10 May 2007

A's sign Fremont land deal

Chron's Patrick Hoge reports:

The owners of the Oakland A's announced today that they have signed a contract to buy 168 acres for a proposed ballpark development in Fremont.

Lew Wolff, the team's managing partner, said the deal will allow him quickly to submit an application to the city for a roughly 32,000-seat stadium, surrounded by housing and high-end commercial development.

Really? It sounds different from what the Argus's Chris De Benedetti reported earlier today:

There is no new information regarding the land transaction, a Cisco spokeswoman said. ProLogis spokesman Arthur Hodges declined to comment.

Meanwhile, Wolff has been meeting with Fremont staff members as often as twice a month since December to discuss the project. The A's are scheduled to meet again with city staff members May 17, Fremont officials said.

As to when the A's might submit a development application or a formal plan, that step is "probably a few months away," Wolff said.

Alrighty then. Here's the obligatory map if you want to familiarize yourself. The A's are buying the yellow section.

This is a pretty big move. Not "done deal" definitive, but rather "planting their stake in the ground" serious. That stake has to be worth around $200 million. Correction: According to the press release and Barry Witt's report, the A's have amassed 226 acres. Land value is around $500 million.

Reading between the lines, Part II - Ballpark begets Pottery Barn

It's amazing what happens when you're not trying to sell the moon. While some of the projections in the economic impact report fall into the half-full (vs. half-empty) classification, many of the assumptions are well grounded and make a good foundation for the case the report lays out.

Since neither the city or county are being asked to cough up a large tax-free bond, there's little need to make the outlandish claims normally foisted upon the public with other stadium initiatives. Here are a couple of examples:
  • Player salaries are largely exempt from claims about economic impact. It is assumed that each player on the A's 25-man roster will spend only $100,000 of their salaries in the area. The rest will go towards homes out of the area and other investments.
  • Projected attendance is only 2,150,000 per year through the turnstiles on an averaged annual basis. That's less than 27,000 per game. By not projecting constant sellouts through the first x years, there's little risk of not delivering on those projections. Of course, since those projections don't translate into revenue for the city/county, it doesn't really matter that much.
  • Additional non-A's game events such as concerts and facility rentals are not discussed at all. As a result there's no inflation of benefits.
There's a rule-of-thumb when writing reports like this: Throw out a bunch of numbers, the biggest ones will stick. This tends to obfuscate the true impact of such a project, which should really be measured in hard tax dollars. The problem is that with most stadium projects, we know where the money goes - to the team. It disappears down a rabbit hole and into millionaires' bank accounts. The task at hand, then, is to wade through the hype and get to those numbers.

Let's start with what the report calls "Gross Sales at the New Ballpark." This covers non-ticket stadium revenue (concessions, merchandise, parking). The projected figure is $32 million per season, or $14.32 per attendee. As mentioned previously, this revenue stays with the team, so neither the city nor county sees any direct benefit. They get the satisfaction of knowing that the money is being spent within city and county limits, but little else.

The Ballpark Village Retail projections are where it gets more interesting and compelling. The Fremont (Tri-Cities) area is ripe for high-end retail along the lines of Santana Row. Pacific Commons is 15 miles from Valley Fair/Santana Row and 16 miles from Stoneridge Mall, putting it in a unique position. The combined population of Fremont, Newark, Union City, and Milpitas approaches 400,000 and is steadily gaining affluence.

Final retail space after build out will be 550,000 square feet. The mix of retailers should produce $400 per square foot of annual sales (less than I had estimated earlier), resulting in $220 million in gross sales. Of that figure, 75% of sales, or $165 million, is expected to be new to Fremont due to many of the fact that many of those retailers don't have a location in or near Fremont. If 90% of those sales were taxable, sales tax revenue would equal at least $1.4 million per year.

Is that projection realistic? Moreover, does this area need yet another Pottery Barn? The answer to the latter is subjective, but for the former, probably yes. Consider this map:

Yes, that's a map of Pottery Barn locations in the Bay Area. The red star indicates the location of ZIP code 94538, home to Pacific Commons. Notice the gap between #1 and #3? The closest location is arguably a $4 toll away, in Palo Alto.

Now look at these tables. The first has big box (warehouse) stores such as Costco. Wal-Mart and Fry's are somewhat anomalous due to political or private concerns, but the other retailers have extremely good coverage all over the Bay Area.

We certainly don't need another Target. But when we switch to high-end retailers, everything changes.

Notice that the further you move to the right on the table, the further you get from Fremont. There's a huge gap in the area. It's one that won't get filled on its own due to market inertia. It would take a big ticket item like a ballpark and an influx of high-income residents (via the ballpark village) to make it attractive for those retailers to set up shop.

The argument should be made that without the ballpark as an anchor, these retailers wouldn't come to the area. In fact, the report argues that without the ballpark village, the land wouldn't be developed at all for at least a decade. Conversely, the area's not such a slam dunk that it sells itself based on location alone.

Hotel taxes would bring in up to $300,000 per year. Another $400,000 would come from property transfer tax for transactions within the project area. Still other miscellaneous local tax revenue sources make up the balance. Add to that the $1 million that the A's will pay towards city services and you get to approximately $3.6 million per year.

Assuming that the $1 million is a wash because it'll be used to pay for game-related city services, is the rest enough to make it worthwhile? Fremont is one of the safest cities in America, so how much additional police and fire protection will be required to keep up that standard with the ballpark village in place? In other words, does that remaining $2.6 million per year make the whole exercise worthwhile? That's for Fremont's leaders to decide.

...but wait, there's more! Later today or tomorrow I'll cover the ever mysterious TIF funds and those dreaded and confusing multipliers.