Feasability of the Sacramento Convergence

(If you're at all interesting in the Kings arena saga, please read this. Big thanks from the site to edm7 for getting ahold of the plan Thursday night. -- TZ)

First off, a BIG shout out to edm7 for taking the time to type out the proposal in his FanPost.  If you haven't read it, I recommend taking 5 minutes to get familiar.  There is a lot of good information that I wont cover below.

First thing after the jump, I'll break down different parts of the proposal, followed by my always biased personal opinion.  This is a extremely carefully worded proposal, and did not get thrown together in a week or two.  I'll try to point out some of the intricacies and reasoning behind them.

The proposal project, known as The Sacramento Convergence, solves the ongoing issue of funding an entertainment arena complex by utilizing the Performance Based Infrastructure statute adopted by the California Legislature and signed by the Governor in 2009.

Emphasis mine.  The developers are planning on using the above mentioned statute, which has already been approved (and budgeted for), to pay for the parts the government needs to fund.  This is important right at the beginning.  Private financing will pay for part of it, and the part that needs public financing has already been approved.  That means no vote is necessary, no new government bills which removes several tough hurdles toward public financing.

The Performance Based Infrastructure (aka Public Service Partnership) approach used in The Sacramento Convergence is one in which a private partnership designs, builds, finances, and maintains the facilities and lease them to the users for a fixed term.

This is what makes the proposal different, and in my opinion more feasible, than all of the others.  Basically, the investors will pay for the new arena and in exchange for ownership (and maintenance etc) they will pocket all of the profit for 30 years or whatever fixed term is agreed upon.

The public entity (City, State, and possibly the County or other jurisdictions) will partner with the private firm to facilitate revenues streams which will offset the annual finance payments in conjunction with the lease payments from the facilities tenants. After the fixed term (30 years) the ownership of the facility transfers from the "private partner" to each project’s respective "public partner."

This is the developer asking for an agreement with the city promising that events outside of basketball will be held at the new arena, and profits from those events will go to the developer.  Once the 30 years is up, then complete ownership of the building and its proceeds will be transferred to the city.  The concept being that those 30 years of proceeds will pay the investment group back for the cost of construction.

The Sacramento Convergence program includes redevelopment of the existing Cal Expo site and remaining property downtown to mixed urban/ suburban land uses complementing the character of their surrounding areas. Monetizing the increased value from the redevelopment of these existing siteswill provide equity capital assistance to the PBI financing process, while achieving highest and best land uses for the redevelopment sites.

Again, emphasis mine.  This is where the money is really made.  The arena is one thing, but a few hundred acres of land at current value, to be developed at its future value is huge.  To clarify, the Expo land will be paid for at its 2010 value, and then developed at its value in the future.  Big BIG money to be made there.

This program also provides an opportunity for the State to developa state-of-the-art Cal Expo facility on the existing Arco Arena site in North Natomas.

This is the first "iffy" thing in the proposal.  The developer is not going to spend a penny to build the new fairgrounds, and the proposal carefully dances around the subject that the fairgrounds doesn't have to be built, but there is an opportunityto build it.  I hinted on this in my post yesterday, but for this to happen the Kings have to start construction on their new stadium, but the Expo doesn't have to move.

Such a new facility couldincorporate year-round attractions, thus increasing visitors and revenue streams that would allow Cal Expo to function with even greater financial stability in a new facility. The existing Arco Arena couldbe recycled/ renovated to create an exhibit hall for Cal Expo, repurposing the structure in accordance with sustainable urban design principles. As in the downtown core, private mixed-used development couldbe incorporated by the state into the land planning of the North Natomas site to augment the potential new Cal Expo facility and create and even greater attraction and success.

Ifthe state does develop a new Cal Expo facility in North Natomas

Italics by me.  Notice how "can" and "will" have shifted to "could" and "if".  This are just ideas are recommendations to the city/state, but are in no way part of the deal.  The developer is giving the opportunity to do those things to the city, but they aren't doing any of it.

The existing Cal Expo site in Point West will be entirely redeveloped to mixed urban/ suburban land uses, incorporating the latest techniques for sustainable planning, design, and construction

And we're back to "will".  Why, because as I noted above, the redevelopment of the Expo property is where money will be made.  The proposal doesn't state whether they will develop homes, retail, or a mix of the above as they will develop whatever the current economy proves to be most profitable.

An unprecedented and privately-financed viable means to develop a new multi-use Entertainment and Sports Complex without new taxes

A substantial economic stimulus for the Greater Sacramento Region, Central Valley, and state without a tax increase

 Those are the first 2 benefits outlined in their plan.  They know who their audience is, and they know taxes is a primary concern of everyone.

The three sites combined will accommodate between 4.300 and 8,500 housing units (plus appropriate affordable housing units), dispersing the housing to all three sites, thus lessening the stress on the success of ongoing housing revitalization programs in the current downtown and midtown locations
Immediate creation of approximately 300 direct professional and technical jobs to design the project plus an additional 150 indirect jobs

 Creation of 5,000+ construction-related jobs during most of the build-out period and the Convergence Facilities

An annual injection of approximately $1 billion to the Greater Sacramento Region's economy

Creation of approximately 12,000 direct permanent jobs, 20,000 indirect jobs and many more induced jobs throughout the GSR

Here are the talking points for politicians to use to sell the project to the public.

 Property tax revenue estimated to be up to $39 million per year

Sales tax revenue generated (exclusive of the ESC and Cal Expo operations) estimated to be in excess of $20 million annually

And that's why the politicians will be selling it to you.  Development brings money in to government more than anything else.

After reviewing the proposal with the head of development in my office, the first thing he wanted to talk about was the private financing.  The proposal could be extremely profitable and lucrative, but it is going to take a TON of up front funding.  As in hundred of millions liquid assets.  So I Googled "Kamilos Companies" and couldn't find anything special.  I couldn't find anything that separated them from the generic developer.  Then I Googled "Macquarie Capital".  These guys arent messing around.  Its a major international investment group.  First check out the "about us" section on their webapge, then do some advance google searches.  This is how the extremely rich get extremely richer. 

Having said all that, do I think it'll happen?  I've got to say, it's got a chance.  There are tons of wrinkles to get ironed out, but you can tell they approached their proposal by first evaluating why other proposals have failed.  There is hope in this plan.  Lets keep our fingers crossed.

(This is a FanPost from a member of the Sactown Royalty community. The views expressed come from the member, and not Sactown Royalty staff.)

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