Category Archives: Attractions

ROGERS PLACE – EDMONTON, ALBERTA CA

The Edmonton Oilers are in the process of creating a two billion dollar (C) arena-led mixed-use entertainment project in downtown Edmonton, on a 20-acre site where an old casino once stood. We were fortunate enough to conduct all the market and financial feasibility studies for the project, which include a practice arena, retail/dining/entertainment, several hotels, office, casino, convention center, meeting spaces, housing, university, and cultural uses. In September 2016, the first phase of the project opened, presenting the arena and a glass-enclosed winter garden plaza.

One of the most contentious issues was who would pay for which part of the project since Alberta (and most of Canada) had no precedent for municipal participation in funding an expensive, state-of-the-art, mixed-use, sports-entertainment district.  Negotiation on these points went on from 2009 to 2013, when the City and the Katz organization came to a mutually agreed upon solution.

Besides testing the market and financial feasibility, we also completed a warranted investment analysis that quantified the shortfall in revenue to attain an industry-standard rate of return on the investment. The exercise was extremely complicated with the many uses being tested, the multiple ownership formats suggested, the non-profit elements blended together with the commercial elements, and the fact that there were no Tax Increment Financing instruments in place in the province.

rogers-placeFast forward seven years to 2016, and the new “Rogers Place” opened in September 2016 to great fanfare carrying a total construction cost of C$604,500,000. The specifics of the deal are precedent-setting in terms of public support for a private sports enterprise. Sources of funds are as follows:

  • City-Issued Debt:                              C$541,810,000 (90%)
  • Government Funds (Non-City): C$39,000,000 ( 6%)
  • Oilers Contribution:                         C$23,690,000 (4%)

Phase One terms are summarized as follows:

  • Owner: City of Edmonton
  • Lessee: Edmonton Oilers
  • Operator: Edmonton Oilers
  • Lease Term: 35 years (with three 10-year lease options)
  • Oilers –  Manage arena operations, receive all arena revenues & pay for arena operations/maintenance
  • Oilers operating revenues include naming rights and parking revenues

The Oilers received the right to levy a Ticket Surcharge (with a portion going towards debt service and capital reserve).  Other Key Terms are as follows:

  • Team will pay annual lease payment of approximately C$6.7 Million
  • Approximately C$6.1 Million per year in Ticket Surcharge fees will go towards debt service
  • City will pay the Oilers C$2 Million annually for 10 years to help market/promote the City
  • Total project also includes City amenities (winter garden, community ice rink, etc.)
  • City will have up to 28 days a year of free arena access for community events

The Annual Debt Service Payment of almost $32 million will be generated from the following sources:

  • City – Downtown Tax Increment: C$13,122,554
  • City – Other Public Sources:          C$5,275,399
  • Oilers Lease Payments:                   C$6,697,157
  • Ticket Surcharge Revenue:            C$6,074,629

With the attendance and revenue generated since opening, these targets are very likely to be reached.

Voila, a new model for building and financing a $600 million arena is born!

It’s the Most Wonderful Time of the Year!

Rockefeller_Center_christmas_tree

If you are like most Americans, you feel better this year, but there is still a nagging doubt in the back of your mind, “is this as good as it gets?”  True, the economy has picked up, spending is up, the recession is no more, but we are still feeling the pinch.  How shall we shop for Christmas this year?

duluthsnow-w_AQBL

We did some digging to find out how much has changed and how much has stayed the same.

The following figures provide some context for the economic growth since before the recession until after, with per capita GDP not yet recovered to pre-2008 levels:

united-states-gdp-per-capita

The gross domestic product increased from $13.3 trillion in 2007 to $15.1 trillion in 2012.

united-states-gdp 06-12

GAFO retail sales seem to be slowly recovering from the recession, and consumers are spending again.  Consumer confidence is back up to about 73 percent of what it was in 2006, but spending at shopping centers is ACTUALLY DOWN in real constant dollars (adjusted for inflation):

united-states-consumer-confidence 08-12

GAFO retail sales in the nation increased from $968 billion in 2002 to $1,032 billion in 2010,  for a compound average growth rate of 1.1 percent.  However, from 2007 to 2010, compound average growth was  -.03 percent nationally.

As everyone knows, brick-and-mortar stores are in competition with internet retailers for market share.   With the ease of shopping online in the comfort of your home or office, and the ability to compare sale prices amongst retailers, the brick-and-mortar stores have to come up with creative ways to appeal to the consumer as the better way to shop drawing them to their retail store locations.  Some retailers are offering free shipping, extended hours along with other special promotional items available only in stores.

Electronic shopping and mail order retailers suffered only a mild set back during the recession and bounded back with sales for the twelve months through February 2012 accounting for $308 billion.  The overall sales market rose 30 percent since the peak in 2008 as reported in an article, “Retail Sales Recover, Mostly, From Recession”, written in The New York Times, by Floyd Norris.

One of the biggest impacts of the recession on the retail market is the change in the behavior of shoppers.  People are bargain shopping and looking for the biggest bang for their buck.  They are more interested in products or items that are reliable and have lasting value rather than purchasing the latest gadgets.

Consumers are looking to save money where possible, which has increased on-line shopping as well as sales at discount and dollar stores such as Wal-Mart, 99 Cent stores and Target.  Not only are shoppers finding better bargains, they are saving time and money especially when factoring savings of not having to drive with high gas prices.

Target shoppers

The recession has also caused a spike in sales at thrift shops/resale stores,  as  the number of resale shops opened within the last year increased approximately seven percent.

According to comScore.Inc,  holiday retail spending over the four-day Thanksgiving weekend was estimated at $59.1 billion dollars nationally, up nearly 13 percent over last year.   Black Friday online sales exceeded $1 billion, rising 26 percent to $1.04 billion.

How do you feel this year?  Let us know if your pocketbook feels lighter or if you are back to normal.  Have we stabilized at the new normal? We are anxious to hear from you!

10 STEPS TO DEVELOPING A SUCCESSFUL MUSEUM, THEATER/NONPROFIT PLAN– AND WHY YOU SHOULD CARE

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Many of my readers do not know that a large part of my practice is devoted to consulting to museums, performing arts centers and other cultural and nonprofit venues. There is sometimes a disconnect between developers and nonprofits.  After all, if you are in the business of making money, why would you include a non-money making business in your project?

I once had a client who hired me to do a museum business plan for his very successful consumer product.  When the report was finished and initial schematics presented, he asked, “Why should we build a museum when it won’t return 20% on our investment?”

The arts make good business.  They lead many educated and affluent consumers to our projects and they contribute mightily to the programming and animation of public spaces.  Nonprofits are good citizens.  In a world where developers may be seen as unpopular, including nonprofit spaces in a commercial project is a strong inducement to securing needed entitlements.  Still, many commercial developers do not understand that nonprofits face the same planning and marketing issues as commercial entities.  Until about 50 years ago, nonprofits figured they didn’t have to do business plans because they were just going to lose money anyway.  So why have a plan?

Nonprofits must have a well-articulated carefully planned strategy for capital, operating and future funding or they will not receive ANY funding in the first place – not from friends, government, dispassionate individuals nor foundations!  Nonprofits are businesses, just like any other.  And the last thing you want as a developer is to have a failing tenant in your center.

So here are 10 steps to look for when evaluating a proposal from a nonprofit. Also, for nonprofits, these are the steps you should take before presenting to a developer or planning an expansion or new facility:

  1. Have a realistic and defensible business plan.
  2. Determine the annual operating deficit.
  3. Project attendance and per capita revenue/expense within normal ranges.
  4. Study national comparable museums, including your favorite models.  Know attendance, operating budget, per capitas, other important metrics.
  5. Know your market, including the all-important market area demographics and psychographics.  There are now reputable services that provide these trade area metrics for very little money.
  6. Study 990s.  These are your best friends.  They are the income tax returns that nonprofits must file and they provide you with all financial information for your competitors and comparables.  They are public record!
  7. Take time to study comparables in the local market.  Most important for these comparable studies are annual attendance, budget, and resident trade areas.
  8. Make sure to include changing gallery space in your design.  Return visitation is key to your nonprofit and residents will comprise the majority of your attendance.
  9. Interview executives at the models you envy.  They normally will assist if you are outside their market and they can be a wealth of knowledge.
  10. Finally, get professional help because you are not objective!  A good consultant can save you thousands in mistakes!

10 Ways to Avoid Chapter 11 in the Attractions Business

A whole long while ago, I wrote an article with my mentor and favorite octogenarian, Buzz Price, about the many failures of certain themed restaurants and attractions.  I looked it over and was very surprised to see that it still has relevance today for development of new attractions, something that will be happening soon enough.  Thus, here are 10 pitfalls to avoid when planning an attraction.

  1. When planning, balance revenue generation in major categories: attractions, food service and merchandise.
  2. Spend time computing capacity.  Indoor attractions are hard to justify because of constrained capacity.
  3. Attractions are driven by opportune locations, preferably in the path of major attendance generators.  Stadium crowds at sporting events may not provide the required flow.
  4. High front-end R&D costs incurred in anticipation of a fast rollout are a plague.
  5. Study the market and understand the nuances of its preferences.  Pick your niches carefully and stick to them throughout planning and operation.  Don’t try to change consumer behavior.  The devil is in the details.
  6. Keeps your eyes wide open and try to be objective about your pet project.  You may think you have invented the next internet, but your market may not.  On the other hand, be passionate about the project and its greatest cheerleader.  Keep a balance between your passion and market-driven objectivity.
  7. Narrowly concepted attractions won’t find a broad-based market.  Along those lines, clear and concise branding is key.  Make sure your brand measure is clear to your customer.
  8. Assure that you have a critical mass of attractions to generate visitor interest for the required length of stay.  Create enough capacity for your maximum design day on-site crowd.
  9. Use realistic assumptions when looking to the future.  Respect comparative and competitive performance.  If you do better than projected, you can fix the problem (in most, but not all cases).
  10. The attraction must start up fully formed.  Phase I needs to be a complete show. Undercapitalized projects have a high failure rate.  Create realistic models for development cost, revenue and expense.