A corporate coalition led by Dominion Energy’s chief executive wants the city to commit more than $165 million in property taxes from a pair of Dominion skyscrapers to potentially help pay down debt for a proposed $1 billion redevelopment of the area around the Richmond Coliseum.
The plan from Thomas F. Farrell II’s nonprofit development group — NH District Corp. — hinges on the creation of a tax-increment financing district, a zone where new tax revenue would be dedicated to paying off debt from the redevelopment project. The zones typically surround a small area where a project is occurring, but Farrell’s group wants the zone to extend about half a mile away solely to take advantage of Dominion properties near Sixth and Cary streets, according to documents obtained by the Richmond Times-Dispatch through a Freedom of Information Act request.
The towers — Dominion’s One James River Plaza building on Cary Street along with the utility’s new 20-story offices set to open next door in 2019 — would provide a projected $4.2 million to $7.7 million in new property taxes to the redevelopment annually beginning in 2021, totaling $165 million across three decades. The money would otherwise flow to the city’s general fund to pay for core services such as public safety and education. Ultimately the Richmond City Council must sign off on the plans.
“It’s up to the city administration and the mayor first to decide whether they want to go that route. ... We’re ultimately agnostic on this point,” Farrell said in an interview Saturday afternoon. “I don’t think it’s fair to say you’re taking [$165 million] away from other city services because the project itself will have excess income coming into the city.”
Farrell, who said neither he nor anyone in his family will have any financial interest in the project, said his involvement comes from a sense of civic responsibility. He said it’s just a coincidence that Dominion’s new tower is part of the proposal.
He said the money from the towers would help the city secure a better deal on financing, but the money likely wouldn’t be needed if the redevelopment succeeds.
“We’re going to infuse life back into that part of the city,” he said. “It’s going to create good-paying permanent jobs.”
NH District officials said the proposal, dated May 9, was a draft reflecting early negotiations. A timeline created by the group, which has been largely followed, calls for the City Council to consider the proposal in September and vote on it in December.
Council President Chris Hilbert said including the new tax money from the Dominion towers on the other side of downtown would be a nonstarter.
“If that is the proposal, that would not be palatable for me,” Hilbert said. “That would be a troubling structure.”
Millions in new property, meals, lodging and sales taxes collected in the special zone, along with new coliseum revenues, would underwrite the proposal, which calls for a new $220 million arena, 2,800 apartments and condominiums and a Hyatt brand hotel in a 10-block area north of Broad Street between Jackson Ward and the Virginia Commonwealth University medical campus. Private investment would pay for the cost of the commercial and residential development in the proposal.
Plans also call for the rehabilitation of the historic Blues Armory, a new GRTC Transfer plaza for bus riders, a VCU building and 176,000-square feet of street-level storefront space for new restaurants and shops.
The financial projections show the towers aren’t necessary for the project to work. But their inclusion in the tax zone, sometimes called a TIF, would lessen the financial risk and could allow the city to pay off its debt faster, according to NH District representatives.
“In our view, the inclusion of the Dominion Tower in the TIF is simply a beneficial business decision for the city — to pave the way to build a state-of-the-art arena that will attract outside investment and grow the commonwealth’s capital city,” NH District’s lawyers wrote to Richmond Mayor Levar Stoney’s administration in May.
The redevelopment is projected to bring as many as 21,000 jobs to the city, including 9,300 after construction is complete, according to a VCU Center for Urban and Regional Analysis report. The proposed redevelopment could have a $1.2 billion annual economic impact after construction, the report states.
The proposal could give the entity control of more than 21 acres of publicly owned land.
The TIF boundaries outlined in the proposal are the subject of ongoing negotiations between the city and NH District, Stoney said in an interview. Until negotiations conclude, that and other details in the group’s proposal are not set in stone.
“This is our project. This is not Dominion’s project. It’s not any other entity’s project. This is our project. This is my vision. … I don’t care if it’s Tom Farrell or Johnny on the street, if it does not benefit my city, this project will not move forward,” Stoney said.
In February, NH District submitted the lone proposal in response to a city request for proposals Stoney announced in November, months after Farrell’s group publicly expressed interest in spearheading a redevelopment centered around a new arena. The Stoney administration has, to date, deliberated behind closed doors.
The Times-Dispatch obtained NH District’s written responses to questions raised by the Stoney administration after its initial review of the group’s proposal, financial projections, a development timeline and other documents through a FOIA request for emails between the lawyers NH District retained and the city’s Department of Economic and Community Development.
The responses reveal some doubts from the city about some of the group’s assumptions and revenue projections. Stoney has commissioned a third-party analysis of the group’s figures by an out-of-town entity so the review is impartial.
“I wanted someone who was not tied to any of the entities that may be involved in the project,” Stoney said.
NH District projects the new arena will book 120 events annually and generate $3.7 million in revenue to help cover debt service payments in its first year in operation, and $5.8 million by its third year. The revenue projection includes annual money for naming rights, sponsorships, admissions taxes on ticket sales, sales and meals taxes on concessions sold to patrons and business license taxes.
The Stoney administration questioned the group’s revenue forecast, saying it appeared higher than figures from nine comparable arenas NH District pointed to in its original proposal. Those arenas made an average of $953,000 annually. The highest grossing venue brought in $2.9 million.
NH District wrote back to the city that the revenue figures for the comparable arenas did not fully account for money paid for naming rights or collected for parking at the venues. Some of the other venues also had anchor tenants that took cuts of overall operating revenue.
The absence of an anchor tenant at the new arena — the group’s proposal does not include one — could provide more flexibility in scheduling events throughout the year and preserve the new arena’s profit margins, the documents state.
The city is responsible for paying for a portion of the Greater Richmond Convention Center’s existing debt using the lodging taxes the city collects. Under the NH District plan, lodging taxes from the new 527-room hotel — $2.3 million in its first year in operation — could be diverted to pay the debt service on the project. The group said the new lodging taxes would be unnecessary for the city to cover its payment toward the GRCC debt.
“This incremental revenue is highly impactful to the arena bond repayment schedule,” the group stated in one of its written responses. “Without this annual revenue, debt service coverage ratios for the arena bonds drop below acceptable levels.”
Throughout its responses to the city, NH District maintains that new revenue generated by the redevelopment should be 1.5 times greater than the redevelopment’s debt annual service payments. For example, if the debt service payment is $10 million annually, the group wants annual revenue to equal or exceed $15 million.
Documents from NH District state the revenue-to-debt ratio is why it’s pushing to include the Dominion Energy properties in the special tax zone. With the Dominion skyscrapers, revenues will outpace the payments by the third year of repayment, according to the group’s financial projections, meaning investors will view it as a safe bet.
Without the towers, revenues are projected to cover the anticipated debt payment, but never outpace the payments at a high enough rate, meaning investors may view the redevelopment as a riskier proposition, leading to higher interest rates and higher costs in the long run, the documents state. Those higher costs would be borne by the city, an NH District representative said.
It is NH District’s expectation that the city would transfer the property targeted for redevelopment to the Richmond Economic Development Authority, the documents state. In that scenario, the EDA could lease the properties to NH District for a term of 99 years, and the group would pay ground lease payments on the properties to the city.
Another piece of the group’s financing for the proposal is the establishment of a special parking district in the redevelopment’s footprint. NH District projects between $5.5 million and $7.7 million annually in new revenue from visitor and resident parking in city-owned and operated decks.
Combined, the new taxes, parking money and operating revenue from the arena would cover the twice annual debt payments, according to the group’s financial projections. Those payments would begin in 2022, at $13.4 million annually, and increase to $28.2 million by 2048, the end of the repayment period.
Counting principal and interest, the debt service payments will tally $633 million between 2022 and 2048, according to the group’s financial projections. During that same period, NH District projects the redevelopment will net $375 million in surplus revenue that would flow to the city.
Representatives of NH District met with city leaders to discuss the proposal and a timeline for advancing it in May.
The meeting’s agenda was set by Davenport & Co. LLC, the city’s external financial adviser. About two dozen people from various entities working with NH District Corp. attended the meeting, which was held at the Hirschler Fleischer law offices on East Cary Street. Stoney was not present, he said.
Among the attendees: C.T. Hill, a retired SunTrust executive who is president of the NH District; top brass from Dominion, including Mark Mitchell, its vice president for generation construction, and Grant Neely, a onetime chief of staff for former Mayor Dwight C. Jones who is leading a communications team at the utility giant working to advance the proposal; Susan Eastridge, CEO of Concord Eastridge Inc., a Fairfax-based real estate development company; Dolly Vogt, regional general manager of SMG Richmond, which currently operates the Richmond Coliseum; and Burt Pinnock, a principal at Baskervill, a Richmond-based architecture firm.
The timeline laid out a goal to brief several city departments about NH District’s plans and set a schedule for additional public input on the proposal by the end of June. NH District representatives said the group will announce public meetings about the proposal in the coming weeks. On Saturday, the group launched a website that includes a section where subcontractors can apply to work on the project.
After an inquiry from The Times-Dispatch last month, the Stoney administration announced it would begin negotiating with the group. Stoney said in a statement that his administration would only move forward with the plan “if we determine it is in the best interests of the community.”
The administration told City Council members last month it would submit a package of ordinances advancing the proposal in September, Stoney said, consistent with a Sept. 10 deadline outlined in the timeline. The administration will adhere to the schedule only if NH District adjusts its plans to match the city’s expectations, Stoney said.
“At the end of the day, if [NH District] doesn’t meet some of terms that we have when we come to the table, then the project won’t move forward,” Stoney said. “I was very explicit to members of the City Council that I will not present ordinances to them that don’t meet the terms that we dictate.”
The timeline outlines a goal of securing council approval for the proposal by Dec. 1. Council approval is necessary before NH District can make its bond offering to investors, tentatively scheduled for January, the timeline shows.
In its responses to the city, NH District identified as a potential stumbling block the Federal Reserve’s intention to raise interest rates several times in the near future. The impending increases threatened the viability of the project’s financing, the group said, in what may be a glimpse into its strategy for swiftly securing council support for the complex deal.
“As more time passes, and before taking action and bringing the arena bonds to market, interest rates may rise to a level that could threaten the feasibility of the project in its current scope,” according to its written responses. “This may mean that either the bond issuance will result in lower proceeds available for building a new arena or more tax revenues will be needed to underwrite the bonds.”
If approved by the City Council, construction on housing in phase one of the redevelopment could begin in February, with a demolition of the Coliseum slated for March, according to the timeline.
NH District aims to break ground on the new arena as early as next August.