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| Feature |
Ground Breaking Efforts
Jeff Schlegel
02/01/2005
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Victory
involves a three-stage development that will eventually comprise 10 million
square feet of office, residential and entertainment space. The $425 million
first phase included infrastructure work and the American Airlines Center, which
was built through a public-private partnership; more than one-third of the money
came from hotel and car rental taxes. Funding squabbles with the city of Dallas
delayed the second phase, which is scheduled to open next spring.
Reese says
that 90 percent of the W Hotel’s residential units are presold, with units
ranging from $250,000 to $4 million. Other residential buildings will break
ground in coming months. Land prices near Victory have escalated as the project
has progressed, and he anticipates that Victory’s residential properties will
appreciate as well. “I think it’s fair to say people can ride that wave as
development starts to come,” says Reese, who adds that other investors have
sought to leverage the project by joining an investment group putting up $50,000
to $100,000 each to back some of Victory’s planned restaurants. Ultimately,
Victory is intended to be a thriving urban center that complements—but is not
dependent on—the American Airlines Center.
Limited
partnerships offer another way to invest in stadiums or arenas, especially for
speculators who view sports as more of a passion than a portfolio mainstay.
Partnership investments can start as low as 0.5 percent of a team’s franchise
value, particularly when teams aim to be inclusive and offer local owners equity
ranging up to 49 percent. Besides providing seats for the games and bragging
rights to friends, limited partnerships enable investors to realize tax benefits
by writing off some stadium or arena costs. They also enable investors to reap
the cash flow generated by the venue, including luxury suites and club seats, general ticket sales, parking and concessions. These revenue streams can
amount to millions of dollars, the amount varying widely depending on the team’s
location and market demographics, its financing and lease arrangements (whether
or not the venue is owned by the city, for example) and by the sport and league
in which it competes. “The bigger money makers are arenas that have both
basketball and hockey teams, and that also have a lot of concerts and family
shows that produce a lot of revenue,” says Edelson of International Facilities
Group.
| Modern-day professional sports facilities can easily cost a half-billion
dollars, and cities contributing to these costs increasingly want more for their
money—and more tax revenue streams—than just a palace for sports teams. “The
real estate development opportunities have become a very significant part of
every project we’ve become a part of in the NFL,” says Robert Dunn, president of
Hammes Company Sports Development, a sports facility developer in Madison,
Wisc., that has worked on NFL stadium projects, such as the renovation of Green
Bay’s Lambeau Field and the construction of Detroit’s Ford Field. “Sports
projects increasingly are being fostered as urban economic catalysts.” |
But teams often lose money on an operating basis. Investors in these
situations, even the smallest limited partners, are left with the choice to
either put up a capital call to help support operations or risk seeing their
ownership stake reduced through dilution if other partners pay their pro rata
share. Even so, most sports teams—even money-losing ones—have traditionally
appreciated in value over time. As a result, the exit strategy of simply
liquidating one’s stake can produce a substantial profit in addition to whatever
cash-flow gains might be realized over time. According to CSL Consulting’s
Rhoda, professional sports teams (and, thus, limited partnership units)
appreciate, on average, from 6 percent to the mid-teens annually, with NFL teams
exceeding those averages. Rick Horrow, a Miami-based sports consultant who has
worked on nearly 100 sports and other urban-related development projects, claims
that in the best circumstances, limited partnership units zoomed 200 to 300
percent cumulatively during the past decade.
Depending on the amount of
investment and how partnerships are structured, the investor often does not have
much, if any, say in the team’s decision-making or stadium-building processes.
“These days it’s difficult to find people willing to put up substantial money
without having any say in the club,” says Mitchell Ziets, president and CEO of
MZ Sports, a financial advisory firm in Mount Laurel, N.J., that caters to the
sports industry.
According to Horrow, investors looking to leverage sports
venue-related opportunities need to keep their eyes open for ongoing or
developing projects, do their homework on venue trends and be patient; these are
not quick-hit deals. “These investments aren’t right for everybody because you
have to understand you’re entering the public arena.”
Jeff Schlegel writes about business and travel from Yardley, Pa. jwschlegel@yahoo.com
Additional Information
 Not In My Backyard
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