Mayor Gray Announces Completion of Soccer Stadium Deal
June 4, 2014
Mayor Vincent C. Gray announced last month that the District has reached final business terms with Major League Soccer’s DC United for a new 20-25,000-seat stadium in the Buzzard Point neighborhood of Southwest Washington, DC. The legislation was delivered to the DC Council for approval. The District now controls approximately 88 percent of the proposed site and has also brokered an agreement in principle for acquisition of the final parcels for full possession of the required land for the stadium.
“This is a major step forward for economic development in the District of Columbia,” said Mayor Gray. “The new soccer stadium will be the connector between developing areas around our baseball stadium and the new Wharf development along our Southwest Waterfront. The new soccer stadium is the final catalyst for what is certain to become one of the most vibrant and sustainable sports and retail districts in America.”
Last July, Mayor Gray and DC United announced a preliminary term sheet for a unique public-private partnership with Akridge, a real estate development firm, and PEPCO, the regional electric utility that includes a series of land transactions to support the approximately $300 million project. The development of the new soccer stadium at Buzzard Point provides an opportunity to leverage the District’s investment in Nationals Park and the South Capitol Street Bridge to transform an undeveloped and underused area into a vibrant and environmentally friendly new waterfront neighborhood.
By exchanging the Frank D. Reeves Center of Municipal Affairs with Akridge for a majority of the stadium site, this asset will be used to support the project while creating a new source of tax revenue. The plan also calls for current Reeves Center tenants as well as District agencies in leased space to relocate to a “new Reeves” municipal facility in Anacostia near the intersection of Martin Luther King, Jr. Avenue and Good Hope Road SE.
The new municipal complex will adjoin another recently completed facility housing the District’s Department of Housing and Community Development (DHCD) and include street-level retail and adjacent residential and parking components. The facility will provide approximately 200,000 gross square feet (GSF) of office space to accommodate nearly 850 employees.
No current Reeves tenants will need to be relocated until the new Reeves Center is finished in approximately three years. The District will make every effort to keep select tenants in the vicinity of the 14th and U Street NW location for continuation of service to their target constituents.
Additionally, the deal calls for the District to acquire portions of land owned by PEPCO at Buzzard Point and for PEPCO to acquire District-owned parcels at 1st and K Streets NW. PEPCO will be required to build a new substation in this area to accommodate future growth and development in this area.
“This is another complex, public-private partnership with many moving parts that advances economic development in the District,” said City Administrator Allen Y. Lew, who served as lead negotiator and previously led the development and construction of Nationals Park as the CEO of the DC Sports & Entertainment Commission. “Throughout this process we listened to the community and discussed our progress with the Council. Ultimately I think we have negotiated a deal that spurs economic development across the city, provides for needed infrastructure improvements and continues our efforts to create jobs and business opportunities for residents.”
The District will act as a horizontal developer and assume the cost of land acquisition and infrastructure, capped at no more than $150 million, while DC United will construct the stadium at the estimated cost of approximately $150 million. The team will also develop adjacent property to support the stadium.
The ground lease includes a 30-year initial term with two five-year option extensions after which the site reverts to the District. The base rent during this term is $1 per year. However, there is a provision for the District to agree to a separate longer term for the ancillary-development portion of the site provided that DC United pays market rent during that additional term.
The ground lease also includes a phased-in sales tax provision under which the District will begin collecting sales taxes on day-of-game revenues from DC United and its concessionaires beginning in year six before all sales become subject to the District’s prevailing sales tax after 10 years.
The original term sheet with DC United provided that, in exchange for sales-tax abatement, the District would share in DC United’s profits. Over the course of negotiating the agreements, the parties determined that the likelihood of profits was speculative, and they replaced the profit-sharing provision with an additional rent provision. Under it, DC United will pay the District $2 for each ticket sold in years 11 through 20 and $2 per ticket – adjusted by the consumer price index (CPI) –for each ticket sold in years 21 through the end of the ground lease.
The lease also stipulates a provision for a phased-in real-estate tax, under which the District would begin collecting DC United property taxes at 25 percent of their full rate after five years; 50 percent after 10 years; 75 percent after 15 years, with full taxes due from 20 years through the remainder of the term.
The agreement also contains strong provisions, similar to those in the Nationals Park and school modernization programs, for the inclusion of District-based businesses in development contracts as well as local resident hiring goals for construction and operation of the stadium. Specifically:
• 51 percent of jobs at the soccer stadium (ticket takers, guest services, ushers, food service, etc.) would go to District residents;
• 50 percent of all development-related contracts (e.g. design, construction, etc.) would to go to Certified Business Enterprise (CBE) businesses with 35 percent to small and 20 percent to disadvantaged business enterprises; and
• 35 percent of all stadium operation contracts (i.e. janitorial, food service, security, etc.) to go to CBE businesses.
“This deal really gets us where we want to go faster. Planned intermodal transportation projects like the new South Capitol Street Bridge and streetcar system will support the stadium and serve as inducements for additional investment on both sides of the Anacostia,” said Lew. “We have worked with the community and will keep them involved every step of the way. In the next several years we will accelerate the development that has been envisioned for decades.”