Atlantic Park: The Deal of the Century
By James C. Sherlock
Atlantic Park is due to open on nearly 13 acres of city land near the Virginia Beach oceanfront in May of 2025. The new entertainment district is the largest public-private partnership project in the history of the Commonwealth’s biggest city.
It is striking in concept. There was real vision behind Atlantic Park. Readers are urged to read a 2019 article in Virginia Living to get a sense of it.
The idea for execution of the concept was simple at first.
The city-owned land that had been a surface parking lot in the 25 years since the old Dome concert hall was torn down.
In the winter of 2016-17 several developers submitted proposals to redevelop the property.
At that same time, the city wanted to build a new concert hall.
The city’s development authority issued a request for qualifications to fold its requirement into a broader plan that would redevelop the entire property.
The city, for its part, planned to provide the land and pay for the concert facility and a parking garage. Developers would pay for the rest. The original concept evolved under redesigns, delays and constant renegotiations. Seven years later Atlantic Park is under construction.
Today, with nearly $240 million in city commitments, it is considered by municipal bond professionals to be a major risk.
Two major story lines have emerged. One is about the deal between developers and the City Council. The other is about the surf park venue, its owner and its funding and its economic risks. Each is complex and costly enough and brings enough risk to warrant telling in this multi-part series.
This is the lead article about the developer-city deal.
Note before we start that only the City Council can commit city funds. Its appointees at the Virginia Beach Development Authority and the council itself organized as the new Atlantic Park Community Development Authority can only recommend city spending and debt for council approval.
A Public Private Partnership. Local governments have a fiduciary duty to use public land for public benefit. Schools are one such use. Others are public buildings, parks and public recreation facilities. Contributing limited public support including public land to commercial developments can prove a net value to taxpayers in increased taxes and fees.
But the Virginia Beach City Council took control of the Atlantic Park deal in 2017 and proceeded in a different direction. The selection of the developer was free of normal processes, standards and commitments. The acquisition process dragged out for years.
A Dome Site (Atlantic Park) Development Agreement was signed between the city and the developer in 2019. Key developer commitments:
The Developer (at its sole cost and expense) will construct the Developer Improvements. … Developer Improvements contemplated by the Preliminary Master Plan are anticipated to have a total estimated development cost (which shall refer to the soft and hard costs customarily included and funded under a typical construction loan budget) of approximately Two Hundred Thirty Million and 00/100 Dollars ($230,000,000.00).
The Developer will arrange for all equity and financing necessary to develop and construct … Developer Improvements.
In 2022, the financing of the surf park proved such a roadblock that the developer reached a point of default in the agreement. City Council forgave it.
They turned the surf park over to a North Carolina 501(c)(3) to finance it through a Virginia state bond authority.
City negotiator turmoil. City negotiators constantly changed with elections and changes within the city staff. City turmoil over six years included:
three mayors and 21 other individual council members who filled 11 seats.
three city managers;
three directors of economic development (and Virginia Beach is awaiting its fourth). The one under whom Atlantic Park was initiated later resigned and pled guilty to embezzlement in an unrelated matter; and
the tragic massacre of city workers in the Public Works department.
A skilled, experienced and stable developer team was on the other side of the table.
Who owns what? The project is being built and will be owned as a condominium. There are some common rules, and common land, but three owners. The land is parceled according its use.
1. The city owns the concert hall and the parking garages and the land. The 3,500-patron “Dome” concert hall will be able to open a wall to accommodate 1,500 more outside on an event lawn. It will be owned by the city and run by Live Nation which kicked in $5 million for changes it wanted.
2. The developer team will construct the entire project. It will own 309 apartments and more than 100,000 square feet of commercial spaces that will be leased to restaurants, offices, retail and experiential retail establishments. It also owns licenses for food and beverage service throughout the project.
3. The surf venue is the signature feature, and the one upon whose success the rest of the project depends. The developer team planned to own it from the beginning of the project in 2017. In 2022, that team had to change course to get financing. It recruited a new owner, P3 Foundation, a 501(c)(3) in North Carolina that specializes in public private partnerships. P3 Foundation created a Virginia subsidiary, P3 VB Holdings, the borrower and owner.
City budget. Advertised city funding to date appears below as presented to City Council on May 28 of this year.
May 28, 2024 presentation to VB City Council
Six years of Virginia Beach Capital Improvement Program (CIP) budgets below show the growth of the city’s cumulative commitment to the construction of Atlantic Park:
From $37.5 million in 2019;
to $95.6 million in 2020;
to $104.5 million in 2021;
to $109 million in 2022;
to $139 million in 2023; and then
to $153 million (in the image above) in 2024.
Those represent $153 million in CIP commitments. That is the city’s talking number. But Atlantic Park was financed starting in 2023 and 2024 with bond debt.
City Debt. In 2023 the Atlantic Park Community Development Authority (CDA), which is the city council reassembled to tax and issue bonds, issued these:
From the prospectus: “All of the Developer’s and the Authority’s right, title and interest in and to the Performance Grant Payments and any Pre-Stabilization Advances on deposit in the City’s Tourism Investment Fund” were pledged to pay the bonds. Those were backed up by Net Special Assessment (on the property) Revenues. So, with developer agreement, the council took $100 million they had pledged to the developer and pledged it to pay back $54 million in borrowed money.
So it is still city revenue that is pledged.
Then, in 2024, the Virginia Beach Development Authority issued these.
The Capital Projects funded with the proceeds included $133.7 million for Atlantic Park:
Atlantic Park Development Acquisition – $9,194,182
Atlantic Park Entertainment Venue – $53,585,614
Atlantic Park Parking – $47,750,000
Atlantic Park Streetscapes – $6,000,000
Atlantic Park Offsite Infrastructure – $17,174,104
From the 2024 bond prospectus pg. A-29:
Unlike the high-yield debt sold in 2023 (issued by the Atlantic Park Community Development Authority and the Virginia Small Business Financing Authority) that was backed by revenues tied to the project, these bonds are secured by yearly appropriation payments made by the city to the authority, according to offering documents. That insulates investors from risks if the project underperforms.
Muni deals funding tourist attractions have a checkered past. The list of defaulted bonds is a long one, including a water park in Edinburg, Texas ….
So, reading that, we learn that Atlantic Park might fail but 2024 investors are insulated from risk by city appropriations. Good to know.
Total city cost. Succeed or fail, the city owes $133.7 million from the 2024 Virginia Beach Development Authority appropriation-backed bonds and $53,365,000 from the 2023 Atlantic Park Community Development Authority revenue bonds. That is over $187 million plus interest.
And the city has leased
$40 million worth of land to the developer for a dollar a year.
400 parking spaces that cost the city $30,000 each to build to the developer at a dollar a year plus payments into a maintenance fund . So call that another $12 million.
The author comes up with $239 million in city Atlantic Park expenditures including the land and parking spaces. $187 million of that appears to be bond debt principal not counting the interest.
Developer debt. The developer has committed $30 million in equity and borrowed $86 million from local banks. The developer team formed limited liability companies among its members to fund various parts of its obligations.
Surf park debt. Surf park debt is $63 million in principal issued in three series of state municipal bonds at yields of 9% tax exempt (senior series), 9.25% (subordinate tax exempt) and 10.25% (subordinate taxable).
The bonds are mortgages on the property. Bond payments are to be made from surf-park revenues backed by a deed of trust for the facilities.
With those junk-level yields, principal and interest (P&I) payments will total over $207 million for a facility with limited capacity. The city has to consider the opinion of the bond buyers – that it is at risk of not generating enough revenue to pay its operations and maintenance costs and the debt payments.
Commentary. The council and its two bond authorities had the authority to do what they did.
But someone may wish to explain
why the developer commitment of $230 million in 2019 resulted in an expenditure today of $116 million. Counting the $41 million surf park it intended to own, $155 million;
why the city is up to $239 million and still owns only the concert hall and the parking; and
what happened with the surf park fiasco that puts the whole project at risk?
Mayor Bobby Dyer will know the whole story and can tell it from an insider’s perspective. He has been on Council for 20 years and has served as mayor since November 2018.
He voted aye every step of the way.
James Sherlock is a retired Navy captain based in Virginia Beach and a freelance writer. He has produced a 11-part series on the complicated Atlantic Park project that is being published at Bacon’s Rebellion. We are printing selected excerpts with permission of Baconsrebellion.com. The contents of the stories are the solely the responsibility of the author.
