New Seattle Arena costs $700M+; full agreement details revealed

On Thursday, full details of the agreements that comprise the transaction documents between the city of Seattle and private developer Oak View Group for the new Seattle Center Arena project were presented in city council committee. It was revealed that the project budget is now at $700+ million.

Before city taxpayers blow a gasket, a requirement of the project is that OVG is responsible for all costs and cost overruns during both construction and operation of the new arena.

Let’s go to the tape.

Three main agreements make up the transaction documents for the project: the development agreement, the lease agreement, and the Seattle Center integration agreement. Each agreement has a number of associated agreements required for city ordinance compliance and stipulations of the project.

The Development Agreement

The development agreement covers the rights and responsibilities of both OVG and the city during design & construction of the new arena. OVG is expected to finalize designs of the arena within the next 4-6 weeks and name the general contractor for the project shortly. The designs, which would see the existing 386,000 sq. ft. building and current footprint demolished and replaced by a new footprint and 750,000 sq. ft. interior building, must be approved by both the NHL and the NBA for the project to proceed.

Specifics of the development agreement:

• Budget - Project is now budgeted at around $700 million. When initially proposed in April 2017, it was projected to cost around $600 million.
• Private Funding - OVG will cover all construction costs, including any overruns, through a mix of private equity, debt financing, and potential federal historic tax credits for the landmark status of the KeyArena roof and north, east, and west exterior walls. If the building is not placed on the National Register of Historic Places and unable to qualify for the tax credits, OVG will assume that cost.
• Public Art - OVG will pay an amount equal to 1% of its construction costs toward public art as required by city law. That works out to a roughly $3.5 million investment. For those questioning the math, the amount is tied to actual construction cost, which will be around $350 million. The $700 million budget is total project cost, including the hard costs of demolition and construction and the soft costs of design & development, legal, permitting, and other elements.
• MHA Contribution - As part of newer city law, developers are required to contribute to Mandatory Housing Affordability. OVG’s contribution will be around $2.5 million.
• Construction Impact - OVG is also required to have a Construction Impact Mitigation Plan in place for final approval of the project. Construction is proposed for 18 hours per day to meet the tight 24-month schedule. The mitigation plan will address impacts to the Lower Queen Anne neighborhood, including noise impacts.

Associated agreements required by the development agreement include:

• Community Workforce Agreement regarding the use of community labor for the project;
• Labor Peace Agreement regarding labor unionization and practices;
• Priority Hire compliance regarding the hiring of women, people of color, and labor work from economically disadvantaged neighborhoods;
• Women and Minority Business Enterprise Inclusion Plan regarding efforts to work with businesses owned and operated by women and minorities;
• Prevailing wage and apprenticeship compliance;
• And an agreement to offer employment to all current arena workers.

All associated agreements were negotiated and in place as of Thursday’s committee meeting. They are working to finalize a financial backstop agreement that will hold OVG accountable for all costs and overruns and detail the methods for the backstop.

The last event to be held in the current KeyArena will be the NBA preseason game between the Golden State Warriors and the Sacramento Kings on Friday, October 5th. Though the Kings will be the “home” team, it’s fitting that former Seattle SuperSonic Kevin Durant will help usher out the old building. The city expects to turn the building over to OVG on October 15, 2018.

The Lease Agreement

The lease agreement details the financial arrangement and relationship between the city and OVG during the operation of the new arena.

Specifics of the lease agreement:

• Length of Term - The initial term of the lease agreement is for 39 years.
• Optional Extensions - There are two optional 8-year lease extensions built into the agreement. If both options are exercised, total length of the lease would be 55 years. Each option requires a capital improvement investment to be made and that an NHL or NBA team (or both) call the arena home at the time of extension.
• Base Rent - OVG will pay about $2.8 million in rent to the city annually. That number will be adjusted throughout the term of the lease based on the Consumer Price Index to account for inflation. The rent payment amount was determined by the average of the last four financial years of net revenue earned from KeyArena, the 1st Avenue N parking garage, and Seattle Center campus sponsorships. This is the first in a two-step process to ensure the city doesn’t go backwards from what it currently earns from KeyArena.
• Tax Revenues - The city is guaranteed to receive $2.24 million in tax revenues annually from the arena and the 1st Ave N parking garage, the current level of taxes it receives. OVG will reimburse the city for tax revenues that drop below $2.24M in a given year. This is the second in the two-step process.
• Upside Tax Revenues - OVG and the city will share any additional tax revenues earned each year above the base $2.24 million, excluding admissions taxes. For the first 10 years of the lease agreement, OVG will get 75% of the upside revenue and the city will get 25%. After that, for the remainder of the lease including the extensions, OVG and the city will split the upside revenue 50-50.
• Capital Improvements - OVG guarantees it will spend at least $68 million in capital improvements to the arena during the initial 39-year lease. To qualify for the first lease extension, OVG must spend an additional $50 million in improvements during years 21 to 30 of the lease. To qualify for the second lease extension, OVG must spend another $50 million during years 31 to 47. This is a guarantee of a total of $168 million in improvements to the arena to keep it up to date during the life of the lease.
• Transportation Fund - OVG agrees to pay $40 million into a transportation improvement fund over the 39-year initial lease term. The city can choose to borrow against this fund using bond money with the guarantee OVG will be paying into the fund annually. The transportation fund is in addition to any money already spent on study and any money to be spent on transportation and traffic mitigation identified in the Final Environmental Impact Statement for the project. OVG is expected to pay over $100 million toward transportation impact and improvement in total.
• Relocation - OVG will pay $2 million to relocate the Seattle Center Skatepark and tenants of the nearby Bressi Garage who will be affected by construction. The Skatepark is eyeing a move to the other side of the Center campus, in the greenway along Broad Street near the Pacific Science Center and the sculpture park just southwest of the Space Needle.

The Seattle Center Integration Agreement

The third component details how OVG will work with and alongside Seattle Center during operation of the arena.

Specifics of the integration agreement:

• Parking Garages - OVG will take over operation of the 1st Ave N parking garage just south of the arena between John and Thomas streets. They will manage the garage with Seattle Center staff in a coordinated effort also incorporating the Center’s management of the 5th Ave N parking garage by the Bill & Melinda Gates Foundation at 5th & Republican Street and the Mercer Street parking garage north of the Center campus between 3rd and 4th avenues.
• Parking - Working with local resident organizations to set aside space for pre-paid parking in garages as well as bundled pricing for tickets & parking to games and events.
• Event Booking - OVG will manage booking the arena and coordinate with Center staff on booking for festivals and other events.
• Arena Plazas & Campus Areas - OVG will manage events in and use of the arena plazas on the east, west, and south sides of the arena. They will coordinate with Center staff on programming for other campus space that might also involve the arena plazas.
• Traffic Management - OVG and Seattle Center staff will coordinate to manage traffic around the arena and campus on game and event days.
• Monorail Coordination - OVG and Seattle Center staff will coordinate use of the Monorail in traffic and transportation plans.
• Campus Sponsorships - Upon approval by Seattle Center director Robert Nellams, OVG will become the exclusive sales representative for sponsorships on the Seattle Center campus. However, Center tenants and events held at the Center will retain rights to their own sponsorships.
• Marketing & Co-promotion - OVG and Seattle Center staff will coordinate on marketing efforts and opportunities to cross-promote games, concerts, events, festivals, and other tenants on the campus.
• Security - OVG and Seattle Center staff will coordinate on necessary security operations as well as management during emergencies.

The integration agreement continues to be worked on and refined in anticipation of final approval in September.

Community Benefits

Each agreement also lays out specific community benefits to be provided by the project. In particular, a number of positions will be created that will enable further discussion and cooperation between OVG and the community during construction and operation of the arena.

A full-time community liaison hired by OVG will work with business and residential groups during construction to make sure suggestions and concerns are heard and addressed. That position will remain during operation of the arena to better manage games and events that will impact the local businesses and residents.

An ombudsperson position will be created at the city to coordinate and facilitate between OVG and local businesses and residents. OVG is also paying $225,000 to he Uptown Alliance to better aid local business through organizational improvements. And a council will be formed to advise on the spending of the $20 million OVG has committed towards a community fund to aid various programs, including $10 million specifically identified for the YouthCare homeless youth assistance program.

The makeup of this council was suggested to be from those neighborhoods specifically impacted by the arena project, but councilmember and committee chair Debora Juarez suggested the council be comprised of representatives from all of the city to provide the best feedback.

Annual free-rent days at the arena for community events, joint sponsorship by OVG of events promoting small business and community arts & culture, and campus wayfinding are some of the additional community benefits provided for in the agreements.

Next Steps

The council’s Select Committee on Civic Arenas plans to meet on August 10th and September 14th to finalize the transaction documents and review all studies. The Final EIS is slated for release on August 30th. Juarez has stated that she would like to wrap things up to be able to vote the project out of committee on September 14th to move it to the full city council for vote on final approval.

An interesting wrinkle presented itself during the committee meeting. Other items on the agenda included a review of the Monorail improvement study that identifies a two-phase approach to upgrade both the Westlake and Seattle Center stations to increase operational capacity. The committee also voted on two pieces of legislation to move to the full council to finally grant historic landmark status to the KeyArena walls & roof and to the Bressi Garage.

During those votes, Juarez pointed out that legislation needs to be presented to the city clerk by noon on Thursday in order for it to appear on the agenda of the following Monday’s full city council meeting. As the votes on the landmark legislation were voted on after 4 pm on Thursday, they will be addressed by the full council at their August 6th meeting rather than the July 30th meeting.

With the committee vote on the arena project expected on Friday, September 14th, it’s possible that the full council will have to wait to vote on approval at the September 24th meeting instead of the 17th. This remains to be seen.

Updated: The original version of this article incorrectly stated that OVG would take over management of all three parking garages currently operated on behalf of the city by Seattle Center staff.