WORKSHOP ITEM Erik Thorvig, Economic Development Coordinator
Title
PRIVATE RECREATION/BASKETBALL FACILITY UPDATE
Background
At the July 20, 2017 workshop a presentation was made by a private group (to be created as a non-profit entity) interested in building a recreation facility in Blaine to serve youth athletics. They are calling the facility the Blaine Athletic Complex (BAC). In general the facility would be used for basketball, volleyball, soccer, and baseball. The group completed a site search and have determined their preferred site is the vacant, 5.66 acre parcel next to City Hall on Town Square Drive. At the July 20th meeting the City Council gave direction to the group to analyze the project further and return with a more defined plan.
Over the last eight months staff has been working with the group to identify the various components of the project. The four main components are:
1.) Programming and Operations
2.) Financing of the Project
3.) Physical Building
4.) City Involvement
The group has done research on these various components and will present information on each. The following is a general summary.
Programming and Operations
The main component of whether the facility will generate the necessary revenue to operate is programming. The group has done work in seeking support and commitments from various groups that would use space. They indicate that have soft commitments from the Blaine Soccer Club, Blaine Youth Basketball, Blaine Area Traveling Baseball Association, MN Select Volleyball, and training space for former major league baseball player, Dan Johnson.
The group has prepared estimated revenue and expenses for the facility through 2023. The numbers show an operating profit each year. Staff has requested the group have the facility usage, revenue and expense estimates reviewed by a third party that has experience in operating sports facilities to determine whether the estimates are accurate. Validation of the estimates is integral before the project moves forward.
Financing the Project
The group has indicated it will request conduit debt financing through the City of Blaine. This mechanism is in place for non-profit entities to receive financing through debt issued by the city. This process has been used for other projects in Blaine, most recently for senior apartment projects (Crest View and Legends of Blaine). Use of conduit debt for sports facilities are not as common, but conduit debt was used for projects at the National Sports Center and Fogerty Arena. Conduit debt financing does not represent a financial commitment on the city’s part - debt repayment is funded solely through the revenues of the project itself. The transaction is largely handled by the private borrower and the underwriter (typically a bank) that usually serves as the initial purchaser of the bonds. After the debt is issued, the city has no obligation for the repayment of the debt. Additionally, if a default occurs, this is a matter between the private purchaser of the debt and the borrower.
Included is a letter from Northeast Bank regarding their interest in the project. In addition an annual financial commitment has been discussed with Twin Cities Orthopedics for sponsorship and use of the facility.
Physical Building
The proposed building is 90,000 sf. and includes five hard courts, one turf field, weight room, and office space. City staff has informed the group that the building will have to be architecturally compatible with the surrounding residential and commercial buildings. They currently estimate the building will be approximately $8.9 million, however after necessary architectural upgrades the price is likely to increase.
City Involvement
The group has requested a ground lease from the City for an annual fee of $1. The reason they like the City site more than others is they don’t have make a large land purchase, or pay a high lease rate for an existing building. It’s difficult for their financial pro-forma to work if they have a higher mortgage payment due to a land purchase or high lease payment for an existing building. The ground lease model at the $1 rate is similar to what is currently in place for Fogerty Ice Arena and would make sense under this scenario.
Other
There are several items that the City Council should consider with this proposal. First, the proposed facility would be located on city property. If the facility were to fail, the bank would receive the building and would likely approach the city to purchase the building. Is this something the city would be prepared to do? Would another private group be willing to purchase the facility at this time?
Secondly, the National Sports Center (NSC) has looked at creating hard court sports at their campus. This spring the NSC will be converting the Sport Expo Center into two high-school size basketball courts with spectator seating and concession area. The courts will also have the ability to be converted for volleyball. The NSC also has developed concepts for a large field house and multi-court basketball facility; however those are conceptual at this time. The NSC and BAC group have had conversations about partnering, however at this time the BAC group would prefer to have their own project separate of the NSC. If the NSC eventually builds a larger hard court facility, is there demand for two similar facilities in Blaine?
Recommendation
The group will provide further details on each of these topics via presentation. Staff and the group would like direction from the City Council as to whether to proceed further, and if so, under what timeframe. The group has indicated they would like to move quickly to secure all the necessary commitments to start a project sometime in 2018/2019.