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OVG’s KeyArena proposal has more public funding than meets the eye

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The funding might not be upfront, but it’s there

"I don't think there's such a thing as a perfect proposal, by any stretch," Brian Surratt told Seattle city councilmembers. That could perfectly sum up the KeyArena renovation proposal by the Oak View Group made available to the public on Monday.

Surratt, director of the city's Office of Economic Development and lead on the KeyArena RFP process, made the comment during the April 17th meeting of the council's Select Committee on Civic Arenas. It was the first opportunity for councilmembers to get acquainted with OVG's proposal and a competing bid from Seattle Partners, the joint venture between AEG and Hudson Pacific Properties. The comment was in response to a question from council president Bruce Harrell if the city had the ability to request an amalgam of aspects from both proposals they like in a final agreement when a bid is chosen.

Further negotiation might be necessary (and likely).

What stands out about OVG's 108-page proposal, in comparison to a mammoth document supplied by Seattle Partners, is that it's lean and focused. A more modest recommendation section features mayors of Inglewood, CA, Toronto, and Kansas City (former and present), as well as the director of Toronto's Exhibition Place, a mixed-use district in the Canadian city that's home to some of the country's largest entertainment venues. Some of the partners working on OVG's proposal (and project) offer support, including hospitality provider Delaware North. Local endorsement comes from the Pacific Science Center, Ivar's, Friends of Waterfront Seattle, and the Seattle Monorail Services company, as well as the YouthCare organization working to help homeless youth.

Two of the standout recommendation letters hold national and local implication. One from State Architectural Historian Michael Houser finds that the KeyArena building and roof are eligible to be placed on the National Register of Historic Places. Part of OVG's pitch on retaining the exterior look and feel of the former Washington State Pavilion and Seattle Center Coliseum is securing not only local landmark status but national historic recognition.

In July 2016, brothers Ted and Chris Ackerley, sons of former longtime Seattle SuperSonics owner Barry Ackerley, made waves by writing a letter to the city in support of the Sonics return and offering to help in some fashion, which was unclear at the time. Their letter endorsing OVG's plan answers that question.

The other seemingly clear difference between the two KeyArena proposals is that OVG's is privately funded. SP requests to partner with the city with a $250 million public financing contribution. But is OVG’s proposal fully private?

Financial proposal

For entitlement, design, construction, and operation of the new arena, OVG offers a mix of equity and private financing to cover the full cost. The project is estimated at $564 million, though the financial information section of the proposal was redacted from public consumption. The breakdown of the project number has been identified in a few different publications, though the numbers of the split between equity and financing seem to flip flop.

Quoting Venues Today, the arena & stadium industry magazine owned by Oak View Group, would appear to be the most reliable source. OVG is expected to contribute $150 million in equity (or "cash"), backed by the Madison Square Garden Company. The group will also be borrowing at least $350 million and up to $400 million in financing from Goldman Sachs. OVG is partnering with concert promoting giant Live Nation Entertainment, who will contribute an unknown amount to the project.

The proposed lease term is 35 years with five (5) optional 10-year extensions that OVG would have the sole right to enact as long as they are solvent. Rent payment would be $1 million per year for each year of the lease. They also offer performance-based additional rent of $1 million for a year if the arena exceeds a defined revenue threshold in the previous operating year.

A capital reserve fund for maintenance and capital improvements to the building would be created and maintained. Upon completion of the arena, they will contribute $1 million to the fund, and will add $1 million each year on the anniversary of the date the arena is completed up to a total balance of $5 million. The fund would never have less than $1 million and never more than $5 million.

OVG seeks to negotiate a deal with the city to repurpose some of the tax revenue collected each year on admissions, retail sales, parking, and the leasehold excise taxes they would pay in lieu of property taxes for use of a private building on public lands. The plan calls for these revenues to provide credit towards the base rent they would pay the city each year. Any excess would be used to create a "City Arena Fund" that would help to offset OVG's costs for maintenance on the arena.

Though OVG will handle all construction costs and overruns, the city would be responsible for the effort and cost to remove any hazardous waste or materials found on the defined redevelopment site during construction.

Parking garages

The group proposes building an 850-space parking garage on the south end of the arena site, butting against Thomas Street. This would be a separate project and additional cost above and beyond the $564 million arena cost. The project would be contingent upon securing a financial contribution from a public entity other than the city. Geoff Baker with The Seattle Times reports that the Port of Seattle would likely be the contributor, though no specific money value is mentioned.

In addition, OVG also seeks to have the right to take over management and operation of the three (3) existing parking garages at Seattle Center, as well as negotiate a sharing agreement with the city for the revenues generated by these other parking garages.

Naming rights and sponsorships

Like Seattle Partners' proposal, OVG would like exclusive rights to naming rights for the arena and any direct or indirect revenues generated by selling those rights. They would also seek control over sponsorships at the arena or any building in the redevelopment zone. While they would leave general control of sponsorships at Seattle Center to the city, they look to consolidate and manage selling sponsorships for the Space Needle, the Seattle Monorail, the Museum of Pop Culture (MoPOP; formerly EMP), and the Chihuly Glass Studio.

Concessions

Unlike other entities at Seattle Center, OVG would look to manage concessions for food, beverage, and merchandise on their own, completely independent of the Center. All revenues, of course, would stay with the group. As mentioned earlier, Delaware North has signed on to be their concessionaire.

Two-venue solution?

SP's proposal is noted for stating, in no uncertain terms, that they want "exclusive" rights to the arena market in Seattle for 30 years. This would prevent another arena project (with 10,000 to 25,000 seats) from being built in the city and possibly competing with their proposed arena. OVG does not have such a request in their proposal.

Arena designs and plans

The proposal includes a fair amount of specifics on OVG's intended arena design, including new images to whet your appetite. As stated previously, OVG will be digging down 15 feet (roughly 1.5 stories) below the current floor to expand the footprint and increase the size of the arena to 660,000 sq. ft. They will close the existing subterranean east and west entrances to KeyArena and build an atrium with entrances at the southern end of the arena.

With the deeper bowl, the NBA configuration is planned to have 9,900 seats in the lower bowl alone with 18,350 total seats. The NHL (and arena football) configuration will have 8,650 seats in the lower bowl with 17,100 total seats. For end stage concerts, they plan on 16,940 seats, and 19, 125 seats for a center stage concert. There are 16 event level suites, 40 sideline suites, and 18 twelve-seat opera boxes on the shoot-twice end of the hockey ice. A cutaway image shows bunker suites below the bowl stands but the proposal doesn't specifically mention them.

The traffic question

There is not a lot offered in the proposal in the way of mitigating traffic and parking issues and challenges. The bulk of their coverage of transportation centers on identifying what already exists, what's anticipated by 2035 or 2040, and explaining how what's already there can be leveraged better. Details on that leverage are scarce.

Currently, KeyArena hosts about 20 events with attendance higher than 10,000 per year. OVG anticipates that this number will increase to at least 100 events per year. (82 dates would be for both basketball and hockey with an average of 18,000 per date.) They do not anticipate a growing demand for parking for each event rather than growing frequency of days parking would be used. They expect to see parking demand drop by 2035 as alternative transit methods grow, including the addition of light rail to Seattle Center.

Available parking in the Uptown neighborhood would be increased to 8,150 spaces with the inclusion of the new 850-space parking garage. OVG plans to leverage other off-street parking in a 3/4-mile radius of Seattle Center, totaling 11,350 spaces within 15 minutes walking distance. They also point to 2,400 spaces near Westlake Center, where attendees can catch the monorail, walk, or use a rideshare service or shuttle to get to Seattle Center. 6,100 spaces is the identified amount of parking required for 18,000-person crowd.

They look to road and travel time improvements with the additions of Harrison, Thomas, and John Streets once the Highway 99 tunnel opens. The new connection between Alaskan Way and Elliott Avenue along the waterfront is also identified to help. They believe existing roadway capacity has not been reached and will handily support additional traffic traveling to the arena.

OVG is considering using shuttles from parking in South Lake Union to bring to and from the arena. They also plan to bring real-time traffic information to patrons through technology and marketing to disburse traffic routing on a number of streets rather than congesting Mercer, Denny, Aurora, and Elliott/15th Avenue. A parking app concept, currently employed in the Rose Quarter in Portland to aid with Moda Center and Veterans' Memorial Coliseum traffic, is proposed to allow attendees to pre-purchase their parking.

Incorporating the monorail and building a new monorail platform at Westlake Center to more easily move people from parking and the light rail stop to the monorail are primary suggestions. They propose possbily incorporating the ORCA Card system into the monorail functions to allow seamless transition between different modes of transportation. They also want to work with King County Metro to offer premium bus service. Purchasing transit fares in blocks to discount to attendees or include in season ticket packages is another idea floated.

Like Seattle Partners, OVG plans to encourage use of pedestrian and bike trails throughout the neighborhood, as well as the planned Lake2Bay concept. There are no mentions of how they would contribute to these efforts.

Timeline

OVG expects their selection, due diligence period, and negotiated Development and Operation & Lease Agreements to be completed by July 10. They expect their entitlement period, which would include SEPA review, the Landmarks process, the design process, and issuance of their master use permit, to last from July 10, 2017 to November 23, 2018.

Schematic designs are expected to be completed and approved by September 22, 2017. Design development is planned to be completed and approved by April 24, 2018. Final construction documents have a goal date of December 21, 2018.

Any demolition is planned to finish by the end of 2018. Construction is expected to start on January 3, 2019 with the new arena opening on October 1, 2020.

Teams

The proposal mentions both the Sonics and the Seattle Metropolitans, the first American hockey club to win the Stanley Cup a century ago in 1917.

If ever one were to doubt the ties OVG has with both the NBA and the NHL, they need only look to the executive staff. CEO and co-founder Tim Leiweke spent years as an exec with four different NBA teams, as well as president of the NHL’s Toronto Maple Leafs through Maple Leafs Sports & Entertainment, the corporation owning and running the Leafs and the Toronto Raptors.

OVG’s co-chairman of their Arena Alliance subsidiary, Peter Luuko, has been executive chairman of the NHL’s Florida Panthers since 2015. For over 25 years, he was president and COO of Comcast-Spectacor, owners of the Philadelphia 76ers and Philadelphia Flyers.

OVG’s financial backer, MSG, owns the New York Knicks and the New York Rangers.

Extraordinary contribution

To integrate itself within the community, over 20 years OVG pledges to contribute over $20 million to aid nonprofit ventures, causes, and enterprises that share and demonstrate OVG's core values and beliefs. To that end, they have already committed $10 million to the YouthCare organization to combat teen homelessness.

Conclusions

Of the two KeyArena renovation proposals, Oak View Group's initially seems the more impressive. The community financial commitment is not only welcome and admirable, but it's a great incentive in Seattle's political environment.

The inclusion of designs and plans in the proposal helps to identify to the public exactly what we would be getting. It encourages excitement and discussion of possibility, and it provides a tangible reality that helps to sell OVG's vision.

At first blush, the project's private funding makes a big statement. Not asking the city to contribute to the construction of the facility separates it from SP's proposal. The prospect also presented a challenge to the SoDo arena project proposal that resulted in them offering to go private as well. When talking about reduced or no risk to the city, it's a winning strategy.

When you dig further, though, there appears to be more of a financial contribution from the city's end than we were led to believe. The public contribution won't be upfront, but the mix of tax revenues to help offset their comparatively lower annual rent payments, as well as sharing parking revenues and laying claim to sponsorship money for the biggest attractions at the Center, makes for a significant chunk of change. It's the kind of creative math that makes citizens leery of these kinds of deals.

This in addition to potentially turning over a substantial piece of public land for up to 85 years.

It was a point of pride and exception for OVG to note that their proposal included additional parking while SP’s did not. Yet, it turns out that the parking garage is not a “gimme.” Conditioning it on the participation of a public entity is a curious approach. More than likely the Port will offer funds and the condition will be a moot point. It shouldn't be lost on citizens, though, that the Port's funding is from the public. In essence, we would still be contributing to this garage; it's just shifting the signature on the check.

While Tim Leiweke and Lance Lopes have done a fairly strong job of presenting and selling the public on OVG's proposal, one thing that has been lacking has been anything of true substance regarding traffic and parking solutions, aside from betting the house on the monorail. I'm shocked, though not necessarily surprised, to find that there are still just vague concepts presented in the proposal. We don't need definitive answers right now, but a wireframe of specific actions being considered is better than a Wikipedia entry on Seattle traffic. Saying things already exist and not offering guidance on how you are going to take advantage of them is not going to get it done.

None of this is dealbreaking, and the process of negotiating hasn't even started. The proposal, though, seems less promising than it did two weeks ago.

Article updated to include link to OED’s KeyArena RFP page, featuring links to download the full proposals, not included when originally published.