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In a previous recent post, you became familiar with the STAR Bond process, and the major entities in Reno seeking to explore the feasibility of STAR Bonds. One thing I didn't touch on so much is how rare STAR Bonds actually are on a nationwide level. Only two other states, Kansas (the original creator of the concept) and Oklahoma have passed STAR Bond legislation, with six other states looking into passing it. We modeled our STAR Bond legislation after Kansas', so it's only fitting we take a look at how Kansas used it and is still using it to create one giant connected retail destination. This is really important to look at, because I feel there is a right and wrong way to use this legislation. Kansas City did it the right way. It comes down to using STAR Bonds to create adjacent districts that compliment and feed each other, and not using STAR Bonds for piecemeal projects that are miles apart from one another.
So here's a brief breakdown of what happened in Kansas City. A couple of key provisions in Kansas' legislation are; STAR Bonds use the sales tax revenues generated in the established district to pay off the bonds, including the local and county portion of sales taxes and even state sales taxes if the state agrees to contribute its portion, and also, STAR Bond proceeds can only be used for land acquisition, infrastructure improvements and certain soft costs, but not for personal property (i.e. actual buildings the developer intends to build/own or is leased to the developer). I am not sure if that same rule applies to STAR bonds in Nevada.
In 1999, the Unified Government of Wyandotte County and Kansas City (called UG for short) approved their first STAR bond project, the Kansas Speedway, an 80,000 seat, state-of-the-art International Speedway Corp. Since its opening in 2001, this track has hosted IRL, Busch Series and NASCAR races every year.
At that same point in time, or shortly thereafter, UG used STAR bonds to acquire 400 acres ADJACENT to the Speedway, without having a predetermined use for the land. With the help of between $200 and $300 million in STAR bond incentives, UG was able to attract a number of key development partners to create Village West, a mixed-use and entertainment district to complement the already successful race track. Village West now includes a 710,000 s.f. furniture store, a 281-room lodge, a 7,200 seat minor league baseball stadium, RED Development's Legends Shopping Center, which includes a 14 screen movie theater, and 750,000 additional s.f. of shopping (see map below)
Following the success of Village West, UG also created another 375-acre STAR Bond district ACROSS THE HIGHWAY from Village West, and has a development agreement in place with Schlitterbahn to create a mile-long INDOOR man-made riverwalk (see renderings below), 300,000 s.f. of retail, an interactive marine park and a mammoth water park. The cost is projected to be more than $745 million.
So, how does this relate to Reno? Well, Kansas City created three STAR Bond Districts adjacent to one another, and this ultimately is creating one gigantic entertainment destination that is more successful than if the 3 projects were on opposite sides of the city. The concept was so successful that the Village West development is due to pay off the STAR Bonds eight years before their scheduled 20-year amortization rate.
In downtown Reno, we have 3 possible adjacent STAR Bond districts; L3 Development's, Northern Nevada Urban Developments, and the Nevada Land/SK Baseball. Can you imagine the tourist impact it would have if all three of these were implemented and constructed? We would have a retail plaza that lines 3rd Street, we could possibly have a newer and better Fitzgeralds. Then a short walk up Virginia Street from Fitzgeralds we'd run into the western edge of NNUD's six square block shopping, retail and entertainment district which connects the University to downtown; then a short stroll south down Lake Street, and we'd have the baseball retail district where the Mizpah once stood, with the baseball stadium being the main anchor. All three of these projects would feed each other foot traffic; this was confirmed with the ReTRAC corridor study which basically directed a large rectangular pedestrian 'greenway' is envisioned that would move people down the riverwalk and back up the core of downtown via Third Street over to the baseball stadium. While these developers might see their projects as competing projects, I see them as complimenting each other, and if the developers are savvy and 'with it' enough, they can and will bring in retailers to fill those projects.
One piece of the puzzle that doesn't fit in with me is Grand Sierra Resort. I understand the concept of them wanting a STAR Bond, but yet after spending hours of research on the topic of STAR Bonds, I grow increasingly skeptical if it's the BEST use of STAR Bonds, unless something majorly spectacular is built there, like the waterpark. The Grand Sierra Resort group (prior to JP Morgan taking it over) submitted a STAR Bond feasibility request to the city on April 11, 2007, which included wording 'for waterpark, luxury spa, fountain show, exotic auto museum, and retail promenade.' This project as we all know was contingent upon GSR selling a certain percentage of their hotel-condo units to reach their next funding milestone, of which it was never clear if they reached that quota or not...but I am guessing not since the whole 'coming soon' waterpark concept was pulled from Grand Sierra Resort's web site.
Recently, it was revealed in a CAC meeting that Nevada Land II is trying to or thinking about acquiring the Grand Sierra Resort from JP Morgan, and possibly in some form 'partner' with GSR's current troops. Nevada Land II is submitting their own feasibility request for their own STAR bond "for a large retail project in their current parking lot" as RDA staff put it in that CAC meeting. Hmm...retail project? The wording of the staff report for the new STAR Bond MOU/staff report/agenda item for GSR is very different than the original STAR Bond request wording. It basically says 'commercial development specializing in destination retail and entertainment venues.' That's a lot more general than the previous MOU with GSR. So a lot of questions arise. Would the new owners carry out the original plan and vision of Tom Schrade, with one of the largest indoor water parks in the nation, with an exotic car museum and 'fountain show that that will make the Bellagio's fountains look small'? Or will it become more retail driven and less entertainment driven? Is the waterpark being phased out for some other major entertainment concept? Is it going to end up being an uber-fancy mall? To use STAR Bonds at GSR where land is cheap anyway to subsidize development that competes with what could go downtown using STAR bonds is a bit disheartening.
In my opinion, if STAR Bonds are issued to GSR, it should be for something world-class, and Tom Schrade's original vision. The Waterpark should be a condition of any STAR Bond issued to them. For example, another Kansas project wasn't qualified for a STAR Bond until it added a 70,000 s.f. aquarium that would draw in more out of town visitors (750,000 additional to the aquarium) per year. Yet under the same rules, the City of Witchata has slated $14.72 million in sales tax revenue bonds to its river improvement projects downtown.
I urge the council to give priority to the 3 STAR Bond projects downtown, as the three preferred STAR Bond projects, if for some reason not all five can be approved. L3 Development has invested over $200,000,000 into downtown, and NNUD has spent years spending close to $30,000,000 to acquire land in one specific area of downtown to develop. And out of the 3 downtown STAR Bond interests, priority should be given to those two who have already spent tens of millions in downtown.
To be honest, I am still a little leery of the Baseball Folks' master plan. We have given them a lot of concessions thus far, and with the stadium completion less than a year away, I haven't heard them announce any retail lease signage yet. When Legends at Sparks Marina and Summit Sierra Mall were announced as projects, tenants were announced and signed on months before dirt was moved. Redevelopment Administrator Mark Lewis said months ago that prospective retailers were being flown in to tour the site. So what happened with that? We haven't heard a peep since. Maybe if I knew progress was being made with the baseball district retail I would feel more comfortable with it :)
After the latest redevelopment agency meeting, where Herb Simon was referred to as the 'Cadillac of developers' and inappropriately put up on a big pedestal in front of the other developers also seeking assistance (NNUD and L3 Development), and then running through all the concessions given to them it almost seems like the redevelopment agency is ecstatically focused on this one particular deal with Nevada Land, when in reality, L3 Development's and NNUD's upcoming projects could have just as much if not bigger economic impact than a stadium with a block of retail around it. NNUD's project literally connects downtown to the University, and completely transforms one of the most blighted parts of downtown. When in the recent history of Reno has a developer acquired so much adjoining downtown land privately? Never. And Leal's projects fulfill an original vision way back when the train trench was first put in; a thriving 3rd Street district that revitalizes the dead zone between the riverwalk and the casinos downtown.
So, in conclusion, I would ask that the City Council/RDA;
1. Reconsider the extent that Grand Sierra could/should be helped with STAR Bonds, when at least in the public's eye, there are no solid plans in place for this property. I would feel more comfortable if the nation's largest indoor water park, the fountains, the luxury spa and the exotic car museum were made a condition of financial assistance. Otherwise, it would be a poor use of STAR Bonds. This property is isolated from the rest of Reno's entertainment sector, so whatever it builds as a result of STAR Bond assistance needs to stand on its own merit, needs to draw in out of state tourists and locals alike. To me, the opportunity to pursue 3 massive projects downtown which would all feed each other tourists is a better use of STAR bonds. Much like Kansas did, but on a smaller scale.
2. Don't be stand-offish or bullish about the other possible STAR Bond projects downtown, because all 3 built together could transform downtown Reno into a destination resort city within just a couple years.
I understand that each STAR Bond request and MOU will be processed and evaluated on its own merit, but somehow there should be a measure of the positive impact multiple STAR Bond projects downtown could have being adjacent to one another as well.
Kansas has the distinction of being praised throughout the nation because of their successful use of STAR Bonds. I don't want Nevada to be the state the entire nation looks to as an example of how NOT to use STAR Bonds. The faster the STAR bonds are paid off, the faster the community benefits from the full sales tax generated by these projects, instead of a portion of it having to pay off the bond. The more successful a project is, the faster the bond will be paid down. At least, that's how it works in Kansas. Let's create a great discussion on this. Comment below!