it is exactly there," she said.

Norris said that prior to 1994, the Board of Assessors did not even keep minutes of their meetings and the City Council did not review the qualifications of assessors; they were simply appointed. Those policies resulted in some questionable practices that probably cost the city millions of dollars in tax revenues over the years. In 1992, for example, the Cole Layer Trumble Company, an assessing firm, valued the mall at around $91 million, but a document from the assessors office shows that figure crossed out and replaced with a lesser figure of just over $77 million.

Norris said that it was Anthony Dulude who worked the magic; Dulude would not comment on the document.

"There was a lot of pressure on Tony, but why didn't he come to the City Council with it," said Norris. "It was just a case of bending over when someone comes in with Guccis and alligator shoes. That move raised the taxes of all other businesses in the community."

On top of that, said Norris, Pyramid then had the gall to ask for a tax abatement in addition to the reduction in valuation. In a 1994 letter, Norris and former City Councilor Elaine Pluta wrote to then-mayor William Hamilton about the $62,000 abatement.

Norris and Pluta concluded that the abatement and revaluation more than wiped out the $400,000 in increased tax revenues that the mall expansion was to have provided to the city. They also said that the valuation adjustment and tax abatements were voted on "behind closed doors in violation of open meeting laws."

"When small businesses in Holyoke are paying full freight on their taxes, and certain big businesses seem to get special tax breaks ... a deep and corrosive cynicism is fostered in the fairness of government," Norris and Pluta concluded in their letter. The two councilors said that the total loss to the city was $579,934.

Norris remains firmly against giving the mall any tax breaks. "If they have the location, I don't think Pyramid needs any other perks," she said. "They have sucked everything out of Holyoke that they possibly can to maximize their profits."

Norris is certainly on the mark in describing the pressure that Dulude is under. He is bound by a number of state laws and precedents that require all properties to be taxed at their full and fair values. But in the world of real politics, he has to respond to the whims of the powers that be.

In a Feb. 27, 1987, letter to the Holyoke Board of Assessors from Pyramid lawyer David Nettina, a settlement is described whereby, in apparent contradiction of the DOR-recommended valuation methods -- and in a period or nationwide retail growth -- the assessed value of the Holyoke Mall would remain at $60 million for the fiscal years 1986, 1987 and 1988.

Nettina wrote: "We understand the next tax bill is due out in March and will be received indicating an assessed value of $76 million. We will file, and your office will grant promptly, an abatement re-establishing this value to be $60 million."

Dulude certainly makes a case for being completely outgunned. The assessors office wasn't even computerized until 1994, he said, and a staff of six has to assess and collect 40,000 excise bills.

Dulude said the city has only two options with Pyramid; it could have taken Pyramid to court -- and still can -- or it can make estimates as to a fair valuation for the mall. For now the city has chosen the latter option, said Dulude, because litigation is expensive and there is no guarantee that the city would win.

The assessor's office would not provide any valuation data on the mall. But valuations obtained by previously supplied documents from the tax assessors office indicate that, for 1987, the city's valuation for the mall was $76,876,000; for 1993, the figure was $74,578,800; for 1994, $79,578,800, and for 1995, $101,654,600.

The mall's true gross leasable area has proven to be as nebulous a statistic as its revenue and leasing streams. Dulude puts the total gross area of the mall at 1.432 million square feet, or 1.315 million square feet adjusted for valuation. Meanwhile, in marketing and public relations materials, A1 Parent, the mall's marketing director, offers only the single figure of 1.6 million.

A 1992 valuation survey by the Cole Layer Trumble Company put the total square footage for valuation purposes at 1,306,448 square feet, excluding parking. That survey was done before the 550,000 square-foot expansion finished in 1995, suggesting that the present mall is no less than 1.850 million square feet.

Dulude said that Braintree-based Patriot Properties provides square footage estimates and valuations based on averages throughout Western Massachusetts. "They use state averages for leases and expenses," he said. "Pyramid provides maps and blueprints of the mall and we operate off of the stuff provided by Pyramid."

Ripa believes those documents are meaningless.

"They could have any number of sets of blueprints," he said. "Unless you put a team in there with surveyor wheels who are prepared to spend six weeks measuring the gross leasable area, there is no other way to derive a true measure of how to tax the building. To my knowledge this has never been done."

Ripa said that during the 1980s there was a massive internal expansion within the mall. He said eight fountains in the food court area were converted into retail space; that the former cinema areas, and J.C. Penney's automotive and maintenance areas were similarly converted.

"It was a common occurrence for malls to do," he said. "They narrowed the width of common areas to increase the leasable space." But Dulude said he was not aware of any internal expansion.

Ripa said that assessment summaries from Patriot Properties were "woefully lacking" in listing permits for renovation additions and expansions. He also said that Patriot described the mall's exterior as "brick veneer" when its actually pre-cast concrete; that a count of 20 restrooms is way off, and that the heating type is described as gas when, in fact, the mall is heated by electrically heated forced hot air.

Those errors indicate that Patriot did not conduct an on-site valuation survey and that Pyramid cannot be trusted to provide accurate data, said Ripa.

"That's the reason why the Massachusetts Department of Revenue recommends a leasing stream method for valuing shopping malls," he said, "and why its so critical for the city to be able to examine income and expense statements."

Pressure Situation

Holyoke is not the only community that has fallen prey to the company that has made an art form out of refusing to pay taxes in the hope its host will eventually give up and settle for less.

The Crossgate Mall in Guilderland, N.Y., was assessed at $187 million in 1997. Pyramid challenged the assessment for the fifth time in as many years, claiming the valuation should have been 40% less. It took the town five years of litigation just to review Pyramid's income and expense statements.

"I feel that Pyramid pressures us into lowering the assessment whether it's justified or not," David Galarneau, the town assessor, was quoted as saying. "All they do is throw lawyers at us and we don't have the money to fight back."

According to a report in the Buffalo News, Guilderland spent $80,000 in 1996 alone in litigation with Pyramid.

The town of Wallkill, N.Y., has been in litigation with Pyramid since the 1992 opening of the Galleria at Crystal Run.

"They feel they are about 40% over-assessed," town assessor Molly Wanat told the local press. "It's been very difficult."

Some towns just give up. In the Western New York town of Cheektowaga, the assessment on an undeveloped parcel near a Pyramid mall was reduced from $350,000 to $1,000 after challenges from the company. The tax bill for the Riverside Mall in Utica was lowered by one third, from $1.8 million to $1.2 million. In 1996, the town of Plattsburg, N.Y. settled four different assessment challenges by Pyramid; the assessment on Champlain North Mall was reduced from $49.5 million to $41 million.

In August, 1997, Pyramid challenged the assessment of a mall in West Seneca, N.Y. The assessment was later reduced to $2 million from the original $3.2 million.

Companies like Pyramid are "approaching the tax as something that's negotiable," James Culver of the New York State Tax Association told the Buffalo News. "Taxpayers should be outraged that this is happening, and they don't even know."

But the taxpayers who do know also know something else. A citizen activist fighting the 1996 challenge in Guilderland put it succinctly. "If they get what they are looking for ... that has to be made up by the rest of the taxpayers," he said.

Meanwhile, those who cross Pyramid find themselves often facing expensive, time-consuming litigation designed to bully challengers into submission.

The town supervisor from Watertown, N.Y., Ralph Dickinson, once referred to Pyramid's actions as a "con job." He was rewarded with a libel suit. "Where they might fail," he wrote, "they threaten legal action to attempt to intimidate ... they file lawsuits based on distortions, half-truths and falsehoods. They try to portray themselves as good corporate citizens by throwing a few nickels and dimes around for PR purposes. Greed is their motivation, and only greed. I would never trust anything they say. They are the worst kind of corporate citizen."

Former Pittsfield mayor Charles Smith didn't have to go to such lengths to attract a lawsuit. Pyramid sued Smith personally, along with the city of Pittsfield, for $31 million, after Smith failed to agree to Pyramid's proposal to build a 600,000-square-foot mall. A ruling against Pyramid was upheld at the appeals level, but the city was obliged to spend more than $100,000 to defend itself.

The Clarkstown, N.Y. Courier attempted to summarize Pyramid in an editorial; "For the last 15 years, the Pyramid Companies have followed the same game plan whenever they have built a mall. First they have purchased the bulk of the land at a deep discount ... then they have hired influential local spokesmen, contributed liberally to local political parties, and removed any town council member who stood in their way ... that's the Pyramid formula."

Where There's a Will ...

Unlike in, say, Poughkeepsie, in Holyoke there is no proof that Pyramid ever funneled money to anyone. The company does have powerful advocates at the local level, however. They are represented by the influential Holyoke law firm of Resnic, Beauregard, Waite & Driscoll. Bateman, former City Solicitor Daniel Glanville and many others have all attested to Pyramid's good corporate citizenship.

Former mall manager Maurice Molod served on the board of the Holyoke Economic Development and Industrial Council during the controversial mall expansion in 1994 when, in an extraordinary legal maneuver, the company, with the assistance of HIED and the City Council, secured a Public Works Economic Development Grant of $1 million from the state. At the time, Pyramid's expansion plans were stalled over wetlands concerns off of Whitney Avenue, but the 11th hour grant from the state allowed those concerns to be overridden by moving Whitney Avenue over and around the disputed wetlands.

Norris, who said Molod was an active player in securing the state grant despite his dual role as mall manager, said that the money from the state could have been used for a number of more pressing concerns -- such as traffic problems in the Elmwood section of the city stemming from the mall -- instead of benefiting a mall owner whose personal wealth is estimated to be in excess of $200 million.

"There are now better than 10,000 cars a day traveling through quiet residential streets," she said. "Some of the residents of Elmwood are literally prisoners in their own neighborhoods.

But it was the Sisters of Providence, who have lived in and served Holyoke for 125 years, who were most adversely impacted by the mall expansion. To the Sisters' eternal misfortune, their property abuts the mall.

Their problems with the mall began back in the late 1970s, when they had to install methane gas detectors after an explosion during the mall's initial construction.

Then, runoff from the mall's parking lots caused severe erosion in Tannery Brook, which crosses the Sisters' property. After four years of litigation, Pyramid agreed to pay for improvements that the company "had agreed to make four years earlier," Sr. Kathleen Popko, a spokesperson for the Sisters, said at the time. She also said that gas odors, debris, litter, and break-ins posed constant problems, and that the Sisters were awakened by snow plows in the winter and motorcycles in summer.

Then the real problems began. When Pyramid first proposed that the mall be expanded, the Sisters agreed, stipulating only that the expansion be contained to an area at the North end of the mall. Sister Popko said that Pyramid attorney John Mason readily agreed.

But when Mason showed up two years later with the expansion plans, it was to the southern end of the mall -- right up against the Sisters' Motherhouse -- that the sprawl was to be added.

Popko said at the time that Mason's response was; "That was two years ago ... times change."

To the Future

Ripa hopes that things will be different under a new regime. "My efforts all along have been to have some equity for the homeowner in Holyoke who has to pay his or her taxes every quarter," he said. "They should be paying less and the mall should be paying more."

Bateman said it's hard to predict how a new mall owner will behave, but indicated that it will likely be business as usual. "No one can forecast what a new owner will do," he said "They will contact me and the mayor, meet with us, and develop a relationship."

Ripa, who gives Pyramid high marks for its success in fostering such relationships, scoffs at Bateman's comments.

"Pyramid did what they were supposed to do by holding their value where they wanted it held," he said, "but the city gets a F-minus. This group will never be able to tax the mall properly. You don't sit down with a bear and ask it if it wants to eat your family for lunch."