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$150 Million Power Play

The notion of cities paying for expensive sports facilities on behalf of rich team owners remains controversial in many communities. Not every city could foot the bill for a $150 million hockey arena. And not every city would undertake that expense on behalf of a deep-pocketed owner like Denver-based Anschutz Entertainment Group (AEG).

Yet Ontario, a community of 200,000 people in California's Inland Empire, agreed to build Citizens Business Bank Arena, an 11,000-seat hockey stadium. If the city's calculated risk plays out, Ontario will make a cool $12 million annually from the icy facility, which opened in October. The stadium occupies 30 acres within the 92-acre Piemonte development, a project of Sacramento, Calif.-based Panattoni Development.

When completed in winter 2010, Piemonte will include 500,000 sq. ft. of retail space, anchored by Target, Best Buy and DSW Shoe Warehouse, plus 268,000 sq. ft. of office space and 256 hotel rooms. Homebuilder Toll Brothers will construct 800 condos in Piemonte.

Although the tenant and product mix look promising for Piemonte, the timing does not. Despite being one of the fastest growing markets in the Inland Empire, Ontario also has suffered from the depressed economy, and that trend bodes ill for growth in retail sales. Retail vacancies at the end of September in the Inland Empire averaged 6.9%, up from 6.7% in the second quarter, reports CoStar Group. Meanwhile the office vacancy rate spiked to 19.9% in the third quarter, up from 17.5% at the end of June, reports Grubb & Ellis.

“In 2006 and 2007, developers were building speculatively, without preleasing. The market steadfastly maintained good absorption and leasing,” says Dain Fedora, client services manager in the Ontario office of Grubb & Ellis. “That trend continued in 2008, when the national economy did not reward it.”

Against this backdrop, Ontario city officials appear less dazzled by the promise of pro sports coming to town than the economic return. Under the agreement with the city, AEG will lease the new stadium for $1 million annually.

AEG will operate the arena and provide concert attractions to assure the profitability and foot traffic to the merchants of Piemonte. The project is expected to generate up to $11 million in tax increment and sales tax revenues.

To pay for the arena, the City of Ontario took the unusual, and potentially risky, step of paying for the entire project itself and retaining ownership. The deal was creative, insofar as the city found the money without going to the bond market or exposing itself to debt.

Instead, the city built the arena entirely using cash, including about $58 million gained from the sale of city-owned land, and another $88 million from city coffers, says Mary Jane Olhasso, the city's economic development director.

And if tax revenues arrive as expected, Ontario “will be doing very well for itself,” according to Olhasso. Assuming her predictions come true, “hockey puck” just might become a term of endearment in the Inland Empire.

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