Virginia Beach City Council Approves Arena Term Sheet

Final Vote on Development Agreement Could Come in Early 2015

Tuesday, December 09, 2014

The Virginia Beach City Council tonight unanimously approved a non-binding agreement for an entertainment and sports arena at the Oceanfront.  

The term sheet approved tonight lays out the responsibilities of each party: the city and the developer, a consortium of several national and local firms called United States Management (USM). The group is led by The ESG Companies, a development firm based in Virginia Beach.

 

The $200 million arena would be built entirely with private money. The city would provide infrastructure – parking, a public plaza, water, sewer and lighting – outside the arena. The private company would finance, design, build, own, operate and maintain the arena, and would pay for city services when events are held at the arena.

 

Tonight’s vote is not the final step in the process. City staff and the developer will now work out a detailed development agreement, based on the term sheet approved tonight. The City Council could vote on that final agreement in the first quarter of 2015. If approved, the groundbreaking could be in fall 2015 and the arena could open in fall 2017.

 

Virginia Beach has been exploring the possibility of an Oceanfront arena for the past three years. In May, the City Council authorized city staff to start discussions with a private development group on a proposal to build a privately owned arena with up to 18,000 seats on 19th Street, across from the Virginia Beach Convention Center.

 

Virginia Beach and Hampton Roads are underserved in the sports and entertainment markets because they lack a venue that can accommodate today’s large events. In all of Virginia, there is no large, modern arena outside of the University of Virginia in Charlottesville. Norfolk, Hampton and Richmond have three older, smaller arenas:

 

·         Norfolk Scope (opened 1971 – capacity 10,200)

·         Hampton Coliseum (opened 1970 – capacity 12,000)

·         Richmond Coliseum (opened 1971 – capacity 12,000)

 

Norfolk also has a newer, smaller arena – the Ted Constant Center at Old Dominion University (opened 2002 – capacity 9,200).

 

None of these venues can support the kind of mega-concerts and large sporting events and conferences that come to other cities and regions our size.

 

Here is a summary of the term sheet approved tonight:

 

Financing:

·         100 percent private financing for the arena building by USM

·         Cost – approximately $200 million -- $40 million private equity, $170 million of private debt (includes $10 million for working capital)

·         The city is not responsible for any debt for the arena building

 

USM’s Responsibility:

·         Finance, design, build, maintain, own and operate the arena

·         Will pay costs of event day services, including police, emergency medical services and security

·         Will pay for all utilities and fees (including water, electric and trash collection) and property insurance

 

City’s Responsibility:

$52.6 million for infrastructure outside the arena:

·         Additional parking spaces to create at least 2,700 city-owned parking spaces within 2,500 feet (roughly a half-mile) of the arena

·         A public plaza next to the arena

·         Stormwater, sewer, lighting and water utilities

 

This will be financed by Public Facility Revenue Bonds, to be repaid from the city’s Tourism Investment Program (TIP) Fund, which includes taxes on discretionary spending such as cigarettes, amusement, participatory sports, hotel stays and meals.

·         This may be offset by an additional $1 per night hotel tax

·         No real estate taxes and no money from the city’s General Fund will be used to support the arena. The General Fund supports existing city services such as schools, public safety, roads, parks and libraries.

 

Taxes:

To help pay the arena’s debt service, the city will make incentive payments to USM equal to:

·         All taxes generated by the arena (admissions, sales, etc.) – Estimated at $3.6 million a year initially

·         1 percentage point of the city’s 8 percent hotel tax – Estimated at $3.4 million a year

·         Real estate and personal property taxes returned – Estimated at $1.5 million a year

·         State sales and use taxes – Estimated at $143,000 a year

·         There is no guarantee of a specific amount. The city is not responsible for any shortfall in USM’s debt payments.

 

All taxes generated OUTSIDE the arena (except for the 1% hotel tax) will be kept by the city.

 

Rent:

USM will pay the city $1 a year for 40 years to lease five acres. At the end of 40 years, the city will own the arena.

 

Default:

In the event USM defaults on its loan, the city is not responsible. The city could, at its discretion, cure the default and take over financing, or let the lender foreclose and take title to the arena.

 

To read the entire term sheet and to see many other documents concerning the project, visit www.VBgov.com/arena.

 

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