Coliseum City Reboot Financials

Coliseum City Reboot Financial Plan (Reprinted from: http://www.zennie62blog.com/2015/06/07/oakland-coliseum-city-reboot-plan-updated-presentation-june-7-2015/)

I’m going to start this latest presentation off with something that will set the tone for how I think Coliseum City should be approached from this point on: the East Side of the Oakland Coliseum City stadium must be retained and upgraded as part of a new stadium for the Oakland Raiders. The reason is simple: anything that calls for a totally new stadium is something a 40-year lease revenue bond can barely handle. In other words, the risk of bond default is too great to ignore. I’m not comfortable issuing a Raiders Stadium plan that has a razor-thin margin – one with a brand new stadium has just that.

Before I introduce the plan, let me explain even further: it’s not that a 40-year lease revenue bond of any kind can’t handle a new stadium, but given the revenue production over that period of time, and the balance between the cost of adding new land uses within the Oakland Coliseum boundaries, and the resulting revenue, it becomes increasingly difficult to do.

The Basic Plan For The Oakland Coliseum City Reboot

As a reminder, Oakland Raiders Owner Mark Davis invited me to submit a stadium plan while at the NFL Spring Meeting in San Francisco, and in witness by NFL Network Anchor and my long time friend Mike Silver.

The plan calls for the following:

1) A new Oakland Coliseum Stadium for the Raiders, but with the East Side retained – 68,000 seats, 300 luxury boxes at an average of $125,000 each. 45,000 square feet of retail and club space.
2) A new stadium for the Oakland Athletics at the South End of the Coliseum (as per the original plan) with 150 luxury boxes at $110,000 each and 35,000 square feet of retail and club space.
3) A 1,010 room hotel complex (with a provision for a small set of affordable condominiums to meet industrial development bond requirements) that’s two wings: one close to the Raiders stadium, and the other a 400-room building next to the A’s stadium.
4) 200,000 square feet of retail space in the area between the Raiders Stadium and Oracle Arena (with part of that becoming the hotel space)
5) The estimated costs are: $900 million for the Oakland Raiders Stadium, $500 Million for The Oakland A’s Stadium, $99 million and $79.9 million for the hotel wings one and two, and $54 million for the external retail complex. All of that, combined with bond costs, comes to just over $1.8 billion.
6) A 40-year industrial development lease revenue bond issue: at a stated interest rate of 8.5 percent it produces an annual debt service of $152 million (the bond amortization schedule is in the spreadsheet below) and an effective Internal Rate of Return of 8.72 percent. Moreover, the total project revenue is $2 billion over that time, or $200 million in surplus not including the debt service reserve – with that added, the total surplus is $396 million.
7) As a note, in the spreadsheet, all of the estimates for revenue were heavily discounted. For example, I assumed 60 percent ticket sales, personal seat license sales, etc. For comparison, the original 1996 Raiders PSL program sold 67 percent of the inventory.

The plan calls for using only the Oakland Coliseum property and not going beyond its boundaries – thus, housing activists can relax as we’re not invading East Oakland. In effect, as I’ve mentioned before, we’re going back to the original plan that was created by the late Frank Dobson, Bob Leste and Steve Lowe – the former an Oakland architect, the middle guy a real estate developer and investor best known locally for the now-torn-down Mac Arthur-Broadway Shopping Center which was at Broadway and Mac Arthur, and Mr. Lowe well-known in Oakland land use circles.

The difference between their plan and the one I’ve created is something Mr. Lowe explained in our recent talk: that their plan was not created with any bond issue in mind; the numbers were more “exploratory.” The Dobson, Leste, Lowe plan also lacked a hotel use.

Why An On Site Coliseum Hotel Complex?

The idea of a hotel on Coliseum grounds came about because from the start, I was trying to “size” the plan for a lease revenue bond issue (which I will explain later) and so started pondering this question: why is it a skyscraper like SalesForce Tower in San Francisco and at a cost of $1.1 billion can be constructed without a public subsidy, whereas a stadium seems to call for it? I asked that question to Rick Tripp, who has produced plans for his own stadium proposal in Carson, and has 35 years of development experience, and the answer I got back from him was butt simple: because that has more tenants producing revenue streams than for a stadium.

So, I started to ponder what uses could be placed on Coliseum grounds, and frankly the hotel idea really just popped into my head as one to numerically test. So, I started trying to determine what the optimal combination of rooms and price would be to achieve a revenue ‘throw-off’ that could contribute to pay for the overall stadium project. 200 rooms was too little; eventually I came to 600 rooms for the Raiders side, but then when I looked at the Oakland A’s fiscal model, adding hotel rooms in a new wing worked as a tool for more revenue for that stadium, too.

So the hotel addition was for the sake of revenue generation and not a land use theme park idea. Think about it: the hotel has one construction cost, but once that’s paid, it generates annual revenue that accumulates beyond what it cost to build over a 30-year or 40-year time frame. So it more than pays for itself, even after operating costs are considered. It’s one thing to consider a kind of land use, but doing the math behind it gives one a good idea of whether or not it’s really feasible – this hotel use is, and especially when the average room rate is considered.

At first, the room rate was low: $150 per room but then my overall construction cost was over the industry standard high end for a luxury hotel: $464 per square foot versus $500 in my model. Thus, I had to increase the room rate, but I was concerned that the price would be too high to expect people to stay in the hotel.

As it happens, the recent AECOM Coliseum City Economic Study mentioned that the hotel market around the Coliseum was on the upswing.But even with that, the study was incomplete in that it failed to look at the entire San Francisco Bay Area Hotel Market - it treated the Coliseum area as a region onto itself. So, I turned to the more accurate work by HVS Consulting and learned that San Francisco alone had a 16,000 hotel room shortage and Oakland was said to have a need for an additional 1,000 rooms. That's more than enough market demand from two areas. Then, let's say the hotel was something like a Marriott or W Hotel. The average rates for the W Hotel are generally over $270 per night; thus a $235 per room rate average for our hotel, especially given its place between football, baseball, and concert and basketball venues, really is a bargain.

Additionally, the ARR for San Francisco is $255; for my proposal, the room rate I settled on was $235. and given the pent-up hotel room demand, and the unique design of the stadium / hotel complex, that can be achieved.

Retaining The East Side Is A Reminder Of Raiders History In Oakland

Moreover, given that the East Side of The Coliseum Stadium is just 20 years old as of 2016, and quite sturdy, why the rush to demolish it? Additionally, it’s a homage to the return of the Raiders to Oakland from Los Angeles, and was built with the input of the late Al Davis. Given the recent controversy over not retaining the Al Davis Torch in the plan for the Carson Raiders / Chargers Stadium, retaining and improving the East Side in Oakland is the perfect reaction to that. It allows us to save as much as $50 million to $100 million in stadium construction, and gives us a larger monetary surplus for the bond. In the spreadsheet, doing so adds to a total surplus of over $400 million.

I think Mr. Davis should at least look at a detailed architect’s rendering of a new stadium with an upgraded East Side. I think he will like what he sees.

Why An Industrial Development Lease Revenue Bond Issue?

The objective of this Coliseum City Reboot Project was, from the start, to produce something that did not require tax payer subsidies. Lease revenue bonds take the total income streams from a development project, and issue a bond against them. In other words, a good lease revenue bond issue just uses money produced from the project. The Carson Stadium plan is like this, but the planners call it a “privately funded” facility: in reality, that’s a lie. As long as a public organization like a joint powers authority, which is a type of public entity, is floating a bond, the bond issue is not private. What the users of such terms are trying to say is there’s no public tax subsidy used, but saying its “privately funded” gives the wrong impression. Yet, that’s what the Carson planners did, and I have not done. An Industrial Development Lease Revenue Bond Issue takes advantage of special provisions that allow a public government to float bonds for a private sector use. Coliseum Reboot’s unique mix of land uses, including transportation, will allow it to take advantage of the Industrial Development Lease Revenue Bond Issue tax laws.

Will Not Use City / County Coffers As A Bond Issue Backstop

The other intent was to have a large industrial development lease revenue bond issue. In this, while the issuer is the Oakland Alameda County Coliseum JPA, it’s done on behalf of private entities, thus, technically it’s not consider a municipal bond issue because the general fund of the city and the county is not used. That’s my objective here.

By contrast, a standard municipal lease revenue bond issue would use the City and County general funds as protection against default. That would not fly in the City of Oakland or Alameda County.

The City and the County must be proactive in asking for such a bond issue. Typically, elected officials don’t demand such bond structures because municipal bond underwriters who advise them want to take the easy way out and load the debt onto the public – that’s how we got into trouble with the original Raiders Deal. A good request for proposals for bond underwriters has to state the desire to form an industrial development bond right up front.

But I will state that I have been in constant contact and conversation with Piper Jaffrey and their talented team of professionals lead by Managing Director Diane Paauwe, who I cold called. If it were up to me, Piper would be the choice for this project, and no, I’ve not been compensated by Piper in anyway; this was all my doing. I wanted to demonstrate how much time has been wasted by going about the current ENA process. This is not rocket science.

Here’s the spreadsheet plan – its an embeded Excel spreadsheet you can scroll through and there’s a small button at the lower right hand of the spreadsheet window that, if clicked, expanded the document and allows you to see all of it: