VIRGINIA BEACH, Va. (WAVY) — While the first hurdle has been cleared to make the largest public-private partnership in Virginia Beach history a reality, before the next vote is taken, fallout from a failed proposal with similar goals will play out in court.
The City of Virginia Beach has been on a mission to transform its Oceanfront into more of a year-round destination, not one that only provides strong tourism dollars between Memorial Day and Labor Day.
In the last five years several project proposals have been brought forward in an effort to draw people in.
One such proposal was to build a $245 million arena by the convention center that could host both professional sports and concert events. Another, a $328 million proposal, would construct an indoor/outdoor music venue, surf park, restaurants, office space and residential units on the land of the former “Dome Site.”
While the latter is currently making its way through the approval process, in early-April a lawsuit brought by Mid-Atlantic Arena LLC against the City of Virginia Beach is scheduled to go to trial.
The company, which planned to build a $245 million arena by the convention center, is seeking $165 million in damages after the city council voted to terminate the agreement in November 2017.
“[Mid-Atlantic Arena] feel they have closed on the loan,” said then-Virginia Beach Mayor Will Sessoms in November 2017. “This city feels they didn’t close on the loan.”
The city gave the developer multiple extenstions to secure financing, according to information from the Virginia Beach Development Authority.
Since Mid-Atlantic Arena filed their lawsuit, more than $721,000 has been paid out by the city to outside law firm Willcox & Savage.
At a January 2 press conference to announce the terms of the “the Dome Site,” which has since been renamed “Atlantic Park” by development partner, musician and Virginia Beach native Pharrell Williams, Deputy City Manager Ron Williams reiterated the goal of the public-private partnership.
“We really believe it puts Virginia Beach on the map as a destination to reconsider and come back to,” said Williams, who helped negotiate the term sheet. “It’s a project that hasn’t been done before. You are trying to make sure you are balancing the risk for both the city and the development partner.”
Under the approved term sheet taxpayers will pay nearly $96 million of the final total with an annual incentive payment of $5 million for 20 years.The lead partner, Virginia Beach-based Venture Reality, would secure financing for the rest.
Should taxpayers be concerned again of a deal falling flat?
“Two very very different deals and deal structures,” Williams said comparing the Dome site and arena deal. “It’s not an apples to apples comparison.”
In a follow up interview, Williams didn’t wish to comment further citing pending litigation.
However Nick Egelanian, a retail real estate consultant who previously helped study the feasability of the Dome site proposal, said the differences are clear.
“The arena is a one-dimensional entertainment complex. It relies on bringing entertainment a certain number of days a year,” said Egelanian. “Couldn’t be more different than a project that brings a mix of retail uses, but other uses. It’s possible that you’ll have one lender on a retail building. One lender on a apartment building and a different lender of the theater portion of it. You can have 4 or 5 lenders.”
Egelanian, who has consulted for projects all over the globe, said he also couldn’t find another project like the one proposed for Atlantic Park.
“There are only a few wave pools in the country, there are none that are associated with a mix use center of that type,” Egelanian said. “They are very expensive to operate and they don’t return revenue at anywhere near the rate of some other things.”
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While that may seem risky, Egelanian said the coupled uses build confidence in the overall product success.
Venture Reality highlighted similar points:
“On January 15, the Virginia Beach City Council approved the Term Sheet for the proposed development of the former Dome Site. Our team (Venture Waves, LLC) is now working with City staff on a Development Agreement that will formalize terms contained in the Term Sheet. The City has expressed a desire to present the Development Agreement for Council vote this summer. While our team has conducted preliminary financial analysis, we cannot complete a plan of finance until after leases, plans and pricing have been finalized. Nevertheless, the Atlantic Park project can be contrasted from other major public-private investments because it is comprised of multiple project components that are each independently financeable. This project is not a single building with a single revenue forecast. Rather, this project contains multiple buildings, uses and revenue streams that allow various traditional finance structures.”
The development agreement will lay out more specifics in financing terms.