By Eliot Brown and Joseph De Avila
The Related Cos. is in advanced lease negotiations with Wal-Mart Stores Inc. and J.C. Penney Co. about anchoring a mall in southeast Brooklyn, according to people familiar with the matter.
Wal-Mart has long been considering the site overlooking the Belt Parkway just west of Howard Beach. But talks have intensified in recent months as the company has expanded a publicity campaign and taken steps to mollify potential critics, the people said.
The outlook for the 630,000-square-foot development—which would accomplish Wal-Mart's longtime goal of opening a location in the city—was boosted by J.C. Penney's strong interest. The combination of the two large stores would likely give the project sufficient financial viability to move forward despite the uncertainties that continue to cloud the slowly recovering economy.
J.C. Penney, which was based in Manhattan for about seven decades before moving to Texas, already has stores in all four other boroughs. But Wal-Mart doesn't, and its possible entry into the city has sparked strong opposition from labor unions, community groups and some elected officials.
Hurdles to Wal-Mart's beachhead remain. For starters, Related has yet to finalize a purchase of a portion of the site from the state, the price for which has come under criticism from Wal-Mart opponents.
But the project doesn't require further approval by the City Council, typically a major obstacle for developers. Given a 2009 rezoning, Related is free to build any big-box store on the site once it takes control.
Representatives for Wal-Mart, J.C. Penney and Related declined to comment on lease negotiations. "We still have not signed any leases anywhere in the city," Steven Restivo, a spokesman for Wal-Mart, said last week. "We continue to evaluate opportunities across the five boroughs."
Wal-Mart and J.C. Penney would take around 150,000 square feet each in the planned Gateway Center II mall, according a person familiar with discussions. The project would sit just north of Related's Gateway Center mall, which was completed in 2002 and houses a Target and a Best Buy.
Two labor groups, the United Food and Commercial Workers and the Retail, Wholesale and Department Store Union, have been particularly aggressive in combating Wal-Mart, which has long been opposed to a unionized work force. They are joined by elected officials including Council Speaker Christine Quinn and community groups worried about the giant discounter's impact on local merchants.
To counter the critics, Wal-Mart has launched a public-relations campaign to tout the retailer's virtues through fliers and newspaper and radio ads.
In the first four months of the year alone, Wal-Mart spent more than $1.7 million on consultants, most of which was directed at firms that do advertising and polling, according to lobbying records.
Earlier this month, the company announced a $4 million donation to a New York City job program at a news conference with Mayor Michael Bloomberg. Wal-Mart also recently signed up as a $150,000 sponsor for a summer concert series hosted by Brooklyn Borough President Marty Markowitz that includes performances by such artists as Queen Latifah.
The sponsorship drew praise from Mr. Markowitz, who has been critical of Wal-Mart in the past. In a statement on Sunday, he said he isn't "philosophically" opposed to Wal-Mart, but declined to comment on Related's plans. He said he believes the retailer should pay "a fair wage" and allow workers to unionize.
The push seems to have created a sense of inevitability among many elected officials, particularly given that the company has said it only intends to take space in stores where City Council approval isn't necessary, making it difficult to block. Earlier this year, Wal-Mart also won some labor support by signing a five-year contract with the Building and Construction Trades Council of Greater New York that guarantees that any of the company's store construction would be done with union labor.
Even Ms. Quinn, a vocal Wal-Mart critic, earlier this year offered to broker a deal between the company and the Hunts Point Terminal produce market. Under the deal, Wal-Mart would have committed to buying at least 5% of its produce from the market, although talks fizzled.
Aides to Ms. Quinn last week downplayed the potential deal and said Ms. Quinn hasn't changed her position on Wal-Mart and that she continues to oppose the company coming to New York.
Critics of the possible Wal-Mart Brooklyn development have recently stepped up efforts to block Related's purchase from the state of a 21-acre piece of the mall site. Related already controls the rest.
Last week, critics released a state memorandum from the Office of General Services that detailed how Related had renegotiated the purchase price for the state-owned land. The price was reduced in 2010 to $14.5 million from the $32.5 million it agreed to pay in 2009.
According to the memo, the price was changed partly because of an appraisal that showed a lower value for the site. Also, Related had been counting on at least $7.5 million in expected government incentives that proved unavailable. The mall is part of a larger 227-acre development that includes low-income housing, retail and parkland.
"The Gateway 2 development will expand on the enormously successful project that has already brought great economic benefits to this area," creating thousands of jobs, said Joanna Rose, a spokeswoman for Related, last week.
The land sale must be approved by state agencies and the state comptroller. A spokesman for the comptroller's office said last week that it hadn't yet received the proposal.