City’s bill on Oceanfront arena deal could exceed half a billion over three decades

VIRGINIA BEACH — The city could write checks to a private developer totaling nearly half a billion dollars over three decades under a tentative agreement to build a $210 million arena at the Oceanfront. Much of the money would come from tax credits on revenue generated at the arena.

A rendering of the proposed Virginia Beach Oceanfront arena. (Courtesy of
A rendering of the proposed Virginia Beach Oceanfront arena. (Courtesy of

The total potential long-term bill to the public — $476,724,930 — is the maximum the city could pay toward the developer’s $170 million construction loan, plus a 6 percent annual return on the developer’s $40 million equity investment, according to the arena revenue fund agreement. That total does not include $76.5 million in infrastructure improvements the city must pay for out of a special tourism fund as part of the deal.

The longer term payments are among the terms in a tentative arena agreement that the council is poised to approve on Dec. 8. Payments would be capped at $12.6 million for the first three years — primarily while the arena is being built –and then at $14.6 million for the next 30 years. The money would come from taxes generated at the arena, a portion of the city-wide hotel tax and from a special tourism fund — not the city’s general fund, the documents say.

The payments will fluctuate based on developer United States Management LLC’s debt service payments and returns on equity, but it cannot exceed $476,724,930 — or about $266.7 million more than the estimated cost of building the arena, according summaries of the arena deal.

Asked about the payments, Mayor Will Sessoms said USM is taking the risk to build the arena and will therefore take the reward of doing so. He said the deal would be better for Virginia Beach if the city built the arena itself.

“But at the same time, does the city want to go jeopardize its bond rating to borrow $200 million?” Sessoms asked. “No.”

Virginia Beach Taxpayer Alliance co-founder Robert Dean circulated the dollar figure Tuesday in an email criticizing the deal.

Councilman Bob Dyer said he had not heard the city’s total payments could be that high, but he said some of those figures are fluid until the council votes on the agreement. Regardless, the council knew it would have to give up something to get an arena, Dyer said.

“And if we don’t do this deal, then we’ll never do one,” he said.

Dyer said not getting the arena would be detrimental to the city.

Deputy City Manager Doug Smith said the deal’s biggest attribute — its “home run” — is that the arena would be “the catalyst for redevelopment in that old Beach district” near the Oceanfront.

USM has said it aims to open the 18,000-seat arena buy 2018. Under the deal, USM will build, own, operate and maintain it. It will be built on city property by the Convention Center on 19th Street, and turned over to the city after a 60-year lease of the land expires.

The City Council is tentatively scheduled to hear more public input on the deal at its Dec. 1 meeting and vote Dec. 8.

Here are taxes and fees to be granted to developers, according to the revenue fund agreement summary:

  • Real Estate Taxes paid at the arena
  • Personal property taxes at the arena
  • Business license taxes with respect to arena operations
  • Admissions taxes for arena operations
  • The city’s portions of sales and use taxes at arena or related to arena events
  • Meals taxes for arena operations
  • One percent of the city-wide hotel tax, exclusive of any flat fee
  • An amount equal to the sums received by the city from the commonwealth for sales and use tax for construction materials, movable furniture, fixtures and equipment or other items purchased by USM during construction
  • An amount equal to sums received by the city from the commonwealth for sales and use tax payable in connection with arena operations

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