Five-day financing crash course. Day 3: Tropicana redevelopment

Day 3: Redevelopment of Tropicana Field
The third in a five-day examination of the finances surrounding a new stadium, this section addresses the potential redevelopment of Tropicana Field. For previous coverage, see here.

Background: The Tampa Bay Rays have not yet made the details of their financial proposal available, but the team has made one point clear: The tax benefits generated by the redevelopment of Tropicana Field will cover, or more than cover, the share the team is asking of St. Petersburg government.

Potential problem: What if the redevelopment does not meet developer’s projections?

Analysis: The city has just started negotiating with two developers on possible development agreements to redevelop Tropicana Field. Both developers, Archstone-Madison and Hines, have attached tax and revenue projections to their projects.

Archstone-Madison says its project will generate $11.2-million a year in new city revenues. Hines measures its economic impact in broader terms, but says new yearly tax revenues to the city, county and school district would top $24.5-million annually.

That’s on top of how much the developers are willing to pay for the 86-acre site (Archstone-Madison is offering $65-million; Hines is offering $50-million), but does not include potential environmental clean-up costs.

City officials says they will seek financial guarantees to ensure the amount of development proposed by Archstone-Madison and Hines actually happens within a certain time frame.

During the open RFP process, the city asked both Archstone-Madison and Hines what guarantees developers might provide. Here’s how they responded:

• Archstone-Madison –- “As part of a Development Agreement that the City and Developer will negotiate and execute as soon as possible after selection of Developer to develop the site, outside dates will be established for Developer to achieve in relation to plan approvals and start of construction. If developer does not achieve these Outside Dates, then the agreement terminates. In addition, there will be certain expenditure thresholds the Developer must guarantee as evidence of its commitment to the project. These include:
  
  Guaranty through Closing. Developer will incur and shall have paid in full not less than $3 million in Site and Developer Costs through Closing.
  
  Guaranty through to Construction Start. Developer will incur and shall have paid in full not less than $10 million in Site and Developer Costs to allow commencement of construction.
  
  Guaranty of Construction Commencement. Developer will guarantee construction by a certain Outside date or the City can terminate the agreement and receive all of Developer’s plans to date.
  
  Guaranty of Construction Commencement. Prior to commencement of construction of each phase, Developer shall execute a guaranty for the lien free Completion of all Improvements, in a form reasonably acceptable to the City.

• Hines -– “Each portion of this project will be established on a stand-alone basis, and Hines will approach the bidding and award of construction contracts in a manner to minimize the risk for Hines and the City. For each portion of the project undertaken by Hines, we will bid work to general contractors to achieve a Guaranteed Maximum Price contract for the construction of each program element defined under the master plan…Hines will require Payment and Performance Bonds from our general contractors, thus ensuring timely and budget certainty with respect to the construction costs.
  
  “With respect to the proposed acquisition structure of the Tropicana Field site from the City of St. Petersburg, Hines would negotiate with the City to establish a mutually agreeable take down schedule and criteria that includes provisions for mutually acceptable take down time frames after which control of the remaining land parcels not yet acquired by Hines would revert back to the City of St. Petersburg.”

In both cases, developers basically have articulated that if we don’t build, you get to keep the money we gave you and you get the land back. It’s unclear if either Hines or Archstone-Madison would be willing to go further.

Of note, the City Council has asked city officials to negotiate potential agreements that minimize further risk to the city. They inserted this clause into the negotiating document:

• Whereas, it is the intent of the City Council that the Final Disposition Agreement for the redevelopment of Tropicana Field ensures that the City incurs no financial risk in excess of guaranteed revenues generated by the Agreement; that the selected developer provide a financial guarantee to insure the development project will be completed within a defined time frame state in the Agreement; and, that the City does not become liable for unforeseen or underestimated costs.

The city hopes to have negotiated terms in place with both developers by June 5. The council would then be asked to pick a possible winner, contingent on the outcome of a November referendum (if one occurs).

For discussion: Who should be on the hook if the development doesn’t succeed? The developer? The Rays? The city?

Coming tomorrow: The public's share.

Comments

[John]

For simplicity, let's assume that the city is on the hook for $300 Million.
($450M-$150M = $300M). There are many ways to move the shells around, but let's be simple.

$300 Million financed over 30 years at 5% = about $12 Million per year just to cover the bond payments. All the other city expenses have to be paid in addition to that amount (infrastructure, insurance, traffic control, whatever you want to include).

Now it's pretty simple to see that the redevelopment must generate at least $12 Million a year for 30 years to pay the debt, starting year one. All those phased payments and phased development schedules seem to say that the developer probably is going to wait and see if he can find tenants/buyers to sign on the dotted line before they develop anything.

Of course all of the big developers form a shell company to be the legal entity entering into a contract with the city and if things don't go so well, that shell all of a sudden is bankrupt and guess who is holding a pretty big bag? You and me and nobody else in sight! That's a real risk.

We don't seem to have anyone standing in line to move their big store to St. Pete according to the SPT article last week. There's a glut of homes and condos on the market and record foreclosures forecasted this year, so would a smart developer build more?

Besides that, all the available tax revenues would go to paying off bonds, leaving nothing for the city to pay for services to the redevelopment area like police, fire and street lights and that kind of stuff. Whose pocket does that come out of? Right again - you and me, brother.

But we got 17,000 happy people sitting down on the waterfront watching baseball and I guess that's what makes it all worthwhile. One has to wonder how many of them actually live in St. Pete and share the load. Maybe Aaron could do a story on that.

[John]

"Who should be on the hook if the development doesn’t succeed? The developer? The Rays? The city?"

Sorry, I didn't answer the question. I don't care who is on the hook as long as the city is NOT on the hook for one single dollar. Because in the end, "the city" is ME.

Here's a novel idea: why not put those who use it and benefit from it on the hook: the Rays and the fans. The city ponies up whatever taxes they get and whatever is left is paid by the Rays and they jack up the ticket prices accordingly to reimburse themselves. That way you get what you pay for (or if you don't pay, you don't get).

Of course that's the only fair way to do it - why should taxpayers pay for it? Why should a developer pay for it if he doesn't develop anything? We aren't exactly in a booming economy!

[Thomas]

I find it disturbing that the Rays have not yet made the details of their financial proposal available.
In absence of a detailed financial plan, I'm left wondering how redeveloping the Trop would even cover the costs of building a new $450M stadium for the team.

*Note: This is not an endorsement of actually letting the Rays redevelop two public parcels and keep the proceeds, rather, it's an inquiry in to how it's even mathematically possible. I encourage any comments/corrections to the below. For simplicity, I did not try to factor in bond financing charges or property tax exemptions.

PUBLIC COST:
$450M for new stadium
- $150M from Rays
+ approx $69M in unretired debt on Trop
= $369M Total Public Cost

REDEVELOPMENT PROFITS:
Taking the higher of the values from the RFPs and assuming the city gives every single dollar generated to the Rays. (Again, this is definitely not an endorsement of actually doing that.)

$369M Total
- $65M from sale of the site
= $304M Balance Due

$304M / divided by $24.5M per year = 12 Years

So the city hands over all the proceeds from redeveloping the Trop and it still takes about 12 years to pay for the new stadium.
Plus the Rays get the Al Lang property owned by the city completely free of charge.

BUT:
How exactly is Hines measuring new yearly tax revenues of $24.5M???

Based on the published assessment of $121M for the property at the Trop site, the property tax bill would be what? Roughly $2.9M per year?

Where does the other $21.6M per year come from? Sales taxes generated by retail at the new development? They're going to do about $360,000,000 in sales each year?

I'm not even being facetious. I seriously don't understand how they're going to get to $24.5M in new city revenues each year.

Who is going to fill in what looks to be an enormous price gap?

Any input - particularly from the Rays - would be welcome at this point.

[Kyle]

I have decided to start stretching. This way when you bend over and grab your ankles, you are less likely to pull anything.

[Jon McPhee]

Man, I am sure not comforted by the grotesquely conditional and hypothetical nature of the guarantys being offered by the developers and so forcefully demanded by the City. John, you sound like someone with a little experience in following such deals. Hope you will stay tuned and offer some clarity to the discussion. Seems like the level of interest in Mr. Sharockman's site is down a little, so it might pay to forward these kinds of observations to the Mayor and City Council through the City's web site, or the link on POWW's page.

Again, what is the attraction in mortgaging City and County funds, that are already being stretched and cut, to buy another stadium and a bunch of likely DOA "redevelopment" of the current fully functional stadium? When my friend the appraiser says these kinds of high-end housing and retail developments, even ones that are mostly built, are folding everywhere in this state? And maybe just because our current mayor has a serious problem with an "edifice complex?"

The Pontiac slogan used to be "We Build Excitement!" Last I checked, "excitement" is not something we can eat, let alone drive, and it will not pave potholes, replace sewers, pay teachers and public safety employees, or service a Sailboat-load of new public debt.

We tell our kids that they should "Just Say No" to illicit drugs and premarital sex. Hope the pushers who are hoping to hook us all on the "high" of "revitalization" get kicked off the street or at least moved to another neighborhood.

[Don Mott]

John and Thomas did a pretty good job of breaking down the "very speculative" numbers that the developers have submitted. There are other numbers to consider as well. Impact on infrastructure is one. I see no mention of imact fees to cover extra sewage, storm water run off, traffic, or police and fire protection just to name a few. Normally impact fees and the increase in taxes pay for these services but since the taxes are going to the new stadium who is going to pay the costs associated with the influx of all of these new businesses and residents, if they even materialize? Hopefully the city is working on this, but it should definitely not be overlooked.

[Jon McPhee]

Just another dumb question or two: what happens if the developers' shell corporation goes belly up and disappears into Chapter 11, after the Trop has been demolished but before any of the promised and "guarantied" build-out performance has started or gotten very far? Any precedent for anything like that happening here or elsewhere? Who funds the bailout?

[Jay]

It's the legal language that catches my eye. If a developer fails to meet certain time lines, they forfeit the contract, the money, and the property which then reverts back to the city.

How much is that undeveloped land worth, at that point? Generating a revenue stream is fine in theory, but there's no guarantees that the property WILL be developed, or how long that business will stay viable if at all. The entire plan hinges on a fully sold land parcel, generating taxable income. And if the city cannot lure those buyers? Will they subsidize the construction costs?

Has there been an analysis of the developed land's power usage? Sewage? Fire / Police? How long is the lease?

That's an awful lot of speculation.

[Thor]

Thor is posting early tonight on this cute little blog. Thor has noticed when confronted with facts, poop is not around. Thor has noticed that the number of postings to this quaint little site have reduced. Thor wonders why. It looks like facts in the face of people make them think, make them reconsider. Thor finds it interesting. Puffy daddy, are you trying to figure out the next poop story, I'm hearing kath stomping in Thor's part of St Pete, hey Justin, hanging out on the Trox blog thinking about wal mart, go color something boy. Looks like facts hurt poop. The truth doesn't change, there is only one truth, Thor's story has not changed an neither have the facts about the new stadium. Thor has spoken, Thor is brave, Thor is wise, Thor is playing tennis in her new skirt right now.

[Kyle]

Anyone need a bridge?

[Paul]

Thor is likely upset at finding our her cheffy friend is fake. Guess thor likes the stadium deal because it too is fake. St Pete doesn't need fake people, that's why we're such a nice place.

No stadium, not on City time or money. How simple can that be? End this plan now.