North of Broad Consolidated Questions

North of Broad Consolidated Questions The NH District Corporation in association with The NH Foundation & Capital City Development, LLC May 9, 2018 May 9, 2018 Matt Welch Senior Policy Advisor/RFP Process Lead Contact City of Richmond 1500 E. Main Street Richmond, VA 23219 Re: North of Broad Consolidated Questions Dear Matt: We appreciate the opportunity to clarify our proposal for the North of Broad/Downtown Neighborhood Redevelopment Project. As the clarification phase of review advances, we hope this openness and transparency will set up a robust in-person conversation about how we can come together to accomplish the City’s goal of creating “transformational change for the area as well as the broader community.” Our detailed proposal is designed to achieve the primary goal laid out in the City’s November RFP: to generate new revenue for Richmond residents. We propose to do this by transforming City-owned land that today lies largely underutilized as a result of decisions made generations ago, and turning it into a profitable asset for the City and the residents of Richmond. Where the neighborhoods and homes of Richmonders were destroyed and replaced by surface parking lots, we propose to build a new mixed- income, mixed-use neighborhood that will generate new tax revenue. Where an outdated Coliseum now drains City resources, we propose a new arena worthy of the capital city of a major state - one that attracts major events and talent that spurs economic growth. Where parking decks sit underused, we propose utilizing them for broader uses around the clock. The essence of our proposal is to increase revenues for the City by fully engaging the City’s own assets. We would like to highlight four key issues that emerge from your questions. ‘Making the Pie Bigger’: Building Up New City Revenue This proposal differs from other development proposals in one significant way: While others often seek subsidies or tax abatements to make private commercial redevelopment happen, the North of Broad project is focused on generating new revenue for the benefit of the residents of Richmond. We propose to generate these new City revenues; to build a new City-owned Arena and improve the City-owned Blues Armory; and to generate significant excess revenue that the City could then direct to any priorities elected leaders choose. Under our proposal, all of the new incremental revenues that this redevelopment generates will flow to the City, not to private developers. 1 Our proposal includes four primary paths to create these new revenues, as we discussed on May 4: 1. New revenues from a new, and better performing, Arena; 2. New ad valorem taxes, within a newly designated TIF District with a ‘synthetic’ format option; 3. New ground leases with annual predictable revenue streams; and 4. New incremental parking revenues. While we have suggested various mixes of these revenues to underwrite a potential bond for the New Arena and Blues Armory, the City is free to use these sources in whatever combination it chooses. Ultimately, the facilities being underwritten by these new revenues, and excess revenues not required for underwriting, will belong to the City. How and when these new revenues are best utilized is a series of business decisions for the City to make. Determining the right mix and amount of these revenues involves careful consideration with a clear understanding of the trade-offs involved as the City goes through its decision-making process. On one hand, determining that one of the revenue streams will be less than projected in the base case is a math problem we solve by making up the deficit from another revenue streams. The bigger issue will be balancing out the creditworthiness, or in the alternative, the perceived riskiness of each of the revenue streams. At this stage of analyzing the underpinnings of the bond offering, we are focusing on keeping the overall debt service coverage at 1.5 or higher. Although the bonds would likely sell at a somewhat lower overall DSCR, we want the best terms we can get for the bond offering, therefore we are making meeting, and hopefully exceeding 1.5 as an important objective. The overall DSCR required by bond investors is a blended calculation based on an evaluation of each revenue stream’s certainty and relative creditworthiness. Lower risk/higher creditworthy revenue streams, such as the collection of ad valorem taxes, results in a lower required DSCR. Higher risk/lower creditworthiness, such as certain aspects of the operating projections for the new arena, results in a higher required DSCR. So, the quality of the revenue streams is as important, if not more important, than the quantity of the revenue streams. We will work closely with the City in finding the best balance in achieving the desired quantity and quality of new revenues to direct to the arena bond repayment. The Logic Behind Proposed TIF Revenues Our proposal suggests a base case that includes a blend of property, sales, meals, lodging and other City taxes, along with State sales taxes, a fixed amount from new incremental parking revenues, and contractually obligated Arena revenues. As was requested, we have provided four new models that demonstrate sensitivity to including (or excluding) certain revenues in our underwriting. For the sake of simplicity, we have provided two snapshots in time, Bond Year 3 (2022) and Bond Year 10 (2029). Year 3 is early in the project when incremental tax revenue is generated and the capitalized interest available for bond repayment has been exhausted. (The earlier years are pivotal and the more incremental revenue available for debt service 2 then will signal how successful this project will be over the bond term.) Year 10 represents a stabilized year of the project when it will be fully developed and self-sufficient. All required debt service and incremental TIF revenues are the same in each sensitivity, minus one variable in each case: A. Base Case: This is the original proposal submitted on February 9. B. Sensitivity #1: Excluding from debt service revenues generated by Dominion Energy Tower 1. C. Sensitivity #2: Excluding from debt service revenues generated by a Dominion Energy Tower 2. D. Sensitivity #3: Assuming 2.8% of the State Sales Tax is available for debt service. E. Sensitivity #4: Assuming 0.0% of the State Sales Tax is available for debt service. Increasing Revenue from Better Performing Parking Assets Current parking assets—on-street and in decks—are now significantly underutilized. Together with the new parking we propose, they can serve future parking needs, and make more money through better coordinated operations, shared use and a collaborative management plan. We propose to work with you to more fully engage these assets in the proposed mixed-use development. Our proposal includes our analysis of incremental parking demand, based on the completion of our first phase of development. The parking demand analysis is then factored against an income assumption to project the level of incremental parking revenue. (This analysis does not take into consideration any incremental revenue from citations.) To achieve this, we propose that the City and NHDC collaborate on a shared parking management plan to introduce new parking customers into City-owned parking structures and spaces through a series of tailored agreements for each use and block. We propose to clarify the parking conversation in a work session with your staff, our team, and our parking consultant, to discuss and refine these projections. We are currently preparing a block-by-block assessment of how and when additional parking revenues are generated in our projection of new revenues ($7.7M total in Phase 1) and these more granular projections will be available by then. We believe that by working alongside City staff and discussing current and proposed parking operations and improvements to realize greater returns is key to achieving these higher values. Regrading Leigh Street We continue to study the benefits of improving Leigh Street as part of the New Arena construction. This includes use of the demolished Coliseum materials as fill to regrade Leigh Street, while also integrating the road improvement into the arena design. As a result, there may be a cost benefit to this approach, as much as 20-25%. We remain committed to helping the City explore the funding of this project through options such as Smart Scale, as we believe it is the appropriate funding source of a project of this nature. We are currently exploring various timing scenarios that would fund the project at the time of the Arena bond sale, potentially reimbursed through a successful Smart Scale application in the future. We look forward 3 to discussing options that might be available as clarification continues. Next Steps We look forward to our near-term work sessions with you and your team to think through a detailed process that will ensure this project gets moving forward quickly, meeting its critical milestones. Until that time, we remain available for any discussions with you and/or any of your team members. Sincerely yours, The NH District Corporation Team 4 Consolidated Question List 1. Incremental Revenue Please address the following Incremental Revenue assumptions underlying The Capital City Opportunity Plan, Richmond, Virginia, Tax Increment Financing Projections – Draft Projection 6-A (the “Projection”) for the New Arena Plan of Finance. a. Incremental Real Estate tax assumptions: Overview: All incremental revenues that have been identified in our Proposal have had one purpose in mind: to give the City of Richmond, the capital of the Commonwealth of Virginia, a new state-of-the-art Arena and a reimagined Downtown urban neighborhood that will stimulate economic growth in a sustainable way.

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