Urban Razzle--Dazzle And a Stadium Runs Through It

[ By Ellen Rand ]

The North Shore project in Pittsburgh includes corporate build-to-suits for Del Monte Foods and Equitable Resources.

More than 40 years ago, sports stadiums were, in Continental Real Estate Companies’ chairman Frank Kass’s words, like flying saucers: open on the inside but closed to the outside. Their useful life was limited to 10 to 12 days a year. They were promoted to the taxpayers as revenue generators and economic development catalysts, although their success in those departments typically fell short of expectations. But now a new generation of dazzling urban mixed-use development is emerging – and sports stadiums run through them. The trend is not just a phenomenon of big cities with big sports teams; smaller markets are making a big splash, too.

The price tags can range from several hundred million to as much as a billion dollars – with political and community support typically rising in direct proportion to the percentage funded by private sources. In many cases, public/private partnerships spearheading these developments are the very model of efficient, cooperative and cordial efforts. Access to mass transit, or venues within walking distance of nearby convention and hotel facilities, are an added attraction for some.

These new-generation developments also feature many entertainment amenities and technology, special events, interactive features, ample shopping and dining choices and pedestrian-friendly environments – all designed to create a compelling experience for fans, families and other consumers beyond the football and/or baseball season.

Advancing the Town Center Concept

The Arena District, a 75-acre mixed-use site in downtown Columbus, has turned into the catalyst for $700 million worth of development in the area.

The town center or lifestyle center concept is key to several of the new sports-oriented developments. For example, Steiner + Associates, is developing Glorypark in Texas with Hicks Holdings. The first phase is expected to open in fall 2009 and the second in 2010. The $600 million town center complex is located on a 75-acre site located between new baseball and football stadiums in Arlington, Texas. “It’s a good site for a town center; it just happens to have two stadiums next to it,” said Barry Rosenberg, president. The development will include 800,000 square feet of retail, 200,000 square feet of office space and 300 residential units. Partner Gatehouse Capital is developing three hotels. Other phases will include a flagship store and show-stopping media elements, including a theater, where the high-energy atmosphere will lend itself to special events and high-profile sponsorships. Think: Times Square.

According to Rosenberg, technology will allow lights to be projected onto buildings, showing effects such as snowflakes falling from the building, Santa arriving, or the 4th of July fireworks. Another phase of the development will comprise an enclosed street, like an old warehouse district, for retail and office. “It will feel like a true street, with a roof on it,” he said. Remarking on the appeal of the sports-oriented location, Rosenberg added, “Everyone knows where the stadiums are. It’s a strong identity and it gives us the ability to talk to a Puma or a Nike about flagship stores. Sponsorships in other projects might be $400,000 to $500,000. Here we’re talking about millions of dollars. The baseball stadium is 12 years old; the area around it is just now being developed. By itself, a stadium is not going to be a revenue generator for a city. You need to think in terms of an overall global plan; the stadium is one component.”

Focus on Private Financing
If there is a template for the new breed of sports and entertainment-oriented mixed-use development, it could be the Arena District in Columbus, Ohio. The developer is Nationwide Realty Investors, a subsidiary of Nationwide Mutual Insurance Co., the largest private company in downtown Columbus, with 8,000 employees. The concept of the Arena District emerged after Columbus voters rejected a government-funded arena and stadium in 1997. Nationwide stepped up with a plan for the Nationwide Arena that would be part of a broader entertainment district.

According to Brian Ellis, president of Nationwide Realty, “we own virtually all the buildings.” The baseball stadium – and the team -- are owned by Franklin County. Ellis noted that the Arena District has turned into the catalyst for what has become $700 million worth of development on 75 acres downtown, with 1.3 million square feet of office/retail, 350 residential units completed. Under construction are 109 residential units and Huntington Park, a baseball stadium for the Triple-A Columbus Clippers team expected to open in spring 2009.

Ellis pointed out that the development was “predominantly privately financed, which is unique in a one-sports anchor.” Nationwide, keen to be a good corporate citizen, made a $150 million private investment in the Arena, which was supported by a $35 million investment by the city in roads and other infrastructure, through tax-increment financing. “We’re at a point where that investment has leveraged 20 times that amount in private investment,” he said. According to Ellis, the Columbus Dispatch is a 10 percent partner in the Arena District and Nationwide has taken on some third-party debt.

Until 1980, the site had served as the primary prison for the state of Ohio for 150 years. The plan for the Arena District was unveiled in 1998; the first buildings opened in 2000. “The process was not lengthy or rancorous; we were open and available, but there was not a lot to object to,” commented Ellis. Nationwide has since played host to visitors from other cities, such as Pittsburgh, Sacramento, Louisville and Detroit, to see for themselves why the District works. Ellis stressed that the District “is the result of a confluence of circumstances, not easily replicated. ‘Build it and they will come’ is a myth. The sports facility can create excitement or energy for a project but the project has to be competitive on its own. A sports facility is the icing on the cake.”

The sports facility is a “supplemental benefit to the environment you create, rather than being a driver of a project.” The Arena District has created a sense of excitement, energy and activity around the sports arena, but it has been the development’s position in the market that has allowed it to be successful.

Nationwide’s decision to build the Arena was as much a community contribution as it was a business decision, Ellis said, noting, “We had to look at it holistically.” Does the Arena contribute to Nationwide’s bottom line? “It brings incremental activity,” he said. “There are great nights that bring revenues to the restaurants. The bad news is that there are times when it feels quiet. It takes a while for a project to mature.”

The Arena District has, in fact, matured over 10 years to the point where it is now thought of as the place to be for a variety of special events, charitable functions such as walks and runs as well as entertainment. That, in turn, has made it attractive to the people who want to work, live or visit here. (Nationwide leased the Arena to the Blue Jackets for 25 years and the team determines events and activities that will take place there, but Nationwide works closely with the team to coordinate other activities in the District.)

Though the ability to run these kinds of events may not be part of a conventional real estate developer’s core competencies, Ellis said that “it’s been a unique experience and a lot of fun to deal with so many different aspects of building a great neighborhood.” Before approaching a sports-related mixed-use development, Ellis advised, developers must understand that every market is different and they need to meet a specific market’s demand. For example, because the Arena District is located close to a downtown mall, that ruled out the possibility of creating a new fashion retail component in the development. On the other hand, there was a distinct need for office space. Moreover, the sports facility “allowed us to create more parking facilities. In Columbus it’s tough to justify parking structures unless you can use them for evening events.”

The biggest challenge to developing sports-related development is dealing with the peaks and valleys of activity, Ellis observed. Handling traffic and parking – especially during evenings where 20,000 people might be in attendance -- is critical. “If there is a game, we want to make sure that the movie theater across the street can still operate successfully,” he said, adding that “the aim is to “minimize the negatives.”

A Smooth Development and Approval Process

International law firm Jones Day expanded their Columbus presence into 127,000 square feet in a six-story office building in the Arena District.

Columbus-based Continental Companies, a developer of town centers, office and retail projects, has been active in the Pittsburgh, Pa. market. Having completed the 2.4-million-square-foot Streets of Waterfront eight years ago, the company was on the short list when the city’s Sports and Exhibition Authority (SEA), the Steelers and the Pirates were considering the redevelopment potential of the property located between PNC Park and Heinz Field, according to Continental chairman Frank Kass.

To Continental, the site in the North Side neighborhood had enormous appeal. The city and county had spent $60 million on infrastructure; there was to be a train running continuously between downtown and the site (which is located across the Allegheny River from the Point, downtown), taking all of a minute. Because of the city’s geographical constraints, freeways end at the North Shore. In two years, there will be a channel tunnel under the river. The development, dubbed The North Shore, will consist of two million square feet of office, hotel, retail, entertainment and restaurants. Plans also call for a residential component.

The SEA controls the site and has to approve anything Continental does; Continental leases or buys property from the sports teams. In addition, the River Life Task Force must review anything river-related, plus there are planning and zoning. According to Kass, “All have been fun and forthcoming to deal with. The process has not slowed us down at all.” The Steelers and Pirates have the same attorney, and the process is “as smooth and fun as it can be,” he said.

First to be built at North Shore was a six-story, 180,000-square-foot building for Equitable Resources and 30,000 square feet of underground parking. Then came the six-story, 285,000-square-foot office building for DelMonte Foods. The company is presently working with the SEA on plans for a 180-room Hyatt hotel. A fourth $35 million office building is under way and the company also hopes to start construction on a $10 million Amphitheater with night club this year.

How is this all being financed? The old-fashioned way, with construction loans coming from banks and long-term financing from insurance companies. It’s been “pretty seamless and easy,” Kass said.

Why tackle a sports venue-oriented development? According to Kass, a big sports fan, “part of the excitement was to deal with the teams. We’ve worked hand in hand for six years and it has been fun and rewarding in ways beyond the financial. There’s a certain nonfinancial gratification.” There’s also pride; Kass pointed out that the site, where three rivers converge in a historic part of the city, lent itself to developing beautiful stadiums and office buildings. “The entire concept of adding to the landscape of the city has merit.”

Of course there are financial considerations as well. Kass noted that with the office component, we’re only building buildings that are rented.” He said that North Shore could not be compared to a town center because it has primarily been an office project, albeit one with a variety of restaurants. “We’re going to make money on the office buildings, though not necessarily similar to successful town center returns,” he said.

Advising others who are considering tackling sports-oriented developments, Kass offered several uggestions. First, he said, “Do it in a city you’ve developed in, where you have credibility and a working relationship with people who believe you’re going to do what you say you’re going to do. “Have a high level of confidence in your ability to work with the teams,” he went on. Kass also advised controlling risk factors as much as possible. “Look at the teams, the city and the authority that controls the land and deal with their expectations and time lines,” he said. At North Shore, he added, “there are fail-safes for us and for [the SEA] so neither is risking too much. That means that alarm bells should go off if a city or authority says, we want a town center within a specific period of time.”

“These are market-driven projects. You don’t create a town center and then expect tenants to ome,” Kass said, noting that Continental Real Estate typically achieves 75 to 80 percent pre-leasing before it builds a town center development. Kass also predicted that in the next two to three years, there will be a third as much town center development as there has been in the past few years.

The Case Against Stadium-Only Development Flexibility and year-round use for sports facilities, particularly if they adjoin multi-purpose uses, as in ndianapolis and Arlington, add sigificantly to the facilities’ potential as revenue generators, according to Dr. Patrick Rishe, associate professor of economics at Webster University in St. Louis and founder and director of Sportsimpacts, a sports consulting firm. And, he said, “Ultimately you’re going to have a better story to tell if the public is paying for less of the stadium.” According to Roger Noll, an economics professor at Stanford University and co-editor of Sports, Jobs, nd Taxes (1997), sports teams and their stadiums do create jobs, albeit very inefficiently. In Baltimore, he estimated the cost per job created by Camden Yards was $125,000, while $6,000 per job for the city’s other urban redevelopment programs. In the 1990s, Dr. Rishe explained, research supported the fact that the cost of building stadiums utweighed the economic benefits, which caused many cities to think twice before they championed new stadium development. When teams realized that cities were beginning to balk, they had to step up, which iby allowing Central Ohio to regain and expand shipping and economic opportunities, including job creation and other public benefits.