20 November 2006

The Loaiza-Kennedy rule of ownership

Today I'll pose a "hypothetical," y'all can debate it.

The A's are buying up land in Fremont. Some of it will be meant for housing, some for parking, some for retail/commercial, some towards the ballpark, the rest for infrastructure. Here's how the ownership situation would look:
  • Ballpark: 50% A's, 50% Fremont
  • Ballpark land: Fremont (A's would donate land)
  • Retail/commercial: A's
  • Parking: A's
  • Residential: Third-party developers (TBD)
  • Infrastructure: Fremont

The infrastructure piece is the obvious no-brainer, the rest are educated guesses. The A's might want the ability to retain as much of the land for future development as possible. That's why parking lots/garages would be owned by the team. The land for residential, along with development rights, would be sold early on to housing developers developers to assist in financing the ballpark. The rights might not be sold all at once because pending construction could create a glut of sorts in the housing market. Chances are that the rights would be sold in phases, which is fine if you're the A's because all you want to do is service annual debt. The rights would be sold well in advance of a 20-30 year term on privately financed stadium bonds, so that money could be used to either pay off the debt early or to be reinvested. Retail/commercial makes sense for the A's to own because they'd rake in nice leases from the various new establishments.

As for the ballpark, that's a less straightforward situation. The immediate response might be, "Doesn't the franchise's value go up if they own the ballpark?" Yes, but it would go up just as much if they didn't own it. All that matters is that the team gets new revenue streams from the stadium. As a bonus, the team would be looked upon more favorably by MLB and financiers if they weren't saddled with major debt, such as a privately-owned ballpark.

There's one more motivation that makes the most sense: Lower property taxes. If the A's owned the ballpark outright, they'd have tax liability over a $400 million building plus some $20-40 million in land. The property tax rate in Alameda County is 1.2%. Look up those timetables, and that comes to $5 million per year, or the '06 salary of Esteban Loaiza. Sure, depreciation would take a bite out of that over time, but even so that's up to $100 million left on the table over the life of the stadium. If the A's are looking to own half of the stadium as outlined above, their property tax hit would be around $2.4 million, or the '06 base salary of Joe Kennedy. (These figures don't include special assessments.)

Then again, look at the A's current situation. They don't pay any property tax on the Coliseum because it's also publicly owned. Since the A's would be moving all of their business ops to somewhere in Fremont, they would be contributing more to the county's coffers than they would in the current lease at the Coliseum. That gain has to be balanced against the hard and soft costs associated with having an entertainment district.

The $64,000 question has to be:

"Is the opportunity cost for getting a baseball team worth it?"

Let's look at alternatives for the land:

  • Another office park. That's what was originally planned for the area, though the original tenant, Cisco, nixed those plans long ago. Fremont's legacy position of reserving the area for light industrial and commercial use made sense decades ago from a planning perspective, but now that very little is actually manufactured here compared to the Far East, it's a policy worth revisiting. There are still large swaths of land to the south on Fremont Blvd/Gateway Blvd that are completely undeveloped. Fremont doesn't have the cachet that the Golden Triangle cities - Santa Clara, San Jose, Sunnyvale, Mountain View - offer for building large corporate campuses. Warehousing/distribution remains a popular land use in the area, but how much additional land does that industry really need locally to function? And is it a growth industry, especially when land costs continue to rise?
  • Another strip mall. That's not likely because existing Fremont shopping centers, Pacific Commons and the Fremont Hub, already cover this market. In fact, there are very few big box retailers that don't occupy either of those two shopping centers. The only one I can think of would be Best Buy, but honestly, aren't there enough Best Buy locations out there? Along Auto Mall/Durham, there's also Fry's, Home Depot, REI, and Wal-Mart. They're pretty well covered.
  • Housing instead of the ballpark/ballpark village. This would run counter to Fremont's intentions to keep entertainment dollars within city limits, while adding the need for additional services. Not gonna happen.
  • Leave the land undeveloped. Now this is unrealistic. The dirt's already turned over. The wetlands preserve, which is outside the project land, has already been created. Someone's going to do something with the project land, whether it's the A's, Cisco, or ProLogis.

The endgame is that after 30 years, the city will own the stadium outright. Is this a good deal for the city? For the county?