Seattle City Council Monday authorized Mayor Jenny A. Durkan to execute a Memorandum of Understanding (MOU) with Oak View Group (OVG) to redevelop KeyArena into a world-class multi-purpose sports and entertainment arena. The legally binding agreement commits OVG to project costs, including all project overruns, $40 million in neighborhood transportation improvements, and a bevy of additional financial commitments and other obligations.
“We’ve set the stage to make the most significant investment in Seattle Center since the World’s Fair,” said Councilmember Debora Juarez (District 5, North Seattle), co-chair of the Council’s Select Committee on Civic Arenas. “Today’s agreement was the Seattle Process at its best: We gathered stakeholders, consulted the community, highlighted our concerns and goals, aggressively negotiated, and when we had a solid plan, we pushed it through. I cannot overstate the diligence that went into this agreement. We can all be proud of this transformational partnership.”
Council was party to a four-month negotiation between the City and OVG to develop agreement conditions. Council also retained a financial consultant to provide independent analysis to ensure the City would be party to a fiscally sound agreement. Council signaled its priorities early in the negotiation process, which generally fell into the following six categories:
- The project must be fiscally prudent
- The project must positively integrate with Seattle Center
- Current Seattle Center tenant impacts must be addressed
- Transportation impacts must be mitigated
- OVG must treat workers equitably and consistent with the City’s Race and Social Justice Initiative principles during construction and operations
- Needs of impacted neighborhoods must be addressed
The MOU agreement commits OVG to a 39-year lease with two, eight-year renewal options for a total of up to 55 years. The redeveloped arena will nearly double the size of KeyArena, meet LEED Gold or equivalent standards, and will preserve the current historic roofline. KeyArena was last renovated over 20 years ago, and a 2015 evaluation concluded that for the City to attract a sports franchise, the arena would need to be modernized.
Council President Bruce A. Harrell (District 2, Southeast Seattle), co-chair of the Select Committee on Civic Arenas, said, “The City negotiated one of the strongest arena agreements you will find in the country, protecting our taxpayers and the City. The community benefits agreement is unprecedented with investments to help address issues like homelessness and other social needs. I am confident this will be a partnership of success with OVG in building a state-of-the-art arena, generating economic vitality, and the ultimate goal of getting an NHL team and bringing back the Sonics.”
Councilmember Sally Bagshaw (District 7, Pioneer Square to Magnolia) said, “After a year of hard work and negotiations, we’ve taken the next step toward our civic Arena becoming the iconic destination for Seattle and the region. This redevelopment unlocks the potential for the best new arena for sports, entertainment, high-tech expos, concerts and more—with partners who have already demonstrated their commitment to partnering with the City for success. Thank you to the members of the Oak View Group, to Brian Surratt and City negotiators, and to the community leaders who have come to the table to address mobility and economic development challenges. We’re underway!”
OVG will not use City bonding capacity for development of the project, nor will they be exempt from paying admissions taxes to the City. OVG intends to fund the project through a combination of private equity, debt financing from lenders, and federal historic tax credits. OVG will assume all costs related to operating and maintaining the arena.
OVG is expected to contribute the following to the KeyArena redevelopment project:
- $600 million in project costs, plus all cost overruns.
- $3.5 million to cover the City’s cost for the hiring of expert consultants and legal counsel during the MOU negotiation process.
- $250,000 for a transportation consultant to develop a neighborhood mobility action plan.
- $40 million payment for transportation improvements over the 39-year lease term (approximately $1 million per year), as informed by the mobility action plan.
- Guaranteed baseline rent and tax guaranty payments, amount to be determined by an accounting firm based on the four-year trailing historical annual average of arena-related revenues for years 2014 through 2017 (roughly estimated to be approximately $2.6 million per year.
- $20 million in-kind or cash to non-profit organizations, including $10 million dedicated for YouthCare. Council amended the MOU to require that at least half the contributions be made in cash.
- $1.5 million to relocate the Seattle Center campus’ skate park and maintenance facility.
- $500,000 for relocation of other affected Seattle Center tenants.
- All costs related to temporary and permanent relocation of Pottery Northwest
- Hire and pay for a community liaison.
- 14 rent-free days per year for the Seattle/King County Public Health Clinic, Bumbershoot, and other community events.
- Dedicate one percent construction costs to the 1% for the Arts Program.
- Make a Mandatory Housing Affordability payment for the increase in arena square footage.
- Arena workers are expected to be paid a prevailing wage, and current qualified KeyArena employees will be offered an equivalent job following the arena’s opening.
- As revenue collections begin, the City will collect 25 percent of excess revenue in the first 10 years of the lease, and 50 percent for the remaining years beyond the baseline rent and tax generated.
- If arena tax revenues ever fall below current levels (about $2.4m/year), OVG will reimburse the City the difference.
The MOU provides an agreed-upon framework that will soon be memorialized in a Development Agreement, Lease Agreement, and Seattle Center Integration Agreement. Redevelopment construction is estimated to begin at the end of 2018 for opening in October 2020.