Arena negotiation discussion. UPD: Flames release their proposal

[Bunk]

A few things I'd say about this:

This is a proposal obviously tipped in favour of the owners - including the lack of taxes paid, lack of rent paid, free land, lack of liability on ownership of the facility, apparent other services they wanted like Transit and Police.

As many others have stated, characterizing the City offer as being for all intents and purposes no contribution at all, or a net negative because of property taxes - is at best completely disingenuous.

But besides all that, I want to focus on the CRL. This is something few people actually understand.

A little CRL 101:

The purpose of a CRL, based on the American model of Tax Increment Financing is to pull an area out of "blight" (yes that is the term that is used) borrowing public capital to invest in an area that would not otherwise see private investment. Development would not happen, but for that public investment. In Calgary, we used CRL to bring a truly destitute area with virtually no potential for private investment - the East Village. It was spent on parks, pathways, streetscapes, flood protection, historic preservation, cultural facilities, programming of public space and so on. It has brought in private investment as promised.

The property tax amount generated from the area at the outset (around 2007) would continue to flow to general revenue. The incremental amount of tax above that starting amount goes back to pay the initial loan from the City. The other thing most people don't know is that education property taxes (40% of the total property tax take) is also earmarked to pay back the loan. The province is a participant.

However, the City cheated a bit - it pulled in the Bow building, which was being built in any event, to mitigate risk. So in the event nothing happened, they could still pay back the initial investment over time. Remember, how risky the East Village was from a market standpoint - there were very few Calgarians that could have even imagined wanting to walk through East Village in broad daylight, let alone live there or start a business. The Bow was cheating, but it was thought of as a necessary risk mitigator.

The other context of the East Village is that it was initiated in the midst of the biggest economic expansion in the city's history - and the sense that the level of future growth was boundless.

Now, let's look at the proposed $225 million CRL here.

We have an anchor use and expenditure (completely aside from the other improvements to the neighbourhood the City's making) that would not produce any taxes. The $225 million would be paid back through other uses it would spur on.

I think there's a decent chance it could spur some hotel, some retail, and some multi-family. But as with the CRL proposed for West Village, it was clear from CMLC that a large commercial anchor was needed. Commercial uses pay 3.85x the mill rate as residential uses. A million square feet of office or commercial would pay about $10 million in taxes a year toward debt.

You may also have to convince the province to forego their share of the property tax, as with the East Village for this extension of the CRL debt. The good news would be that it is already in an existing CRL zone, so that would be one less barrier.

The problem here is that we are sitting at 30% office vacancy, have soft downtown condominium and rental market, and no clear path to see how that sheer scale of development that would be needed to pay back that much debt could occur. In such a soft economy, you also have a rob Peter to pay Paul problem. Say if a downtown commercial tenant moved to this district, you're just making an already difficult situation with vacancy in the downtown core worse. If it inspired a new company to move to Calgary and set up because they like what this could bring, that would be a net benefit that could begin to justify it.

This would be little bit like a developer trying to finance a mall with zero signed tenants, a retail environment which is cratering and a neighbouring mall which has 30% of its storefronts empty. Would you as a banker want to finance that? Should the City in this case?

The Edmonton situation has been brought up. I don't think anyone would disagree that this section of Downtown Edmonton was blighted. It needed investment. They had a guarantee of the City becoming a tenant (they happened to vacate one of the buildings the company I work for owned... but that's another story) and they had the global headquarters of a 22k employee company (Stantec) consolidate and come into the district. It was also a boom time. Don't know if you know, but we're not booming.

Could a CRL (or an expansion of the existing one) work in Victoria Park? Maybe - but I think it would have to be smaller and would have to invest in the things that will have a good chance of spurring investment.

It all comes down to risk - in this case the City is taking 100% of the risk, and zero percent of the facility's reward. It could get reward from other development, but balanced against the scale of the initial investment, it appears they think it's too risky to the public.

[Lanny_McDonald]

Originally Posted by topfiverecords

You're forgetting the most important thing here. The Flames are the ones that want and need the arena. The City does not.

The city has also identified a new arena as a need. Nenshi has it front and center in his entertainment district plan. It's all well and good to try and make this a partisan issue, that the Flames want an arena more than the City, or vice versa, but the reality is that both parties need it. If you can't get a new arena built for your city, how are you going to seriously reach out to some of the major players, like an Amazon, and think you have a hope. If you can't strike a deal with an interest that has a history with the city, has roots here, and wants to be here, how are you going to agree to deals with interests that are ambivalent about "Calgary" and are serious about making major profits?

This is the annoying thing about this. It has become so polarized that people can't see the trees for the forest. For example, Bingo took an honest approach at it from a very analytical perspective based on his extensive experience in modeling these complex deals. He got jumped on and was called biased, among other things. Just crazy stuff, because people are entrenched in their position. My position is there are good components in each proposal, and they can be used to strike a deal. Both sides just need to listen.

After reviewing both proposals I truly believe there is a deal there to be made. It just needs both parties to be adults and negotiate from the point of common needs. This requires egos to be checked at the door, and rulers to be left in the satchels. This is not a time to be measuring dicks, its a time to find common ground and a solution to common needs. A cool down period is probably needed for that to happen, and hopefully they move forward with neither King and Nenshi as being front and center.

[Roughneck]

Originally Posted by New Era

The Flames can continue to charge a property tax if they like, to the interest that owns the building. In this instance that would be the City of Calgary. Charge away.

The Flames wouldn't be charging the cost onto the property owner, the property owner would be factoring in the cost of the property tax, construction debt, and enough to make a profit on the deal to the leasee.

The Flames generously will cover one of those things, and people like you will consider it a favor they're doing so.

Can you be my landlord?

Well, if the City of Calgary wants the team to pay rent, then shut the #### up about negotiations, build the arena, and then try and negotiate a lease. It is as simple as that. But the City doesn't want that. They want the Flames to put up a whole whack of money, and then pay rent, and then pay property tax on a building they don't own.

They want the Flames to own the building they get all the revenue off of, and pay property taxes on the building they own.

How is that hard to understand?

You want to talk about fair? How has the City's proposal done anything to address the CSEC's strategic goals? Yet you expect CSEC to just accept the terms that are greatly beneficial to the City and the execution of their development strategy? Fairness is a real double edged sword here.

Yeah, fairness is "we want free land to develop stuff on because somebody else got that deal."

Let me guess, then you sign a long term lease and you have to pay the first three month's rent up front, you're not really paying rent at all? You're staying there for free?

So we are going to buy an investment property together New Era. The house costs a million dollars. You put up $550,000, and I'll put up the other $450,000 which I will pay as my rent and act as landlord. In exchange for my generosity I get to keep all the rent and revenue from this investment property.

Sound fair? You invest $550K and get back $450K. How could that possibly be a bad deal for you?

Also, this building is on your land, which you're giving for free, because you already own it, so you're not actually adding anything to the deal with it. Stop being so greedy.

[Clever_Iggy]

Bunk - excellent post. Helped my understanding of CRLs and the potential applicability to the new arena immensely. More posts like this!

[Table 5]

Bunk for mayor!

[You Need a Thneed]

Originally Posted by Bunk

A few things I'd say about this:

This is a proposal obviously tipped in favour of the owners - including the lack of taxes paid, lack of rent paid, free land, lack of liability on ownership of the facility, apparent other services they wanted like Transit and Police.

As many others have stated, characterizing the City offer as being for all intents and purposes no contribution at all, or a net negative because of property taxes - is at best completely disingenuous.

But besides all that, I want to focus on the CRL. This is something few people actually understand.

A little CRL 101:

The purpose of a CRL, based on the American model of Tax Increment Financing is to pull an area out of "blight" (yes that is the term that is used) borrowing public capital to invest in an area that would not otherwise see private investment. Development would not happen, but for that public investment. In Calgary, we used CRL to bring a truly destitute area with virtually no potential for private investment - the East Village. It was spent on parks, pathways, streetscapes, flood protection, historic preservation, cultural facilities, programming of public space and so on. It has brought in private investment as promised.

The property tax amount generated from the area at the outset (around 2007) would continue to flow to general revenue. The incremental amount of tax above that starting amount goes back to pay the initial loan from the City. The other thing most people don't know is that education property taxes (40% of the total property tax take) is also earmarked to pay back the loan. The province is a participant.

However, the City cheated a bit - it pulled in the Bow building, which was being built in any event to mitigate risk. So in the event nothing happened, they could still pay back the initial investment overtime. Remember, how risky the East Village was from a market standpoint - there were very few Calgarians that could have even imagined wanting to walk through East Village in broad daylight, let alone live there or start a business. The Bow was cheating, but it was thought of as a necessary risk mitigator.

The other context of the East Village is that it was initiated in the midst of the biggest economic expansion in the City's history - and the sense that the level of future growth was boundless.

Now, let's look at the proposed $225 million CRL here.

We have an anchor use and expenditure (completely aside from the other improvements to the neighbourhood the City's making) that would not produce any taxes. The $225 million would be paid back through other uses it would spur on.

I think there's a decent chance it could spur some hotel, some retail, and some multi-family. But as with the CRL proposed for West Village, it was clear from CMLC that a large commercial anchor was needed. Commercial uses pay 3.85x the mill rate as residential uses. A million square feet of office or commercial would pay about $10 million in taxes a year toward debt.

You may also have to convince the province to forego their share of the property tax, as with the East Village for this extension of the CRL debt. The good news would be that it is already in an existing CRL zone, so that would be one less barrier.

The problem here is that we are sitting at 30% office vacancy, have soft downtown condominium and rental market, and no clear path to see how that sheer scale of development that would be needed to pay back that much debt could occur. In such a soft economy, you also have a rob Peter to pay Paul problem. Say if a downtown commercial tenant moved to this district, you're just making an already difficult situation with vacancy in the downtown core worse. If it inspired a new company to move to Calgary and set up because they like what this could bring, that would be a net benefit that could begin to justify it.

This would be little bit like a developer trying to finance a mall with zero signed tenant, a retail environment which is cratering and a neighbouring mall which has 30% of its storefronts empty. Would you as a banker want to finance that? Should the City in this case?

The Edmonton situation has been brought up. I don't think anyone would disagree that this section of Downtown Edmonton was blighted. It needed investment. They had a guarantee of the City becoming a tenant (they happened to vacate one of the buildings the company I work for owned... but that's another story) and they had the global headquarters of a 22k company come in. It was also a boom time. Don't know if you know, but we're not booming.

Could a CRL (or an expansion of the existing one) work in Victoria Park? Maybe - but I think it would have to be smaller and would have to invest in the things that will have a good chance of spurring investment.

It all comes down to risk - in this case the City is taking 100% of the risk, and zero percent of the facility's reward. It could get reward from other development, but balanced against the scale of the initial investment, it appears they think it's too risky to the public.

This is a fantastic way of looking at it, thanks Bunk. I’d assume that if this went ahead, the land cost and Saddledome demo cost would also come from the CRL - topping it up to $280 million.

My interpretation of the city’s proposal “non property tax funds” was that that $130 million was to come from adding on to the existing Rivers district CRL.

[topfiverecords]

Originally Posted by New Era

The city has also identified a new arena as a need. Nenshi has it front and center in his entertainment district plan. It's all well and good to try and make this a partisan issue, that the Flames want an arena more than the City, or vice versa, but the reality is that both parties need it. If you can't get a new arena built for your city, how are you going to seriously reach out to some of the major players, like an Amazon, and think you have a hope. If you can't strike a deal with an interest that has a history with the city, has roots here, and wants to be here, how are you going to agree to deals with interests that are ambivalent about "Calgary" and are serious about making major profits?

This is the annoying thing about this. It has become so polarized that people can't see the trees for the forest. For example, Bingo took an honest approach at it from a very analytical perspective based on his extensive experience in modeling these complex deals. He got jumped on and was called biased, among other things. Just crazy stuff, because people are entrenched in their position. My position is there are good components in each proposal, and they can be used to strike a deal. Both sides just need to listen.

After reviewing both proposals I truly believe there is a deal there to be made. It just needs both parties to be adults and negotiate from the point of common needs. This requires egos to be checked at the door, and rulers to be left in the satchels. This is not a time to be measuring dicks, its a time to find common ground and a solution to common needs. A cool down period is probably needed for that to happen, and hopefully they move forward with neither King and Nenshi as being front and center.

The City has offered them inclusion, but could easily replace "arena" with other development in the plan. The City gets zero benefit from a new arena compared to continuing to operate the Saddledome, beyond out of town visitors coming in to attend concerts we are currently not getting. CSEC gets the entirety of the remaining benefit.

The City has no incentive to push this project forward aside from agreeing to be a party in some capacity so they have a say in the issues that affect us, the citizens of Calgary.

An arena deal has zero relation to an Amazon or other private corporate headquarters negotiation.

Nenshi has never been front and center in the negotiation. Senior City management staff has handled negotiations. Nenshi has been front and center, representing Council in media relations for the City's position, which a mayor should be.

[Lanny_McDonald]

@Roughneck

Thanks for pointing out the obvious typo on my part without being a dick about it. Oh wait, you didn't.

I understand the City's motivations, just like I understand the Flames' motivations. Where the problem is no one wants to consider the other's motivations. The Flames goal is to have access to a new arena. The City's goal is to complete the build out the east village and the entertainment district. Both goals can easily be addressed if the two parties work together on this, and acknowledge the ability of one to affect the other.

Without a new arena, the City's east village entertainment district doesn't work. Without that major tenant that attracts those 1.5M visitors each year, the district is bust and will remain empty lots and parking lots. No one is going to build any sort of restaurant or bar in that neighborhood without that new building and a tenant to draw foot traffic. All of those lots the city owns continue to generate no revenues and remain an eye sore without the new arena. If this was a possibility, it would have happened a long time ago.

Without the City's contribution the Flames can't afford to build a new arena. At least not in downtown, where the City owns all the large parcels of land. They have to play ball. They have to partner with the City and find a deal that works. That is the cold harsh reality for the Flames to swallow.

Both sides need to come to the table willing to give concessions. But I don't see that happening any time soon. The posters here won't even give concessions and recognize there is good in each proposal! The components for a deal are there, there just need to work together to figure out the numbers. They aren't that far off IMO.

[EldrickOnIce]

Essentially the Flames stance is the same as anyone, including the work Bingo just did, that it is not feasible to privately build a new arena.

So that's it. Without a successful Olympic bid, there won't be a new arena, and the Flames will continue to operate out of the Saddledome until such time as it is no longer feasible to do so.

I don't see what the problem is with any of the above.

[Table 5]

Originally Posted by EldrickOnIce

So that's it. Without a successful Olympic bid, there won't be a new arena, and the Flames will continue to operate out of the Saddledome until such time as it is no longer feasible to do so.

I'll be honest, as a fan I'm ok with that. I don't mind the Saddledome experience as-is, as the actual on ice hockey product is still pretty solid, and I'm not really eager to spend 40% more on tickets just for some added fluff, more expensive food, and slightly better bathroom lines (although not if they keep referencing Edmonton).

[Makarov]

Originally Posted by EldrickOnIce

Essentially the Flames stance is the same as anyone, including the work Bingo just did, that it is not feasible to privately build a new arena.

So that's it. Without a successful Olympic bid, there won't be a new arena, and the Flames will continue to operate out of the Saddledome until such time as it is no longer feasible to do so.

I don't see what the problem is with any of the above.

Totally agree. If the Flames don't want to build a new arena, fair enough.

[ynwa03]

Originally Posted by EldrickOnIce

Essentially the Flames stance is the same as anyone, including the work Bingo just did, that it is not feasible to privately build a new arena.

So that's it. Without a successful Olympic bid, there won't be a new arena, and the Flames will continue to operate out of the Saddledome until such time as it is no longer feasible to do so.

I don't see what the problem is with any of the above.

Neither proposal equals a privately built arena. Flames want more free money/tax breaks than what the city is offering.

[topfiverecords]

Originally Posted by New Era

...

Without a new arena, the City's east village entertainment district doesn't work. Without that major tenant that attracts those 1.5M visitors each year, the district is bust and will remain empty lots and parking lots. No one is going to build any sort of restaurant or bar in that neighborhood without that new building and a tenant to draw foot traffic. All of those lots the city owns continue to generate no revenues and remain an eye sore without the new arena. If this was a possibility, it would have happened a long time ago.

...

The Saddledome is already attracting 1.5M visitors each year to the area. 2 blocks north and new ice isn't going to change much beyond a percentage of more dates of occupancy (concerts).

Beltline, East Village, Eau Claire, Mission, Bridgeland, Hillhurst/Sunnyside, Inglewood, DT west end, etc have all seen an insane amount of development over the last 15 years. None of those areas have an arena.

If this was a possibility, it would have happened a long time ago.

p.s. https://www.google.ca/maps/@51.04125...7i13312!8i6656

[dammage79]

Whens that Olympic bid due? Seems that is going to be the only way either side gets what they want.

[calgarygeologist]

I'm hoping that some day the Victoria Park area can be developed into something like the Broadway/Bridgestone Arena area in Nashville. We already have the convention centre and casino, the Music Centre and the new library. We just need the arena and the associated commercial businesses and it would be a pretty cool area. I was really excited back when the Stampede Trail development hit the news and hopefully something like that can still be done.

[MolsonInBothHands]

I thought hosting the Olympics is usually a money losing venture these days. Is the eagerness to put a bid in coming from city council?

[EldrickOnIce]

Originally Posted by ynwa03

Neither proposal equals a privately built arena. Flames want more free money/tax breaks than what the city is offering.

Right. And neither side is prepared to move on this, and I understand that completely, from both sides.
So there is no deal and things go on, as usual.

So why the wailing and gnashing of teeth?
The Flames should be compelled to put themselves in a financial position they don't want?
The city should put taxpayers on the hook this?

Of course not, in either case. So that's it, and I think it's best for all involved.

[GioforPM]

Originally Posted by topfiverecords

The Saddledome is already attracting 1.5M visitors each year to the area. 2 blocks north and new ice isn't going to change much beyond a percentage of more dates of occupancy (concerts).

Beltline, East Village, Eau Claire, Mission, Bridgeland, Hillhurst/Sunnyside, Inglewood, DT west end, etc have all seen an insane amount of development over the last 15 years. None of those areas have an arena.

If this was a possibility, it would have happened a long time ago.

In fairness, most of the sports/entertainment districts that really work well have the restaurants and bars literally outside the door of the arena/stadium. You go through the district even to get to your car in a lot of them. Look at Phoenix or Glendale. The Saddledome is behind the Stampede walls. Sure there's a couple places five blocks away, and anyone should be able to walk it, but it's not the same.

[Table 5]

Originally Posted by dammage79

Whens that Olympic bid due? Seems that is going to be the only way either side gets what they want.

The problem with the Olympic bid is that it's no means a lock. Unlike 2022, 2026 has some legitimate contenders in Switzerland and Austria. We are also 2 years away from selection...so if Calgary doesn't get it, I guess we go back to square 1?

[edslunch]

I couldn’t read through all the posts this morning. Is there one that explains how the Flames end up paying 120%?