(Bloomberg) -- Municipal bonds issued for the American Dream mega mall that are backed by New Jersey economic development grants are poised to miss their third straight interest payment Tuesday, according to a person familiar with the matter.

The payment due Aug. 1 won’t be made, said the person, who requested anonymity because the information hasn’t been publicly disclosed. The delinquency isn’t a surprise. Nuveen LLC, the biggest holder of muni debt issued for the $5 billion complex in the Meadowlands, said in a July 13 note that New Jersey wasn’t expected to certify a key document necessary to appropriate the grants for the payment until some point this quarter.

Once New Jersey’s Economic Development Authority approves the document, known as a project cost statement, the state can begin appropriating annual grants based on sales-tax collections to pay $290 million of bonds, Nuveen wrote in the note. The securities last traded in early June at 70 cents on the dollar. The next interest payment is due Feb. 1.

Failure to make a payment on the grant bonds doesn’t constitute a default nor does it require the borrower to pay back the loan immediately, according to bond documents. Jessica Griffin, an American Dream spokesperson, didn’t provide answers to questions on the matter. Virginia Pellerin at New Jersey’s EDA didn’t respond to requests for comment via phone and email.

American Dream opened its complex in October 2019, months before the pandemic spurred lockdowns, postponing the opening of the mall’s retail stores until October 2020. 

Since then, the sprawling complex, featuring an indoor ski slope, amusement park, water park, stores and restaurants, has struggled. The 3.5 million-square-foot site was 85% leased as of June 30, according to a securities filing. 

New Tenants

American Dream reported $422 million in gross sales in 2022. The mall’s current sales aren’t expected to generate enough revenue to support annual debt service on the grant-backed bonds, Nuveen’s note said. 

“However, continued progress in opening new tenants is expected to produce increased cash flows in future years,” Nuveen said in the commentary.  

American Dream’s first quarter sales grew almost 30% from the same period in 2022. Korean supermarket chain H Mart opened a store at the mall this year as did The ADdress, a department store specializing in modest clothing. 

In addition to the grant-revenue bonds, American Dream also has $800 million of muni debt backed by fees that the mall’s owner gives to bondholders instead of paying property taxes, known as payments in lieu of taxes. 

American Dream has had to tap reserves to cover the shortfall on the payments-in lieu-of-tax bonds because the annual assessed value of the mall, which dictates the size of the payments, is only sufficient to pay 93% of debt service. 

The property tax-like payments that back the bonds could decline further if American Dream wins a tax appeal against the borough of East Rutherford and a judge reduces the value of the mall. The mall is appealing five years of assessments by the borough in state tax court. 

Read More: Town Sues American Dream Mall for Refusing to Pay $8 Million

©2023 Bloomberg L.P.