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November 18, 2008
Economic woes to put Bay Area stadiums on hold?
The San Jose Mercury News reports this morning that new stadiums for the San Francisco 49ers, Oakland Athletics, and San Jose Earthquakes could be delayed or scrapped (the word the Merc News uses is "undercut") thanks to the worldwide economic crisis (the Merc News, throwing caution to the wind on this one, says "free-fall").
The prospects look especially bad for the A's and Quakes, whose owner, real-estate magnate Lew Wolff, has proposed complicated development-rights-for-stadium swaps to avoid having to ask for direct taxpayer cash, which doesn't traditionally fly too well in Northern California. Unfortunately for Wolff, development rights aren't worth much in a climate where nobody's developing anything.
Wolff now says he'll tap naming rights, parking fees, and concessions to fund his proposed $400-million-plus Fremont stadium for the A's. (He said he plans to move ahead with the Quakes' planned $100 million stadium in San Jose as well, though the project could be scaled back to a cheaper model.)
It's almost inconceivable that Wolff could make enough from those sources to pay off his construction costs, though: The $4 million a year naming-rights fee the new A's stadium would collect from Cisco would cover at best maybe $60 million in stadium debt; this means the team would need at least $25 million a year in new parking and concession fees - above what it brings in at the Whatever-It's-Called-These-Days Coliseum - just to break even. It's possible that Wolff could take a loss on stadium costs for a few years in hopes that the real-estate market will pick up down the road and earn him a profit on his housing development plans, but that seems risky - and that's if Fremont officials even approve the plan.
The 49ers' stadium plans aren't beholden to the real-estate market, but they would require public money from the city of Santa Clara, which according to the Merc News is currently "re-examining its financial picture." Unless that picture turns out to be unexpectedly rosy, the stadium talks between the team and the city, scheduled to wrap up in February, could get ugly.
Wolff, meanwhile, remained resolutely upbeat, which seems to be the primary job description for a real-estate developer. "The best building I've done has been in times when I shouldn't be building," he told the Merc News. "We could easily put our plans on hold for two years, but that is the furthest thing from our minds." Except, of course, for thinking about it long enough to make a denial be the first thing out of his mouth. "The best building I've done has been in times when I shouldn't be building," Wolff said. "We could easily put our plans on hold for two years, but that is the furthest thing from our minds."
The voters of Santa Clara still get their say some time next year. At which point the Niners flirtation with the south bay will likely come to a screeching halt. And unless the Hunter's Point backup plan comes to fruition we should be seeing the Los Angeles 49ers playing in the City of Industry in the next few years.
As for the A's, their stadium does seem to have hit some speed bumps, but if Wolff can pay now and recoup later when the real estate market recovers that plan may still work. But it does involve a big gamble by the A's owners. But at least the A's aren't asking for public money like the Niners. I still can't fathom that the Niners have the gall to ask for 150 million dollars or so from Santa Clara (or that the city is still offering up 136 million dollars from the city power company to the team).
As for the Quakes, suspect with the their stadium only being a paltry 80-100 million dollars (paltry compared to the Niners 1 billion and the A's 500 million), Wolff could probably find alternative sources of funding to offset the housing market collapse short term or long term since they've not even sold the stadium's naming rights and the team will be controlling all revenues like parking, concessions, concerts, events, etc... at the stadium. Especially if they're scaling back the project which should further reduce the price for the stadium below the original 80 million. Of the 3 the soccer stadiums the Earthquakes seems the most likely to be built in this economy and is the only one actually being built in San Jose proper with private funds.
Kudos to the Quakes (maybe), but I'd be interested to see Neil take a wider look at the MLS. At least from my position, it seems like a LOT of these MLS stadium deals (San Jose, Philly, the DC proposal, even Boston, just to name a few) offer a "trade" of a "free stadium" to the public in exchange for development rights on an "unused" piece of property (often belonging to a city agency). Naturally this is always cast as a "win win" for soccer and the public, but the costs are never really accounted for properly. I wonder if there is a trend there.
Posted by GDub on November 19, 2008 08:43 AM
There's definitely a trend, and it's not limited to MLS: Both the A's and the Tampa Bay Rays have floated development-rights-swap deals lately, and I'm sure there are a couple of others I'm forgetting. Anything where the subsidy is hard to quantify in cash dollars is going to be popular when trying to get a deal past the legislature and the media.
MLS certainly seems to be at the forefront of this, though, you're right. I'll look into exploring it more once I have a couple of other big projects off my plate.
Posted by Neil on November 19, 2008 08:57 AM
What is happening in the Bay Area does not shock me in the least. It is not just the economy out there, it is an anti-development and anti-business attitude. What you will be seeing is the 49ers competing with the Chargers, Raiders, Vikings, and Rams, to see which one ends up in LA first?
There are so many teams whose fate is in question it is not funny. Besides the football teams, and the A's, you have the Islanders, Thrashers, Coyotes, Marlins, Rays, Sacramento Kings, and Bills, all in major trouble. This will be ugly.
Can't speak to the other MLS teams, but with the Quakes the costs have been heavily documented by the city and the press. The city purchased the piece of land they've now sold to the Earthquakes in the 1990's for a planned airport expansion from the FMC company for approximately 80 million dollars. The planned airport expansion never materialized on that side of the airport, and the city ended up having no use for the land. In the interim they were paying 7 million in tax service on the land annually. The same land had in the interim also become blighted due to no one up keeping it. The Quakes owners have agreed to purchase the land at what was it's market value before the bottom fell out of the real estate market for approximately 135 million dollars. The city earned itself approximately 50 million dollars on the land itself and has now saved itself from having to pay the 7 million in tax service on the land as well. Meanwhile Wolff's development is estimated by the city to be bringing in 1.3 billion dollars in capital and the accompanying hotel, commerical, retail and R&D taxes from the tenants to the city on a chunk of land that was until now a blighted piece of unused land. It's all in the city report.
Posted by Dan on November 19, 2008 12:58 PM
Dan,
Great news on the land. I guess that 50 million dollar "profit" is before accounting for the sizable tax payments already lost.
Was Wolff the highest bidder? That would seem to be the responsibility of the council to the taxpayer.
If there is any theme on this website, it is that the benefits of stadium development, as stated by city planners themselves, is nearly always grossly overstated. Boosters use highly skewed economic statistics that don't disaggregate new spending from redirected spending, and thus always overstate the "impact" of their wheeling-dealing.
My question is, how can a developer afford to pay higher than market value on a piece of land and still make crazy money? Would building happen if there weren't a stadium included? What other subsidies, etc are hidden in this deal?
Posted by Gdub on November 20, 2008 01:17 PM
Gdub,
Yeah the 50 million is before the tax payments are factored in, but that was unavoidable. The city held on to the land far longer then they originally had intended to. As it was explained at the city council the land had been available for several years after the airport removed it from their development plans, and was open to other offers between when Wolff indicated interest and signed into exclusive negotiations with San Jose. No offers were ever made on it beyond Wolff's group. So Wolff was the high bidder, and only bidder. The land before and after Wolff's interest had never generated any other interest.
The city staff seemed to do their due diligence on this fairly thoroughly and did get the fair market price for the land at the time (which considering the decline of the real estate market in Silicon Valley since they signed the deal was fortuitous for the city to say the least).
As for "hidden subsidies" there don't appear to be any on the stadium site itself. Wolff's group is paying for all the development on the site, including the stadium, retail, hotels, etc... including infrastructure on the site. And Wolff is signing a 55 year deal to upkeep and maintain the stadium regardless if the MLS survives or folds. As for infrastructure around the site the roads were already recently widened in this area, a new freeway interchange was recently put in at I-880/Coleman Ave and the public transit nearby in the form of Caltrain is already in place. Additionally BART may be coming to the SC Caltrain station as well, but again that was a separate project that has been in the works for years. And the site was already a heavy industry park as it's previous use so it was already hooked in to the water and power grids.
As for stadium/no stadium, Wolff would be building on the site regardless. The stadium only takes up 15-20% of the site if I'm not mistaken. As for making money on it, they intend to own the land long term, as well as the leases on the stores, R&D, etc... as well as being in primary control of the stadium revenues. I'm sure they'll make money that way. I don't know if it'll be "crazy money" but they don't seem to be in this particular deal to make crazy money. And the city will be making money off the hotels, retail, commercial, R&D, and the stadium itself via taxes.
Posted by Dan on November 20, 2008 02:20 PM