The Stadium Deal – Too Much for Too Little
- Ron Diner
- Feb 22, 2024
- 5 min read
A Lawyer's Look at the Rays Hines Proposal
Guest written by William C. (Bill) Ballard. Bill is a St. Pete native, retired attorney and past President of the St. Petersburg Bar Association.
The Stadium Deal asks too much from our city and offers too little.
If St. Petersburg went ahead with the Rays Hines deal, the city would be required to borrow $327.5 million to contribute to the stadium project. Concurrently, the city would be required to surrender to the Rays Hines joint venture control over the development of the Historic Gas Plant District (HGDP) development tract for the next thirty years. The joint venture would also be granted the right to purchase, at future times of their choosing until 2054, about 44 acres of prime development parcels within this tract.
Using a recent commercial property sale as a comparable, the market value of those parcels is $517 million. Under the proposed terms for the HGPD development agreement, Rays Hines will pay $105 million in cash and commit to paying up to $50 million of infrastructure costs within the tract. While “land banking” the HGPD tract for the joint venturers, the city would not receive any income from the stadium or the HGPD tract – not even property taxes upon the development parcels until such time as the joint venturers’ exercise the purchase right for a parcel. The city will never share in the appreciation in value of the development parcels despite the city also being committed to borrowing, and then spending, $90 million for infrastructure to serve those parcels.
Tens of thousands of forecasted construction jobs have been a major inducement for the proposed agreements. As stated in the Committee of the Whole presentation in October 2023, the full-time equivalent construction jobs by the joint venture would not be substantially realized until twenty or more years in the future when the estimated $6 billion of HGPD development construction is expected to be at full force. The presentation materials asserted that 28,400 of 32,900 full time construction jobs to be created by the combined New Stadium and HGPD projects. Those future HGPD jobs are contingent upon the development project having survived the substantial risks that impede or terminate real estate development projects, large and small. Developers who owned or were constructing office buildings in 2019 are now experiencing heavy losses due to Covid having caused a sudden, unforeseen, decrease in demand for office space. Other risks include developer insolvency, construction delays and cost spikes, war, civil unrest, recession, financial crises, and now, proliferation of shootings and other forms of mayhem in public spaces and gatherings, to name just a few. Remember the city’s failed public-private partnership in the 1980-1990s with Neil Elsey’s Bay Plaza team to redevelop downtown St. Pete?
The construction FTE estimate was likely based on the Target Development Plan set out on page 2 of the HGPD term sheet. However, the joint venture is not obligated to cause the Target to be achieved. Rays/Hines obligation is only to complete the Minimum Development Requirements, which are on the same page. These minimum requirements would obviously require substantially fewer FTEs. The difference between Target and Minimum Required is exemplified by this line item: Target Plan – Hotel, 750 keys. Minimum Requirements – Two Hotel Pads or 400 keys. The substantially fewer and smaller improvements that would be constructed to satisfy the Minimum Requirements cannot be expected to achieve the primary goal of the Target Plan – a new vibrant city center and a new MLB stadium which would augment each other.
The terms of the HGPD disclosed on the October 2023 term sheet create an unusual risk. These terms provide the Rays Hines joint venture the ability to sell their rights to acquire the development parcels and the vested development rights, take the profits built into this deal in 2024, and leave the city to deal with multiple developers not of its choosing.
Here are some relevant portions of the term sheet:
“Term Sheet (Historic Gas Plant District) “The purpose of this term sheet is to assist the City of St. Petersburg (“City”) and a joint venture comprised of affiliates of Rays Baseball Club, LLC and Hines Interests Limited Partnership... in negotiating and drafting the development agreement (‘Development Agreement’) related to future development of the Historic Gas Plant District. [The Term Sheet not a binding commitment or comprehensive list of all terms, conditions or agreements that may be required]
2(h) Rays/Hines will have the right to develop the Parcels in such order and at such times as Rays/Hines determines in accordance with the terms of the Development Agreement and provided the Minimum Development Requirements are satisfied.”
6(f) Rays/Hines may (i) collaterally assign its rights under the development agreement to secure financing . . . and (ii) may assign all or a portion of its rights to acquire and develop a Parcel to one or more affiliates [of the joint venturers], investors, end-users, and/or qualified third-party developers in accordance with and subject to the terms of the Development Agreement.
The New Stadium term sheet (“Outline of Future Project Agreements”) at page 20, states that the Rays Baseball Club itself will fully guarantee to the City and the County the “full, faithful and punctual payment and performance” of its affiliate which will construct and operate the new stadium. No such term appears in the HGPD term sheet. The presumably well capitalized Rays Baseball Club and Hines Interests Limited Partnership can limit their financial risk by thinly capitalizing their affiliates who, as joint venturers for the HGPD development project, will be the parties to the HGPD Development agreement with the City. It is these joint venture affiliates who can choose to assign the purchase and development rights to other persons or entities. These affiliates or their assignees can delay development for decades while waiting to make a profitable “flip” of their parcels. The Term Sheet does not condition assignment of these rights upon approval by the City.
Based on these terms, major parts of the HGPD development agreement could be legally difficult, and in practice, very difficult to enforce. The terms facially give the original joint venturers and their assignees the right to delay initiation of construction of the major part of the Minimum Requirement improvements to the last possible date that could permit in substantial completion in 2054. In the intervening years the city and its ratepayers and taxpayers will have received little in return for $700 million in debt service payments, the $350 million discount in the price of the tract, the erosion of value, due to inflation, of land payments when received, and the loss of property tax revenue from this tract when compared with the revenue that would have followed timely development.
It is likely that the city’s attorneys are attempting to incorporate provisions to prevent the abuses that the term sheet provisions would permit. The attorneys’ efforts will accomplish little if the city’s administration maintains its present “Keep MLB in St. Petersburg at all costs” negotiating stance. MLB will just keep on eating our lunch.
