Niche properties

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Cities Build Sports Stadiums Hoping for Economic Prosperity.

In a country where most kids learn the names of sports stars before the name of the president, it is no wonder that cities across the United States place so much emphasis on building stadiums to house their local teams or attract new ones. But does the opening of a sports facility really promise economic success for the surrounding area?

In the past six years, minor-league baseball has built 44 ballparks across the country, and major-league teams are leveraging their drawing power to demand bigger and better stadiums. Much of the momentum is politically driven: Local officials and business leaders want teams to locate in their cities to share in the revenue and exposure that they bring. The rush also is driven by the “pride and need of communities to put on their best face,” says Richard Andersen, president of CBRE Sports in Pittsburgh. Communities want to attract corporate relocation dollars as well, and stadiums provide more entertainment options for future employees, he adds.

Several factors must be present for a sports stadium and ancillary developments to succeed. First of all, “the location must have legs,” meaning it must be able to support development now and in the future, says Gerry Dudley, chief executive officer of CBRE Sports.

In addition to location, access is critical. “The No. 1 impacting influence on whether or not people go to events is what the access is going to be like,” Andersen says. But central business districts aren't necessarily the best answer. A less-central location may be successful “if access is there and it has some connectivity to a downtown area,” he explains.

For ancillary developments to succeed, the right mix of properties must be in place. Retail, restaurant, and other entertainment projects easily can capitalize on the critical masses going to the stadium. Also, “Hospitality is one of the more-common uses of land around stadiums,” Dudley says. Multifamily developments may work in the right location, but only after other commercial projects have taken root, he continues.

Major- and minor-league stadiums generally are expected to draw large crowds, but even smaller facilities built for a diverse range of uses can help funnel income into their neighborhoods. The following four case studies illustrate the different economic impacts that sports venues can have on their hometowns. While in most cases stadiums equal success, they don't always promise a winning economy.

Lowe's Motor Speedway In 1961, when Charlotte Motor Speedway was built outside of Concord, N.C., it was the only development around for miles. The surrounding area remained empty until the early 1990s, when Speedway Motorsports, the racetrack's owner, partnered with the state of North Carolina to build a five-lane access road, which jumpstarted area development.

Although it is primarily an automobile racing facility — home of three NASCAR Winston Cup events each year — the speedway also hosts car shows, concerts, political gatherings, and corporate events that keep it rented almost every day of the year, according to Bob Rourke, CCIM, director of real estate at Speedway Motorsports.

In 1999, the speedway became the first motor sports facility to sell its naming rights and became Lowe's Motor Speedway, after Lowe's Home Improvement Warehouse.

Although plans for industrial development near the speedway never came to fruition, the area received a commercial real estate boom in 1994 when the Mills Group constructed a 1.3-million-square-foot mall near the newly built access road. Land prices immediately skyrocketed, going from $5,000 to $10,000 per acre to $120,000 to $150,000 per acre, with out parcels selling as high as $700,000 per acre, Rourke says.

Since the mid-1990s, commercial real estate growth in the area has influenced the nearby cities of Charlotte and Concord. “Without the new development the county would never have been able to go on the school-building binge it is on, the home builders would not have made the northeast part of Charlotte the second-fastest residential growth area it became, and the area would not be the largest tourist location in the state,” Rourke explains. He foresees the residential and retail growth continuing, with office development not far behind.

Van Andel Arena Almost a decade ago, the southern edge of the Grand Rapids, Mich., CBD, known as Heartside, was an underutilized neighborhood scattered with vacant warehouses and office buildings, says George Bera Jr., CCIM, president of Bera Group. To spur urban redevelopment, area business leaders proposed building a stadium to attract major entertainment events as well as offer a new home for local sports franchises.

After three years of planning and construction, the 12,000-seat stadium opened in 1996 with a $75 million price tag — $56 million from a downtown development bond and $19 million from private donations, Bera says. It was named Van Andel Arena to recognize a $11.5 million gift from the Van Andel Foundation.

“The arena is a little unique in that it was designed first and foremost for music events and secondly for sporting events,” Bera says. “The main uses include concerts, hockey, and arena football.”

Before it was constructed, area business planners touted the arena as a “catalyst to a CBD revitalization,” he says. Restaurants and bars hoping to capitalize on the expected night life quickly sprouted in the neighborhood. Approximately 20 retail establishments opened for business at the time the arena was constructed, but Bera says that around 75 percent of them have since closed.

“There seems to be a lull in revitalization as the projects that made economic sense have been developed, and developers are looking at the remaining opportunities and searching for anchor tenants,” he says.

Besides retail, the new stadium spawned other commercial real estate development. Vacant warehouses were renovated into offices, loft apartments, and parking structures, and the increased commercial activity helped push up lease rates.

Bera believes that the arena has had a positive impact on the neighborhood and will continue to do so. “Currently residential is ahead of retail but residential development is nearing a critical mass where retail is sure to follow,” he says. “Within 10 years it should be a pretty exciting and successful CBD.”

Turner Field Prior to the 1996 Summer Olympics, the Atlanta Braves and the Atlanta Committee for the Olympic Games combined efforts to build a new stadium that would host the Games and then be converted into a baseball stadium to replace the aging Atlanta-Fulton County Stadium just across the street. Privately financed by the Atlanta Olympic Committee, the stadium cost $207 million to build and another $28 million to turn it into a baseball stadium in 1997, according to Bill Adams, CCIM, president of W.T. Adams and Co. Originally called Olympic Stadium, the venue was renamed Turner Field after business tycoon Ted Turner.

Before the stadium was built, the local neighborhood was economically depressed. “It was hoped that the Games and the new stadium would cause a residential and retail rebirth of the area,” Adams says. Several residential projects were planned and built; however, retail projects in the neighborhood had to compete with the thriving retail space inside Turner Field. Consequently, “The retail corridor near the stadium is mostly boarded up,” Adams says.

Due to the expanding residential development, land prices have skyrocketed and the neighborhood is gentrifying, yet lease rates for retail space have remained unchanged because many of the storefronts stand empty, he adds. “The stadium itself had no effect on the local commercial real estate market,” he says. “The catalyst for all of the residential redevelopment was a combination of the 1996 Olympic Games and the rebirth of Atlanta's close-in neighborhoods. The stadium would have had a much greater impact if it had been located closer to the CBD,” since it is more than 1 mile south of the city's center.

However, all is not lost for the neighborhood. Adams believes that the residential growth eventually will spur new retail development. “The retail will be primarily for locals but will also cater to baseball fans,” he says. “I think it will develop into a very healthy retail environment within the next five years.” 

New Orleans Arena Built in 1999 adjacent to the Superdome, the New Orleans Arena utilizes many of the same heating, ventilation, and air conditioning facilities as the larger structure, according to Quentin Dastugue, CCIM, chief executive officer of Property One. It also shares the Superdome's parking facility, which offers easy access to the arena.

The 18,500-seat arena cost $100 million and was funded by a dedicated hotel/motel tax that was originally put in place to pay for the Superdome, Dastugue says. It hosts the New Orleans Brass hockey team and the Tulane University basketball and hockey teams, as well as concerts, wrestling matches, and other entertainment events. Arena officials credit the stadium's size — halfway between the Superdome and the 10,000-seat New Orleans Lakefront Arena — for attracting acts such as the Backstreet Boys and Shania Twain.

However, the future of the New Orleans Arena, which has yet to find a naming sponsor, and the surrounding neighborhood is tied to the Superdome. Earlier this year, the owners of the New Orleans Saints threatened to move the National Football League team if the city didn't build it a new stadium to replace the Superdome.

In late 2001, the Saints and the state of Louisiana came to an agreement whereby the state would subsidize the team for two years while performing studies on the feasibility of building a new stadium or renovating the Superdome. In 2003, the Saints and Louisiana will decide the future of the Superdome, and only then will the ramifications of the team leaving New Orleans be known. Until then, however, the New Orleans Arena most likely will keep packing in the fans.

Fans for the Future Obviously, location and accessibility are two main factors that will spell a stadium's success or failure. But beyond these tangibles is another, more crucial aspect: leadership. A stadium's success hinges on “who has the vision and stamina to be the catalyst for development,” Dudley says. The development must be backed by a strong entity, whether it be local government, a sports team, or a private developer.

Sports stadium development, while still in its early years, has the potential to be a major force in the commercial real estate industry. “It may be a way to help smooth the peaks and valleys of more traditional property types,” Dudley says. Many larger developers are viewing this type of development as a definite business project and offering it as a specialty, he continues. And the opportunities don't end with U.S. cities and teams: International markets also are embracing sports stadium development as a means of invigorating their economies.

Gretchen Barta

Gretchen Barta is associate editor of Commercial Investment Real Estate.

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