Arena Committee Briefing December 3, 2014
Virginia Beach Arena Proposal Overview Presented to the Citizens Communication Committee 3 Dec 2014 3333 Virginia Beach Boulevard, Suite 24 Virginia Beach, VA 23452 (P) 757.340.8001 (F) 757.340.0998 This information is the intellectual property of USM, LLC 2014 USM, LLC
USM 2014 The goals of our Team, the City, area businesses and local citizens must align. @VBArenaNow The time is now. The place is Virginia Beach. 3
The ESG Companies @VBArenaNow The time is now. The place is Virginia Beach. 4
The ESG Companies Ocean Breeze Waterpark Pavilion Tower USM 2014 Tidewater Veterans Memorial Oceanside Condos @VBArenaNow The time is now. The place is Virginia Beach. 5
Our Vision Create an entertainment and sports complex for Virginia Beach that: Puts us on the map Offers something for everyone Creates jobs and business @VBArenaNow The time is now. The place is Virginia Beach. 6
Local and Global Expertise @VBArenaNow The time is now. The place is Virginia Beach. 7
Our Operator 47 years of industry experience Over 235 venues and 1,750,000 seats Collaborative approach with community Events for every audience @VBArenaNow The time is now. The place is Virginia Beach. 8
Virginia Beach Arena Events Major Concerts/Events: Cher Demi Lovato Fleetwood Mac Joel Osteen Justin Timberlake Katy Perry Linkin Park Maroon 5 Michael Buble Miley Cyrus Neil Diamond Paul McCartney Pearl Jam Stevie Wonder The Who Family shows Sporting events and motorsports Religious events and regional conventions Civic events and graduations @VBArenaNow The time is now. The place is Virginia Beach. 9
Key Takeaways The Arena will be: Locally owned Expertly operated Privately financed @VBArenaNow The time is now. The place is Virginia Beach. 10
Our Commitment We will deliver a world-class venue with premier entertainment, and be good neighbors to the Oceanfront community. @VBArenaNow The time is now. The place is Virginia Beach. 11
Stay Updated Visit VBArenaNow.com Like us on Facebook: Facebook.com/VBArenaNow Follow us on Twitter: @VBArenaNow @VBArenaNow The time is now. The place is Virginia Beach. 12
Arena Committee Briefing December 3, 2014
Presentation Overview Summary of Arena Plans Deal Summary USM Plan of Finance for Arena City Plan of Finance for Infrastructure Considerations on Incentive Payments Important Deal Points CSL Report Summary Tentative Path Forward Discussion 14
Summary of Arena Plans Location Next to the Virginia Beach Convention Center at the Oceanfront Construction Cost $200,000,000 Size 500,000 square feet Ownership Structure City to lease 5 acres necessary for construction of Arena to USM for a term of 40 years Operator SMG - Manages 235 venues including 70 arenas Capacity 16,500; expandable to 18,000 Premium Seating: Suites 30 Club Seats 1,200 Loge Boxes 40 Finish Level To be comparable to Pinnacle Bank Arena in Lincoln, Nebraska Hockey Geometry, 1 horse shoe - upper levels, Lower bowl retractable seating, 3 public concourses, 1 premium concourse, 100 points of sale, 2 private lounges 15
Deal Summary USM assumes all financial and operational risk SMG serves as Arena operator City enters into 40 year land lease City provides parking and infrastructure improvements USM receives 1/8 of existing hotel tax, as well as arena admissions and concessions tax revenues to pay debt service City retains excess tax revenue after debt is retired Parking/development fee may be included in price of tickets Future enhancements include expandable amenities capable of supporting NBA or NHL operations 16
USM Plan of Finance for Arena The Developer would be responsible for providing the financing for the Arena. Private ownership and financing is a unique, non-traditional structure The financing consists of $170 million of private debt, $40 million of private equity provided by the Developer, of which $10 million is for working capital The City would make incentive payments to the Developer equal to the direct taxes generated by the Arena plus 1% of the existing hotel tax Payments to be made from a fund established by the City and funded until 2043, subject to annual appropriation, from the following sources: Tax Estimated Annual Amount Year 1 Incremental Taxes Existing Taxes 1% of the 8% City-Wide Hotel Tax $ 3,386,694 Taxes generated by the Arena: Admission Taxes $ 3,741,000 Leasehold Real Estate/Personal Property Taxes $ 1,654,000 Business Professional & Occupational License $ 153,000 Meals Taxes $ 340,000 Local Sales Tax $ 89,000 Subtotal Arena Incremental Taxes $ 5,977,000 Total City Taxes $ 9,363,694 State Sales and Use Taxes $ 225,000 Total City and State Taxes (year 1) $ 9,588,694 Total USM Debt & Equity payments $ 14,630,000 17
USM Plan of Finance for Arena (cont.) The Developer is likely to pledge to its lender the City payments it receives for payment of private debt to be issued. The Developer can also pledge Arena revenues, including parking and development fees included in the ticket price. Fees would not be identified as municipal fees. City would not charge for parking in project area (approximately 2,700 spaces within 2,500 feet) for Arena events. City to lease five acres of land on which Arena would be constructed for 40 years for $1 per year; lease would include rights of Developer to use plaza and public parking areas for arena events. 18
USM Plan of Finance for Arena The Developer is responsible for any revenue shortfalls. Shortfalls in debt service or default by the Developer to its lender would not create City responsibility. Developer debt is non-recourse to the City. Lender may require City to subordinate its interest in underlying property, but City would have cure rights to prevent foreclosure. At termination/expiration of the lease, ownership of the Arena vests in the City. 19
City Plan of Finance for Arena Infrastructure The total cost of the improvements estimated by Kimley-Horn is Required portion $52.6M Optional portion $26.3M Funded through the issuance of Public Facility Revenue Bonds Debt service on required portion covered by existing TIP Fund NOT GENERAL FUND The TIP Fund is funded with a 5-cent cigarette tax, 10% amusement tax, 5% participatory sports tax, 5% hotel tax, 1.06% meals tax, plus other smaller taxes. Currently, the primary expenditure is for debt service of almost $24 million on the Convention Center and the Hurricane Protection Project and other tourism related projects. Debt service on optional portion cannot be paid by TIP Fund without additional funding sources, such as an increase in hotel room night rate from $1 to $2 per room night Council would need to discuss and prioritize $26.3M additional infrastructure improvements Optional Cost Estimates* Birdneck Road Streetscape Va. Beach Blvd Streetscape $2.5M $7.5M 19 th Street Streetscape $9.8M Birdneck/VB Blvd Intersection $6.5M *Does not include property acquisition costs 20
Overall Preliminary Conceptual Infrastructure Costs Construction Item Cost Mobilization $2,500,000 Roadway Improvements $4,478,000 Utilities $4,722,000 Demolition $880,000 Site Development $23,413,000 Total Construction Costs $35,993,000 Soft Costs Cost Contingency and Escalation (20%) $7,199,000 Design (15%) $6,479,000 Construction Inspection $3,000,000 Total Soft Costs $16,678,000 Total Infrastructure Cost $52,671,000 Birdneck Road Streetscape Costs* $2,482,000 Virginia Beach Blvd. Streetscape Costs* $7,473,000 19 th Street Streetscape Costs* $9,716,000 Optional Intersection Improvements* $6,491,000 Estimated Total Project Infrastructure Costs $78,833,000 * Does not include right-of-way acquisition that may be necessary pending further design. 21
Important Deal Points The City is not responsible for any shortfall in USM debt service payments. After 30 years (or June 30, 2043 if statute not extended), the City s agreement to provide incentive payments ends. USM is responsible for operations & maintenance and programming for the building; the City has no authority over USM s operations or management of the building. Developer would pay reasonable cost of event day services,(police, EMT, security, etc.), utilities and property insurance. Certain events would be prohibited and an operating committee would be formed to coordinate parking and scheduling between Arena and VBCC. 22
Important Deal Points A Booking Policy would be developed Quality will be comparable to Pinnacle Bank Arena in Lincoln, Nebraska Developer to control sponsorship and naming rights, and retain all associated revenues. Prior to Council approval of final documents, all key financing terms to be agreed on by Developer and Lender, and City to be provided with satisfactory evidence that such funds are committed subject only to final approval by lender. Prior to closing, City to be provided with satisfactory evidence of sufficient equity and debt financing to complete Arena. USM needs term sheet to advance discussions with its lender. 23
Important Deal Points Lease would provide the City with remedies (including right to terminate Lease and purchase Arena) for failure to operate facility/ hold a minimum number of events Lease would include requirements for reserves for capital improvement and reinvestment in accordance with industry standards, funded by Developer out of Arena operating proceeds after stabilization. Developer to post performance/completion bond. City would have right to step in and complete construction of Arena in event of default which remains uncured after notice and opportunity by Developer to cure (including failure to meet milestones and complete and open project). 24
Important Deal Points Arena would be designed for possible expansion/upgrade for NBA or NHL. City would be reliant on Developer cooperation to attract a pro sports team. Due to Developer s control of arena, terms would be subject to negotiation at time of that opportunity. 25
CSL Highlights To assist the City in determining the benefits associated with the USM proposal, CSL: Analyzed demographic and socioeconomic characteristics of the Virginia Beach market in comparison to other markets supporting similar-sized arenas. Assessed the physical, operational, and financial characteristics of comparable arenas to provide a benchmark to assess the projections presented in the USM proposal. Evaluated the operations of other venues in the local and regional market that could provide competition for a new arena in Virginia Beach. Estimated the economic and fiscal benefits generated to the City from the operations of a new arena. 26
CSL Highlights Virginia Beach metropolitan area ranks favorably among markets supporting comparable arenas. USM proforma for operations is reasonable, and reflects an above average schedule of events. The building components and capital costs are consistent with recent comparable facilities. Annual operations impacts would include direct spending of approximately $64 million for the City of Virginia Beach and $104 million in total output. 1,400 full and part-time jobs could be created that could be supported by approximately $41 million in earnings. Net fiscal impacts to the City, net of displacement and before incentive payments is $6.7 million in 2017. (This amount does not reflect the impacts of potential increased development in the areas surrounding the arena) 27
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Summary Term Sheet is non binding, but frames our intent The same basic deal presented in original proposal except USM now covers cost of event day services, utilities and property insurance, permit inspection and tap fees associated with construction Plan of Finance is consistent with Council goal of staying within financial policies while building for the future. City obligations for the building and infrastructure are met through But for taxes generated in the building and TIP fund revenues City responsibility not expected to have a negative impact on the Unrestricted General Fund $210,000,000 of private investment leveraging public infrastructure and participation Arena would be a catalyst for redevelopment of the Central Beach District. 29
Tentative Path Forward 12/2 City Council Public Hearing 12/3 Public Meeting with Arena Committee 12/9 Tentative City Council Public Vote First Qtr. 2015 Negotiate and Approve Agreements Fall 2015 Groundbreaking Fall 2017 Grand Opening 30
Questions for discussion What intrigues you about the arena project? What concerns you about the arena project? 31
Discussion 32 32
USM - Back Up Slides @VBArenaNow The time is now. The place is Virginia Beach. 33
Site Plan Natural buffer between Arena site and Mt. Olive Baptist Church @VBArenaNow The time is now. The place is Virginia Beach. 34
2-Lanes 2-Lanes 3-Lanes No thru Arena Traffic @VBArenaNow The time is now. The place is Virginia Beach. 35
City/K-H brief 7-8-14 @VBArenaNow The time is now. The place is Virginia Beach. 36
Traffic and Parking USM 2014 Shared Keys to Success Minimize impact to communities Smooth parking experience All guests must have a parking space available Parking requirements are dictated by programming Actual event requirements will be forecast Ongoing traffic and parking coordination with Convention Center, Police and the community Normally evening events Initially 15-20 capacity crowds per year @VBArenaNow The time is now. The place is Virginia Beach. 37
Arena Parking Requirements USM 2014 Operational Traffic and Parking Plans Pre-planned parking scenarios based on expected crowd size Each scenario will define specific resources/lots to be used, traffic flow, manpower requirements, etc. Standardized coordination process and timeline Plan will be dynamic/living and adapt to change Success and user experience begin online User friendly transportation/parking web pages @VBArenaNow The time is now. The place is Virginia Beach. 38
City/K-H brief 7-8-14 @VBArenaNow The time is now. The place is Virginia Beach. 39
VB Arena: Catalyst for Growth More: Premier events Jobs, jobs, jobs Opportunity for the Convention Center Heads in beds Business for local shops and restaurants Visibility for the City Opportunity to attract a pro sports franchise @VBArenaNow The time is now. The place is Virginia Beach. 40
Virginia Beach Arena Economic Impact $1 $4 $210M $52M Private Investment Public Investment 2,300 + New Jobs Salaries Materials/ Services $240M New Spending Construction Impact @VBArenaNow The time is now. The place is Virginia Beach. 41
Virginia Beach Arena Economic Impact 440 $15M 65,500 $75M $1.2B + 20-Year NPV New Jobs New Salaries Room Nights Net New Spending Annual Operations Impact @VBArenaNow The time is now. The place is Virginia Beach. 42