Category: Virginia Beach arena

What’s worse than offering to build a $426 million arena to lure an NBA team, then giving up on it when it became clear no NBA team was going to move to your city, then approving spending $206 million in public money on a $220 million arena instead, then giving up on that project when the developer couldn’t find anyone to loan it the money even though the city would be repaying it? I guess “proposing yet another harebrained arena plan” would be worse, but getting sued by the developer who failed to get a financing deal together because it says its “reputation” was damaged is right up there, and that’s what Virginia Beach is facing now:

In the lawsuit, Mid-Atlantic argued that it delivered the loan documents on time and that the contract did not require the developer to have the $70 million in the bank. It also said that it had deposited “tens of millions in equity” into an escrow account.

“The city pulled the rug out from under the developer, causing a substantial waste of time, money, goodwill and other resources,” according to the suit…

“We needed every hour, but the city and its lawyers, to our astonishment, decided at noon that day, ‘without legal authority or justification,’ as it states in our suit, to ‘not perform its obligations to convey the project land to the Virginia Beach Development Authority, nor execute and deliver the last few documents required of the City by the Development Agreement.’”

Mid-Atlantic Arena LLC further noted that now that there won’t be an arena, both investors and people who put down deposits on premium seats want their money back, which, duh.

The point of contention here looks to be whether the developers got in under the gun with financing plans and the city council said, “Sorry, we don’t care, hit the road,” as Mid-Atlantic contends, or the developers showed up at 11:59 pm waving a piece of paper and saying, “All good!” and the city council said, “Yeah, no, we don’t believe you, hit the road,” as the city contends. Either way, it’s likely to be a mess of a lawsuit, and a worst-case scenario ending to the Virginia Beach arena saga — unless it’s somehow resolved by the city reviving the arena plan, in which case that would clearly be the worst-case scenario for Virginia Beach taxpayers.

That eternally in-the-works-but-never-actually-under-construction Virginia Beach arena, which was once upon a time intended to lure an NBA team (I think the Sacramento Kings) but now only lives in the “NBA” section of this site through my own inertia, unbelievably still doesn’t have its private financing lined up, despite having $206 million in public subsidies approved for building that’s only supposed to cost $220 million. And if the arena developers can’t figure it out by midnight tonight, the arena deal will be off:

To close on a $150 million dollar loan with JP Morgan Chase, Mid-Atlantic Arena needs to move $70 million in equity into an escrow account. The money has to be wired and the loan must close by midnight Tuesday. That’s a 60 day extension from a previous August deadline. There are no more extensions allowed per the developer’s agreement with the city.

“I’m not going to have the attitude that they’re not going to make it,” [Mayor Will] Sessoms said.

Positive thinking! That’ll totally work!

Seriously, it’s truly incredible that even given several years to figure this out, Mid-Atlantic Arena (the new name for original developers United States Management, because wearing a fake nose and glasses is always a good way to trick banks into lending to you) still can’t figure out how to secure a loan for a building where taxpayer subsidies will pay off 93.6% of the costs. It’s almost like building a new arena for the nation’s 42nd biggest media market with no promise of a pro sports team as an anchor tenant so it’ll have to depend entirely on concerts to bring in revenue is such a terrible investment that it’s not even worth it if you get it basically for free, and surely that can’t be it, right?

Looks like Virginia Beach will be getting its new taxpayer-subsidized arena after all, as the city council met in closed session on Tuesday, as it likes to do, to approve a new version of the financing plan that it had all but killed last fall:

The council met with City Attorney Mark Stiles in closed session Tuesday night, and he told members that the financing is in line with the deal that was approved in December 2015, according to a Facebook post from John Moss. The council agreed with Stiles’ assessment, which means it would not require a new vote.

“See you at the ground breaking this fall,” Moss wrote.

The arena funding plan is hideously complicated, you may recall, with kickbacks of property taxes, business license taxes, admissions taxes, arena meals taxes, construction sales taxes, the city’s share of arena sales taxes, plus the top 1% off of the city’s 8% hotel tax, plus cash for infrastructure and land costs. It all adds up to about $206 million worth of subsidies for a $220 million arena, which, um, yeah. The main concession the city seems to have negotiated since October is that JP Morgan will now be the lender on the stadium construction costs instead of a Chinese bank, which also, um, yeah. But let’s all applaud Virginia Beach city officials for saying no to developers, everybody!

Virginia Beach will now spend the next 30 years debating whether to pay to renovate their new arena to lure an NBA or NHL team, because nobody’s going to want to play in a building opened way back in 2017, sheesh, get real.

The Virginia Beach city council cast its vote yesterday on the revised financing plan proposed by its would-be arena developer, and the result was a resounding “most of us want it, but not enough to make for a supermajority, so it’s dead“:

The project needed the approval of at least nine of the 11 council members because it involves leasing 5.8 acres of city-owned land near the convention center to the developer for 60 years.

Eight members voted for the deal. Louis Jones, John Moss and Barbara Henley opposed it.

Henley said her no vote came down to losing control of the land for 60 years. Moss and Jones declined to comment.

While the council approved the original plan 10-1 last December, the developer’s decision to switch up its financing — putting in less cash, and relying more heavily on unrated bonds — apparently was enough to give two more councilmembers pause. We might be able to tell why from looking at what they said during the council debate, but much of that took place in secret, so everyone feel free to speculate wildly.

What we do know is that it would only take one councilmember switching sides to get this deal approved, so expect lots of horse-trading to be conducted in coming weeks to see what people’s price is. Mayor Will Sessoms has already declared that he plans to talk to Jones, Moss, and Henley to “see what it will take to get them on board”; maybe something shiny for their districts? You like shiny, don’t you?

So after the Virginia Beach city council held its closed session about the city’s $200 million arena subsidy plans yesterday, the members of the council emerged into the light to hold an “informal” session that the public could attend. (Virginia Beach has some deeply, deeply weird ideas about democracy.) And it turns out that some news was revealed, namely that the developer hoping to build the project now wants to cut its cash investment and take on more debt via unrated bonds:

United States Management is interested in taking on as much as $240 million in debt to make sure the company can cover its construction loans, City Manager Dave Hansen said. The developer also reduced its equity contribution from $40 million to $20 million…

In July, the council set a number of requirements, and one of them included obtaining an investment grade bond from a rating agency. That rating hasn’t arrived yet, and United States Management President Andrea Kilmer said she can’t wait any longer if they want to break ground by the end of the year. The new proposal would require the arena to open by the end of 2019, but United States Management has a goal of 2018.

Hansen has said a positive bond rating is essential because it will determine the interest rates on the debt that the city will be reimbursing. The council had a difficult discussion during Tuesday’s closed session about proceeding with unrated bonds, he said.

So do the members of the council intend to still vote for the deal, regardless of its dependence on unrated bonds? No clue: Barbara Henley, who voted against the original deal last year, says she plans to vote against this one, too, but other councilmembers declined to comment publicly, and we can’t even glean anything from what they said in their official meeting, because that’s secret. Hopefully they’ll at least reveal the results of the vote, but at this point I wouldn’t rule anything out.

Something appears to be wrong with Virginia Beach’s arena financing plans — I mean, something aside from all the hidden public costs it will come with. The Virginian-Pilot has a very odd report out today that — you know, let’s just dig in and try to figure it out as we go along:

A new report says the city should move full steam ahead with building a sports and entertainment arena near the Oceanfront.

But the public won’t get a detailed explanation for how Johnson Consulting arrived at that conclusion because many of the financial predictions upon which it’s based have been redacted from the report.

Wait, redacted? Redacting financial predictions from a financial prediction report would seem to be very odd behavior, even in the rarefied world of economic impact consulting, where facts that don’t conform to the desired result must be disposed of. Tell us more, Virginian-Pilot!

“The Hampton Roads region has been starved for a venue of this size and quality for quite some time,” the report said.

“Virginia Beach does extremely well as a tourism destination, but adding an arena to the existing tourism infrastructure could allow for even greater economic benefits for the City.”

Okay, right, report is happy about the prospects of a new arena! But just reprinting its conclusions without noting its methodology — which you already said is murky — isn’t getting us anywhere. What else you got?

United States Management has outlined its finances and projected sales numbers to the city, but has said that an exemption in the Virginia Freedom of Information Act allows it to keep proprietary information confidential.

“Proprietary information”? What would that be? Also, since when do economic impact statements need to be acquired by filing a Freedom of Information Act request — if the city council is discussing it, isn’t it public record by definition?

The City Council will meet in closed session tonight to discuss the project’s finances.

Oh. Well, then.

After meeting in secret, the council is expected to vote on October 4 on whether to throw about $200 million in subsidies — $76.5 million in land and infrastructure spending, plus another $8.5 million a year in tax kickbacks — at an arena that will only cost $200 million to build. The council approved this once last year already, but since then the financing details changed slightly (who’s lending the money, not who’s paying it off), so they have to vote again. Not where anyone can see them, though. That would be gauche.

The Virginia Beach city council has okayed the new bank that will provide the loan for the city’s $200 million arena, and that’s not really very interesting to anyone except maybe financial industry geeks. What I’m more curious about is: This time, did the Virginia Beach media manage to correctly describe the financial setup, where the developers will borrow the money and then the city will repay it with tax revenue? Virginian-Pilot, whatcha got?

Under the framework of the new preliminary deal, B.C. Ziegler would finance $200 million, or the guaranteed maximum cost to design and build the arena – whichever is less.

The complex would be privately financed, with the city covering the cost of the land and $76.5 million in infrastructure upgrades through a tax on arena event tickets and hotel stays.

Close! The $76.5 million in infrastructure and land spending is correct, but the city will also kick back $8.5 million a year in property taxes, business license taxes, admissions taxes, arena meals taxes, construction sales taxes, arena sales taxes, and hotel taxes, which will pay off most of that $200 million in bonds.

How about WAVY-TV?

When the project was first approved, it looked as if a bank in China would help finance it. Now, a Chicago financial institution, B.C. Ziegler and Company, will be financing the $200 million in bonds to build the arena.
U.S. Management will put up another $10 million for the project.

Complete fail! Though at least WAVY says “finance” the arena instead of “fund” it, if any readers/viewers are savvy enough to catch that distinction.

One day, a Virginia Beach news outlet will actually explain who’s paying for the city’s new arena — here’s a link to the city council’s own summary of the funding plan, so any future journalists can have an easy citation. (Hint: It’s under “Consideration.”) Let’s hope someone manages it before it’s time to tear down this arena because it’s obsolete.

I wasn’t going to post anything about the latest Virginia Beach arena news, which involves the developers taking out their construction loan from a U.S. bank instead of a Chinese bank, but then I saw this headline:

VA Beach Arena to be funded by U.S. bank

Yeah, just no. The arena isn’t going to be funded by the bank; it’s going to be financed by the bank. The actual funds going to pay off the arena loans will come from a mega-TIF tax kickback of all property taxes, business license taxes, admissions taxes, arena meals taxes, construction sales taxes, the city’s share of arena sales taxes, and the top 1% off of the city’s 8% hotel tax, which will leave city taxpayers providing about $206 million toward an arena that will only cost $200 million to build. Sorry to be pedantic about the word choice, but it’s kind of a big omission when your headline gets entirely wrong who’s paying for your city’s new arena, you know?