Title
Hornets Property Transactions
Action
Action:
A. Adopt a Resolution authorizing:
i. The ground lease of 1.907± acres of real property identified as Parcel Identification Number 080-054-84 to Charlotte PEC, LLC;
ii. The conveyance of an option to ground lease said 1.907± acres of real property to the lender of Charlotte PEC, LLC; and
iii. The conveyance of an option to purchase 1.312± acres of real property identified as Parcel Identification Number 080-054-01 to Charlotte PEC, LLC,
B. Authorize the City Manager, or his designee, to negotiate and execute any and all documents necessary for the conveyance(s) authorized by the resolution and in conformity therewith, and
C. Adopt a budget ordinance to appropriate $15,000,000 in fund balance in the Tourism Operating Fund for transfer to and appropriation in the Tourism Capital Projects Fund.
Body
Staff Resource(s):
Tracy Dodson, City Manager’s Office
Teresa Smith, Finance
Matthew Hastedt, Finance
Explanation
§ On March 25, 2024, City Council approved the request of Charlotte Arena Operations, LLC, to modify the allocation of the city investment in Spectrum Center improvements and the location of the new practice facility. That action alleviated the city’s financial obligations associated with the potential cost of penalties for construction delays, cost overruns, and practice facility maintenance.
§ In accordance with that March action, the city negotiated agreements for the construction of the new practice facility and the potential development of the gravel lot at 501 East Trade Street (the “Gravel Lot”).
§ This Request for Council Action authorizes the land transactions and updates the funding mechanism used by the city to fulfill a portion of the city’s financial obligation.
Actions A and B
§ The Gravel Lot was recently subdivided into two tracts; “Tract 1”, consisting of approximately 1.312 acres, and “Tract 2”, consisting of approximately 1.907 acres (Map Attached).
§ The city proposes to enter into a ground lease (the “Lease”) of Tract 2, to Charlotte PEC, LLC, for the sum of $10.00 annually, for a period of 99 years, and, either terminate upon demolition of the improvements located upon Tract 2 or be extended for successive periods of 50 years based on City’s discretion.
§ The Lease provisions include that Charlotte PEC, LLC will substantially complete construction of the Hornets practice facility (the “PEC”) no later than October 31, 2027.
§ Tract 2 shall be principally used for the development, construction, and operation of the PEC, with such ancillary uses to include but be not limited to a medical facility and a parking structure. The use requirements coincide with the Hornets obligation to play basketball at the arena and run until at least June 30, 2045 (subject to early termination rights in the arena agreements).
§ Charlotte PEC, LLC intends to establish a two-unit condominium structure upon Tract 2 comprised of the PEC and the parking structure.
§ The PEC and parking structure will be operated and maintained by Charlotte PEC, LLC. The city shall retain right to use 125 parking spaces in the parking structure Monday through Friday from 7:00 a.m. to 5:30 p.m. and proposes to pay Charlotte PEC, LLC $150,000 annually for maintenance.
§ Charlotte PEC, LLC shall have naming rights to the PEC.
§ Following June 30, 2045, Charlotte PEC, LLC shall have the right to redevelop Tract 2 provided that any such redevelopment maintains and reserves 125 parking spaces for use by the city Monday through Friday from 7:00 a.m. to 5:30 p.m.
§ In connection with the Lease and PEC construction, Charlotte PEC, LLC, requires that its lender have the option to lease Tract 2 upon the same terms and conditions contained in the Lease if the Lease is rejected or terminated in, or as a result of i) a bankruptcy action or similar proceeding, ii) the exercise of lender’s right to foreclosure on its leasehold deed of trust encumbering Tract 2 or iii) is otherwise terminated prior to the maturity of the funding loan for the development of PEC on Tract 2 without the consent of the lender.
§ The city proposes to convey an option to purchase the remainder of the Gravel Lot, Tract 1, to Charlotte PEC, LLC.
- The term of the option shall begin upon commencement of the Lease and run until the date that is five years from the earlier of the opening date of the PEC or October 1, 2027.
- The City Manager and City Council will have the opportunity to review and approve the proposed development project as a condition to exercise the option and purchase Tract 1. Charlotte PEC, LLC will be responsible for coordinating cohesive development of Tract 1 and submittal of a development plan that is sufficient to show activation of Tract 1 that is harmonious with the adjacent uses.
- If the option to purchase Tract 1 is exercised, development on Tract 1 must be substantially completed not later than three years after date of closing on Tract 1. If timely development of Tract 1 does not occur, then the city shall have the option to retain ownership of Tract 1.
Action C
§ The March 25, 2024, City Council Action anticipated that the city’s $30 million investment in the new practice facility development would be funded by proceeds from a future issuance of Certificates of Participation in the Tourism Capital Projects Fund.
§ Of the $30 million investment by the city, $15 million is allocated toward the development and construction of the PEC and $15 million is allocated toward the city’s ownership of the parking structure.
§ This Request for Council Action is to fund the city’s $30 million obligation for the Performance Enhancement Center with $15 million available in fund balance in the Tourism Fund and with the remaining $15 million continuing to be funded by a future issuance of Certificates of Participation.
§ The city will have ownership in the practice facility development as owner of the condominium unit created for the parking structure for $15 million of its $30 million investment.
§ For the city’s financial commitment, MSWBE goals will mirror those used for Spectrum Arena but within new city policy that includes WBE. The goals will be MBE of 16 percent and WBE/SBE of 14 percent.
§ Future City Council action will be necessary for approval of city financing terms and authorization to issue the debt for the development of the parking structure on Tract 2 ($15 million) and Spectrum Center Arena improvements ($245 million) and the development plan for Tract 1 prior to exercise of the option to purchase said Tract 1.
§ In additional to City Council authorization, the North Carolina Local Government Commission will also have to authorize the issuance of Certificates of Participation for the Spectrum Center Arena improvements ($245 million) and for the parking structure on Tract 2 ($15 million).
Background
§ In June 2022, City Council approved the following three actions:
- Authorize the City Manager, or his designee, to negotiate and execute an agreement between Hornets Sports and Entertainment and the City of Charlotte in an amount not to exceed $215 million for Spectrum Center improvements and $60 million for a new Performance Enhancement Center,
- Adopt a budget ordinance appropriating $215 million in proceeds from Certificates of Participation in the Tourism Capital Projects Fund for arena improvements and repairs, and
- Authorize the City Manager to negotiate and execute contracts necessary to complete arena improvements and repairs to the Spectrum Center and Performance Enhancement Center related to the City’s agreement with Hornets Sports and Entertainment.
§ The ownership team of the Hornets Sports and Entertainment has changed since the June 2022 agreements.
Council Discussions
§ On February 26, 2024, City Council received a presentation on the new proposal and directed additional discussion take place at the March 4, 2024, Jobs and Economic Development Committee meeting.
§ On March 4, 2024, the Jobs and Economic Development Committee received an update on the new proposal and voted unanimously to send the proposal back to City Council for their decision of approval.
§ On March 4, 2024, the Mayor and City Council received a report from the Jobs and Economic Development Committee and discussed the project.
Fiscal Note
Funding: Tourism Operating Fund
Attachments
Attachment(s)
Map
Resolution
Budget Ordinance