Key Arena MOU published

Buried in all of today’s chaos over the Mayor’s resignation was the release of the draft MOU between the city and Oak View Group for the redevelopment and operation of Key Arena. It was supposed to be announced at a joint press conference this morning, but that event was hastily cancelled after the news broke about the Mayor’s latest accuser. Nevertheless, the MOU was indeed published and sent to the Council for deliberations and approval.

Here’s what it says.

Here’s a one-page summary published by the city, with highlights of the agreement, and a slightly longer summary of the key terms. The full MOU (all 97 pages) can be viewed here.

The MOU lays out terms that will eventually be incorporated into six “transaction documents”:

  • a construction agreement, with details of what will be done to Key Arena;
  • a development agreement, detailing the schedule of all activities for the next three years;
  • a lease agreement for management and operation of the renovated arena;
  • a Seattle Center integration agreement, explaining commitments for how adjacent tenants will be impacted, how those impacts will be mitigated, and other actions related to integration with Seattle Center;
  • a community benefits agreement, committing OVG to support the local community through investments and actions;
  • a community workforce agreement, detailing OVG’s commitments to fair and equitable labor practices.

The arena will be redeveloped to nearly double the square footage, around 700,000 SF.  It will accommodate 17,100 for hockey games, 18,350 for basketball games, and between 16,900 and 19,100 for concerts. Construction will be privately financed by OVG, with no city financing. The design will maintain the historic roofline, and target a LEED Gold rating.

There will be an Environmental Impact Statement (EIS) analysis done on the project under the state’s SEPA law, and the city will not sign any of the transaction documents until the EIS is complete.

OVG will pursue both an NBA and an NHL franchise to play their games at Key Arena. In return, the City effectively promises to abandon any pursuit of a SODO Arena or comparable facility, or discuss with any other organization a potential renovation of Key Arena:

During the term of the MOU and Lease Agreement, the City will not negotiate with any person or entity, other than OVG, regarding renovation or redevelopment of the Arena, or solicit or entertain bids or proposals to do so. Additionally, the City will not provide financial support, benefits, or incentives (other than those that are generally available to any potential developer) with respect to the construction of any live entertainment venue with a capacity of more than 15,000 seats within the City of Seattle.

All costs, including overruns, from construction and operations of the arena are entirely the responsibility of OVG. That is a significant financial benefit to the City, alongside new and increased revenues from sales taxes, B&O taxes, leasehold excise taxes, admissions taxes, commercial parking taxes, and other sources. Also, OVG guarantees that annual revenues to the city will be no less than the revenues the city is currently receiving from Key Arena operations. In return for the financial benefits, the agreement states that revenues in excess of the guaranteed minimum will be split between the city and OVG as a rebate on the rent OVG pays the city: for the first 10 years of the lease, 75% of the excess revenues are rebated back to OVG; after that, 50% of the excess is rebated back.

The city and OVG will sign a 39-year lease on the redeveloped arena, with two 8-year options to renew. The options are at OVG’s sole discretion, but contingent on OVG having secured either an NBA or NHL team as a tenant. OVG commits to minimum amounts of capital spending every year through the entire term of the lease:

  • For the first 10 years, a minimum of $1 million per year; for the 11th through 39th years, a minimum of $2 million per year.
  • Between the 21st and 30th years, OVG commits to spend an additional $50 million on capital improvements. The first 8-year extension is also contingent on OVG meeting this commitment.
  • Between the 31st and 47th years, OVG commits to spend another $50 million on capital improvements, as a condition for the second 8-year extension.

OVG must maintain the facility to an operating standard suitable for NBA and NHL teams, and specifically comparable to United Center in Chicago, TD Garden in Boston and Pepsi Center in Denver.

As part of the Seattle Center integration plan:

  • OVG will offer employment to the current Key Arena workers.
  • OVG will pay $1.5 million to relocate the skate park, a maintenance facility, and other public facilities.
  • Pottery northwest will be temporarily relocated during construction, at OVG’s expense.
  • OVG will pay an additional $500,000 to provide “solutions developed by Seattle Center for displaced tenants.”
  • OVG will assume the city’s lease with Seattle Storm or develop a new agreement by the opening date of the renovated Key Arena. It doesn’t specify what happens to the Storm during the construction phase.

OVG will establish a $20 million charitable foundation to administer a community fund, including the $10 million already committed to YouthCare.

The project will follow the City of Seattle’s Community Workforce Agreement terms and the Priority Hire Ordinance. There will also be a Labor Harmony Agreement with Seattle unions, and an Inclusion Plan using the city’s WMBE Inclusion plan terms.

OVG will hire a full-time community liaison who will run outreach operations to the local community, during development and construction but also after Key Arena reopens.

OVG is committing to make event tickets available at a range of price points and to work with tenants and partners to make reduced-price tickets available to organizations.

OVG is permitted to use the facility to host concerts, sports, entertainment and other performance events. However, it is prohibited from hosting:

  • uses, events or retail areas showcasing guns, pornography or “adult” entertainment
  • events primarily dedicated to the sale of paraphernalia related to tobacco products, marijuana and marijuana products, or illegal drugs.

OVG will pay for all necessary mitigation of transportation impacts identified by the EIS. It will pay an additional $40 million into a Transportation Fund to be administered by the city. OVG and the city will jointly develop a North Downtown Mobility Action Plan, and OVG will pay up to $250,000 for a transportation consultant to assist with that effort.

OVG will reimburse the city up to $3.5 million for its costs related to negotiating, developing and implementing the agreement.

OVG has the right to name the facility, subject to the approval of the Seattle Center Director. The only geographical location that can be included in the name is “Seattle”  (not King County, not Washington).

OVG will pay an “affordable housing impact mitigation fee,” to be determined at a future point in time (depending on whether the project becomes subject to the requirements already codified in the city’s ordinance).

The proposed schedule is aggressive, aiming for a “soft open” of the facility in September 2020. The plan assumes completion of the EIS by the end of August 2018, while design planning and review and landmark review happen simultaneously. Demolition would begin in October of 2018 — immediately after completion of the EIS  (and remember, the city can’t sign any of the transaction agreements until the EIS is done). Construction would begin in January 2019 and run for just over 20 months.

The city’s negotiators certainly did a good job of limiting its financial risk and obligations under this agreement. We shall see how the Council members feel about the amounts that OVG has committed to for its contributions to transportation, community support, and ongoing capital improvements, and whether it’s enough.

It’s also interesting, but not surprising, that the agreement prohibits the city from most forms of support for a competing arena, including the SODO Arena proposed by Chris Hansen. Arguably since the city currently has an active MOU with Hansen for the SODO Arena, it would probably not be able to execute the Key Arena MOU today as it would preclude further negotiations with Hansen that would be necessary to finalize his plans and issue permits and a street vacation. However, the SODO Arena MOU expires in November unless Hansen lands an NBA or NHL franchise (which is very unlikely at this point), and so by the time the Council finishes its review and approves the MOU (planned for December), that conflict will no longer exist. It does point out, though, that the city has chosen to run out the clock on the SODO Arena MOU and has no intention of considering his pending application for a street vacation — unless the Key Arena MOU falls apart. A smart attorney might even argue that the city has acted in bad faith in its agreement with Hansen merely by negotiating a draft MOU with OVG that contains this “no compete” clause.

Next Monday, September 18th, the Council is scheduled to have its first discussion of the draft MOU — one of many conversations to be sure.