A mixed bag for mixed-use
With the pandemic pushing the U.S. economy into a recession, executives who have brought sports-anchored, mixed-use developments to life in recent years still believe such projects will continue to attract fans, tenants and investors when live sports events eventually return because of their unique offerings and historic connection to their communities.
Many of them said that over the next three to 12 months, access to capital for projects that were in the very early stages of development may be challenging, while most other projects will continue yet face pressure in the leasing market.
What could help such projects moving forward is the fact that over the past 20 years, many sports-anchored mixed-use developments have been viewed as economic drivers that add to their communities’ urban core, while enhancing civic life and creating jobs.
Owners of sports teams are equity partners in more than $13.5 billion in active construction projects where their new home venue will serve as the anchor to a much larger mixed-use development. That includes The Los Angeles Stadium & Entertainment District anchored by SoFi Stadium (Los Angeles Rams and Chargers) in Inglewood, Calif.; Texas Live! in Arlington anchored by Globe Life Field (Texas Rangers); Belmont Park anchored by Belmont Park Arena (New York Islanders) in Elmont, N.Y.; Inglewood Basketball and Entertainment Center (Los Angeles Clippers); Confluence Village anchored by a new Columbus Crew stadium in Columbus; and The Railyards anchored by a new Sacramento Republic FC stadium in Sacramento.
That number is dwarfed by the more than $19 billion committed by team owners to develop similar sites near existing sports venues. Ongoing efforts, such as Tampa Bay Lightning owner Jeff Vinik’s $3 billion Channelside and the $2.5 billion Shipyards vision by Jacksonville Jaguars owner Shad Khan, lead a diverse group of proposals that range from training facilities to minor league stadiums to other big league homes. The NFL has pledged an investment of up to $10 million in a mixed-use development near the Pro Football Hall of Fame in Canton, Ohio.
Additionally, more than $1.2 billion in mixed-use construction projects are underway where the team itself has no involvement other than being viewed as the catalyst.
Chad Lewis, a senior director at Fitch Ratings, evaluates the creditworthiness of stadiums, arenas and the borrowing programs of the NFL, NBA and MLB, and monitors ancillary development around the facilities. He said mixed-use developments will be affected in the short-term, but it will be more of an interruption compared to the long-term value to investors.
“Could you see a lot of these developments slow down? Certainly,” Lewis said. “I know a number of these are considering additional hotels and other kinds of commercial real estate developments, so we’re watching that space very closely and broadly speaking there’s a potential for a lot of that activity to slow down.”
Lewis said the conversations he is having with teams and venues about suites, premium seating and sponsors at their stadiums and arenas are similar to conversations teams are having with current and prospective tenants at their surrounding mixed-use developments about whether to renew or adjust leases because of the economy.
The performance of mixed-use developments will also depend on local levels of wealth and the depth and diversity of local corporate markets, Lewis said.
Irwin Raij, co-chair of the sports practice at O’Melveny & Myers, sees a mixed bag in the current landscape for developments and their financing. On the positive side, Raij points to Hawaii, which is moving forward with its $150 million plan to renovate Aloha Stadium, which will have attached hotel, housing and retail developments. “So it’s full speed ahead, and there’s a variety of good reasons for that, based on what they need to do and their model and what their needs are,” Raij said. “There’s a particular need and the stadium has a role in the community.”
Raij, who advised the Carolina Panthers on their impending plan to build a new headquarters and 200-acre mixed-use development in Rock Hill, S.C., said banks and lenders will need more time to analyze the immediate impact of COVID-19 on revenue projections. “It’s just too fresh to process if one was intending on issuing debt in the immediate future,” he said. “Every day we learn more. Again, projects in the planning stage will remain active.”
Mike Plant, president and CEO of the Braves Development Company, which manages The Battery Atlanta, a $400 million entertainment district that surrounds the Braves’ ballpark, said if a sports-anchored mixed-use project was pitched to lenders or investors at the moment it likely would not be green-lighted.
“I think no one is doing anything right now, although we have $280 million in construction projects going vertical because this is our second phase,” Plant said. “It’s moving forward because fortunately the construction business is practicing social distancing and … and being safe.”
Plant said prospective tenants continue to show interest in renting office and retail space in the Battery’s second phase. He said the Braves have offered existing tenants the option to defer their rent payments on a month-to-month basis.
“We’re in this for the long haul, we own all of this, our tenants were doing great business before this all happened,” Plant said. “When we come out of this, which we’re going to, they’re going to go right back to the success that they enjoyed.”
Irwin Kishner, co-chair of the sports law group at Herrick Feinstein, does not see the pandemic causing long-term damage to the viability of mixed-use developments.
“This obviously is a very pronounced and a very painful situation and I’m certainly not minimizing it, but we will get control of it,” Kishner said. “And once we do, people are going to want to go to a nice dinner and people are going to want to go to see live sports.”
Such developments are also just too appealing to communities, Kishner added. “Each one of these will take scores of people to run them, to build them, and I think that’s just positive and it also makes entire sense to have a full-service development in one area where you could go spend an afternoon, see a game, have a drink, catch dinner and then go shopping.”
Brent Lawrence, founder and CEO of Accelerate Sports, a Sacramento-based boutique investment bank and corporate advisory firm, also takes the long view and believes there could be deals for prospective tenants, especially at new developments.
“I would incentivize the tenant and probably take a little bit of a hit myself in order to, as a landlord, to get people to move in there, and find a way to get that leased up even if people have free rent for six months or something like that.” Lawrence said.
Matt Wiener, vice president of business development and consulting at Innovative Partnerships Group, a Los Angeles-based firm that focuses on financing and managing mixed-use developments, said in the short term, new projects will be under the microscope because of potential economic headwinds. But in the long run, the developments have the ability to unlock more revenue and access to capital through contractually obligated income from sponsors that invest in the development.
Wiener used a tangential example of German manufacturer Siemens partnering with a new wellness district or hospital system to showcase its services and products as part of a mixed-use development. If the company realized cost savings or revenue returns, it would reinvest into that portion of the project through a long-term sponsorship.
“The idea then is to take that partnership or contractually obligated income and then bring it to a financing source for debt financing,” Wiener said.
Research Director David Broughton contributed to this report.