Dear Friends and Colleagues;
I have been recently over the course of the past few months viciously attacked by a blogger who is what we refer to as a self-proclaimed armchair expert on anything that she decides. This is not uncommon on major projects as with most public hearings to gain public support for such projects, the naysayers always show up and complain. We refer to these folks as CAVE (citizens against virtually everything). It takes thick skin to work in the public sector arena as anyone who works in our profession well knows. In addition, there are some very controversial fringe media articles from less than mainstream news sources about a major project I have been working on for nearly 6 years in Texas. Being able to handle the attacks and controversial accusations that sometimes come out of this stance are essential to anyone who wants to achieve the positive outcome of such projects. So why do Cities undertake this rigorous process?
Tremendous upside in the way of good paying jobs both direct employment, temporary construction employment and indirect employment. Plus the large scale investment into facilities creates a massive new personal property tax base that is only further made more lucrative by all the ancillary windfall developments in the same area due to this catalyst project coming to fruition. Lastly, it is for the revenue they can generate in sales taxes, parking taxes, and use or special venue taxes. They create tremendous amount of new “Found Money” for local and state governments. But they also build your identity brand as a place or become globally or nationally recognized place based destinations that drag visitors in from hundreds and thousands of miles away that are not normally in your economic market.
My largest project to date is in EMCID territory in the Greater Houston market. I chose Greater Houston because it is a central time zone destination. It is the fourth largest market in the United States and is not well served by destination tourism concepts. Our project in the Greater Houston market, is anchored by a proposed green sustainably designed theme park. The original developer on the project, Marlin-Atlantis controlled holding company for the land, Houston Whitestone Land, LLC, filed for bankruptcy in 2011 after they’re other controlled entity Earthquest Adventures failed to perform to their development agreement with my client the East Montgomery County Improvement District, (EMCID).
Theme park projects can take between 8-14 years on average to bring to fruition because they are a major undertaking and not many markets can substantiate the ability to support one. They always require a massive support system based on a flexible and engaged public-private partnership. EMCID has done a visionary job in building jsut that type of public-private partnership as the cornerstone to their own destination tourism zone build out over a period of the next 10-15 years. These are very long-term projects and require that the public partner have great insight and patience in dealing with all of the myriad of complex issues that confront any project of this magnitude. These type projects are on a much larger and more complex scale than a six flags or what we refer to as a hard rides amusement park. Theme Parks have an underlying story and often are anchored by movie based concepts, studios and character Intellectual Property.
In addition, while you are doing all of this the public partner has to continue to do business development and attraction of complimentary and ancillary tourism concepts to further diversify the economic zone and build additional economic capacity. EMCID has done this very well by aggressively seeking other tourism venues that are not dependent upon the success necessarily of the theme park to cause them to have economic validity and feasibility in the market place. This allows the public partner to begin to see fruits of their labor even before the theme park opens or is even funded for construction in many cases. That in itself begins to produce windfalls such as additional restaurants, retailers and hotels in and around the zone.
None the less in my opinion EMCID has been very strategic in working through this very complicated project to make sure that the following things occur;
1.) The site can be brought back under control of the EMCID new developer they have signed a preliminary development agreement with. This requires that the US Bankruptcy Court allow this sale to take place and that the bank which holds the land as collateral goes along with the sale price. We have successfully navigated those waters late here in April we believe. It is our understanding that the site sale is going to be approved in May by the US Court.
2.) We had to negotiate a new development agreement and chose a new developer/operator for the project and design appropriate milestones to make sure that this time the performance expectations EMCID has for the developer are met and adhered to strictly. We believe our new development agreement has achieved those results.
3.) The new developer has to purchase the site from the Court awarded purchaser under the terms of the option clause inserted into the land sale at EMCID’s direction and intervention. That is supposed to occur in June or early July.
4.) EMCID will then work with the new developer to put a capital acquisition plan together to pursue the $600M in necessary funding for phase one of the project to break ground and commence construction. Construction once this is achieved should take approximately 2 years until the soft opening date.
5.) EMCID require the repayment of their bond proceeds used to develop the theme park concept and further the project to fruition and all other professional costs from the their developer over a period of specified performance payments as the project becomes financially viable and solvent through operations.
As you can see this is a very intricate and highly difficult project to manage. I have been the lead consultant on this project since it’s inception and as so the project manager on EMCID’s behalf through all this adversity. I am proud of the accomplishments we have worked through. Today the project is in far better shape to move forward than ever before. I will look forward one day to sending you an invitation to attend our grand opening. Until that day, God bless you and good luck in your own adventures in your professional careers.
The entire process of bringing one of these types of project from concept to RFP for pursuit of the right development partners and operators is a rigorous and lengthy set of due diligence steps. This process goes through 4 cycles by the professional consultation staff (of which I am one) to create what we refer to as the business model (case) and necessary support opinions so that potential private sector partners can be sought out and engaged. This is also called the investor solicitation stage. It is normally led by a professional investment banker and a competent advisory board of entertainment and tourism related experts.
The 4 steps are normally as follows:
1.) Market evaluation, Site location analysis, economic business climate and available tools for use in a public-private partnership. I refer to this as the “Go or No Go Decision Point.” This is usually undertaken by the Public-Sector client as was the case with EMCID in Texas.
2.) Conceptual Development of a Venue and Tourism Experience- “the big idea” as I refer to it. What should be built at what scale and based upon what sort of visitor attendance and the financial costs for this footprint build out and any site specific mitigation that might be required due to the design build out vision.
3.) Business Case Development- often referred to as the final step of making sure the revenues and economic development tools can create a business model that shows private sector investors how they can recoup their investment and achieve a projected anticipated return on investment, including internal rate of return on equity contributions. We call this the investor solicitation model.
4.) Funding Development and Selection of the Developer/Operators/Investor Groups- that will be responsible for delivering the final product to the market and operating it. It is also the private sector ownership that will be the partners in the agreement standing behind the economic management of the over-all development over time. I call this “Running the Gauntlet.” During this phase the public sector led consultant team assists their public sector partner in preparing the necessary RFP tool to be used to solicit the capital markets, provide second opinions of the financial validity of the investment from private sector financing experts, and create a set of metrics for determining how to skillfully select the most qualified private sector partners.
As you can see this process can normally be developed over an approximate 18 month time period and sometimes 2 years. However, as is the case in our EMCID project there can be outside circumstances that create delays to the project that may not have anything to do with the economic validity of the project itself, such as the default of a developer, a global recession, or a major change in costs or business climate conditions. This just means that the public sector client has to hold the high ground and either work through the required mitigation processes and/or wait for the economic storm to clear so that the project can best proceed.
Currently I have done opinions on 6 major destination tourism markets in Australia, Ohio, South Carolina, Arizona, New Mexico and Nevada besides Texas.
In each case I was able to identify whether or not the economic capacity was present and political acumen and support to build a meaningful public-private partnership. This was buoyed in each case with an evaluation of the local, regional and state economic development incentives and business attitude of the appropriate public sector partner. In all transparency and honesty I cannot always say that such an attitude exists. Many times the project must go through a lengthy gestation period before it gets enough support to take the initial risk of doing the first step of professional fee based due diligence. In most cases I have to determine if special legislation can be created that will specifically be able to address any market, business climate and/or investor expectations for making the amount of anticipated capital investment that will be most likely necessary to bring the project to fruition.
Each project is unique and cannot be done in cookie cutter fashion as each locale has a different story or appeal to very different market audiences and as such the 4 step process must be done as a custom business case analysis for each client. This means that the variables and milestones of expected outcomes can vary widely.
None the less, these type of economic development projects can be really positive game changers for a locale.
If you would like further information on this topic please feel free to contact me directly at; firstname.lastname@example.org
or go to my website: http://www.economicdeveloper.com
or just give me a call yourself direct. I am always open and willing to discuss your own distinct needs and interests.
Don A. Holbrook, CEcD, FM