Chris Hansen personally guarantees Sodo arena financing

Chris Hansen has said all along that he doesn't want to be seen as a hero, a benevolent multimillionaire who swooped into Seattle and offered gobs of his own money to build a new basketball arena here and bring back the NBA.

And the Seattle City Council has been careful, ever since Mayor Mike McGinn submitted a proposed arena-financing deal in May, to not get caught up in the frenzy and excitement surrounding Hansen's plan. For more than two months, city councilmembers have been scrutinizing the proposal, negotiating with Hansen and other involved groups, and trying to find ways to make an arena deal work for all of Seattle.

"It is something that, in Seattle, (with) public-private partnerships we have a checkered history. We are suspicious of private investment as government, in general, no matter who seems to be in office during which decade," City Council President Sally Clark said Tuesday at a news conference where three councilmembers announced a new agreement with Hansen.

"(Negotiation) was tense from time to time," Clark added, "but also I have to say we'd get back to collaborative pretty quickly, and I have to really applaud Mr. Hansen for that. He's a pretty open, confident guy. He is confident and comfortable in what he's trying to do. He does not appear to have any kind of hidden agenda. And when we were clear about, 'Hey, here's why we're talking about this,' that allowed him to engage in problem-solving with us."

In fact, Hansen is so confident in his plan to bring back the Seattle SuperSonics that he has made a personal guarantee to cover the public's financial risk if all other safeguards fall through.

That's almost unheard of in these kinds of deals.

Hansen, a hedge-fund manager who grew up in Seattle but now lives in San Francisco, has asked the city of Seattle and King County to contribute $200 million in bonds to the construction of a $490 million arena in the Sodo neighborhood, south of Safeco Field. Hansen's own investment group, meanwhile, is willing to spend $800 million on construction and on the acquisition of an NBA team for Seattle.

Among other concerns, the original "memorandum of understanding" in May among Hansen, McGinn and county Executive Dow Constantine fell short of convincing the City Council that the public would be adequately protected from financial risks should the venture not be as successful as Hansen expects.

Over the past few months, city councilmembers were able to negotiate satisfactory solutions to their biggest concerns -- mainly that the public would not be left on the hook to pay outstanding debt on the arena, that there would be plenty of reserve funds as financial safeguards, and that the city and county wouldn't be stuck with a worthless, old building at the end of the 32-year financing period.

"Those three things really helped make the risk side of this equation much better for the city," Councilmember Mike O'Brien said Tuesday. "It's not risk-free, but I think it certainly is worthy of the benefits ... to make this a good deal going forward."

Summary of the changes

The new agreement between Hansen and councilmembers Clark, O'Brien and Tim Burgess includes several key changes to the arena proposal:

-- Hansen has made a personal guarantee to pay the city's debt if he can't make the arena financially successful.

-- After the 32-year financing period, the city could force Hansen's arena company to purchase the land and facility from the city and county. Likewise, Hansen could choose to buy the venue outright then build a new facility there. Or, if the arena is no longer needed, Hansen's company must pay for demolition of the venue, leaving the city and county with valuable empty property.

-- The new deal creates a $40 million fund for transportation projects in Sodo, focusing on the mobility of freight in and out of the Port of Seattle.

-- In the required environmental impact study, the city would look at alternative locations for a new arena, including KeyArena. However, the fact remains that Hansen's proposal only applies to the land he currently owns in Sodo.

-- The city would set up a $7 million fund for making improvements to KeyArena and deciding what to do with the old venue.

-- Hansen's arena company would be required to minimize overlapping events at the new venue, CenturyLink Field and Safeco Field.

The amended MOU now goes before the City Council's Government Performance and Finance Committee, which will begin considering the legislation at a special meeting at 2 p.m. Thursday. If it moves out of committee, the MOU will go to the full City Council for a vote. If approved, it will go back to the King County Council, which has already passed its own version of the plan with several amendments. 

Hansen's personal guarantee

Here's how the public financing would work. 

By the time the general public heard about the arena proposal in February, Hansen had been working behind the scenes with McGinn's office for nearly a year on a plan that could bring the NBA back to town -- and potentially the NHL. Once the conversation went public, it only took a few months for the city and county to announce a "memorandum of understanding" in May that spelled out a proposed structure for the government's involvement with building a $490 million arena.

Under that agreement, the city and county would contribute $200 million total, obtained via bonds, to the arena project if Hansen can nail down both an NBA and NHL team. The city's share was $120 million; the county's was $80 million.

Of that total, $100 million was set aside to purchase the land -- which Hansen already owns and has estimated is worth around $50 million -- at the land's appraised value, whatever that ends up being. The remainder of that $200 million would go to purchasing the arena building once it's built, about two years later.

That's one scenario. If only an NBA team were involved, the city would contribute $115 million and the county would front just $5 million. The arena would still be built, with the extra cost being made up by Hansen's investment group. And the arena would still be capable of hosting professional hockey if Seattle eventually got an NHL team.

This makes for two 30-year public bonds: one for buying the land and one for buying the arena about two years later.

Over those 32 years, the bonds would be paid back by taxes on arena operations -- mainly through admissions and B&O taxes -- and by $2 million in annual rent from Hansen's group. If the taxes and base rent don't add up to the city and county's required annual bond payment, Hansen pledged to make up the difference by paying extra rent.

But the agreement announced Tuesday has Hansen going even further. In addition to the original safeguards, Hansen has agreed to "provide a personal guaranty that protects the City from shortfalls in the revenues needed to pay debt service," a City Council document states, "and ensures that all outstanding debt will be repaid should the Arena not prove to be financially successful."

In this case, Hansen's "guaranty" is more specific than your colloquial "guarantee." In legal terms, a guaranty is a promise by one person or entity to pay off the debt of another person or entity.

Under the new agreement, Hansen would be on the hook for his personal guarantee as long as his net worth is $300 million or more, O'Brien said. The city would do an audit of Hansen each year to make sure he would still be able to pay off the city's debt if need be.

"That was a critical deal for us," O'Brien said of the guarantee. "At this point in the negotiation, it was important for us to know that somebody that had some deep pockets was willing to put their money on the line and say, 'Hey, at the end of the day, if none of this works out, I'm going to guarantee it.' And going into the deal it wasn't clear that we were going to get that, so kudos to Mr. Hansen. And I think it speaks to his excitement to getting a deal done, and I think it really helped make the deal possible for us."

Hansen himself hasn't yet made a public comment on his personal guarantee, but he did release a statement Tuesday regarding the new agreement overall:

Today's announced agreement with the City Council marks another important milestone for this project and I want to express my deep appreciation to all Seattle City Council members and their staff for their hard work and thoughtful approach during our negotiations over the past month.

I believe this modified MOU addresses the concerns raised by both councils as well as the various stakeholders in the SoDo neighborhood, such as the Port of Seattle and Manufacturing Industrial Council. I look forward to working with them and others during the environmental review process.

It was the city council's commitment and hard work that got us to this point. And even though I continue to believe that the initial transaction terms agreed to by the Mayor and County Executive represented a great deal for the region, and one of the best arena deals ever offered to a city, I also respect the role of the legislative bodies in this process.

The process worked.

Sodo and a transportation fund

Since the arena was proposed, the Port of Seattle has been firm in its opposition of building a new arena in Sodo. The port commissioners made that opposition official in early August, when they unanimously passed a motion that said the city should conduct a comprehensive study before committing public funds to the project.

A new arena south of Safeco Field would result in extra traffic in the heart of Seattle's industrial district, clogging trucking routes, raising shipping costs and causing customers to move operations to other ports, the Port of Seattle said. The commissioners also want the city to look at alternative locations for a new arena.

City councilmembers Clark, O'Brien and Burgess negotiated two major changes to the MOU that could allay the concerns of the port, the Seattle Mariners and other stakeholders in Sodo.

First, the amended agreement announced Tuesday includes the creation of a "Sodo Transportation Infrastructure Fund," in which $40 million would be set aside for the improvement of freight mobility near the port and stadiums. The funding would be built into the city's and county's bonding for arena construction.

Burgess said the city and county will also ask public and private partners, including the Port of Seattle, to contribute to the Sodo Transportation Infrastructure Fund, and will apply for additional help from the state and federal governments.

"We strongly believed that public money should be used for public purposes, not just private purposes," Burgess said Tuesday. "The negotiated changes that you're hearing about today allow us to address the longstanding transportation problems that we have in Sodo; allow us to preserve good, family-wage jobs in our industrial, maritime and manufacturing center; and protect the taxpayers of Seattle."

The new agreement also could silence calls for putting a new arena elsewhere than Sodo. As part of the project, the city and county will conduct an environmental impact study that includes a look at alternate locations -- including KeyArena at the Seattle Center.

The City Council would also try to protect the port and maritime industry by creating a "Port Overlay District" that would more clearly define the boundaries of the Sodo industrial area.

Currently, Hansen's proposed arena site sits within the city's Stadium Transition Area Overlay District, which was created in 2000 to provide a buffer between commercial interests in Downtown Seattle and the industrial needs of Sodo. The stadiums were meant to create that transitional buffer.

"This is a movement" from that policy, said state Rep. Judy Clibborn, who spoke at Tuesday's annoucement.

"It is no longer a buffer, it is a possible arena site," said Clibborn, who is running for re-election this fall. "That doesn't mean you should just move the buffer."

If a new arena is built there, she said, there will need to be a new, clearer demarkation between Downtown and Sodo.

Not another Kingdome

Throughout negotiations, another big concern of the City Council was what would happen to the arena site at the end of the 32-year agreement period. The city and county would jointly own the land and the venue -- and they don't want to be stuck with an old, worthless arena at the end of it all.

The amended agreement includes plans for three different end-game scenarios:

-- First, the city and county would be able to require Hansen and his group to purchase the land and arena for $200 million. Though the arena is expected to be built for about $490 million, it is unknown what it could be worth in more than three decades. It could be a great deal for Hansen, and could net the city and county $200 million more after having paid off their construction bonds.

-- Second, Hansen and his group could decide to purchase both the land and the arena at a price equal to the city's and county's initial purchase price for just the land, adjusted for inflation. Hansen would then be required to construct a new arena on the site. So far, Hansen has spent about $50 million buying up lots south of the Safeco Field parking garage, and plans to sell the land to the city and county at its appraised value (though no more than $100 million). Under the amended agreement, the final purchase price after 32 years would not be less than $200 million. 

--- Third, if the city and county do not require Hansen to purchase the venue, and Hansen doesn't decide to buy it up himself, Hansen's group would be on the hook for the costs of demolition. That would leave the city and county with a big chunk of valuable, empty property.

Meanwhile, the new agreement also includes expanded requirements for financial reserve accounts that would protect public money in case Hansen's group struggles to make bond repayments. 

What to do with KeyArena

The new agreement would also create a $7 million fund for the city to use on upgrading KeyArena. While the original MOU included a generalized plan to find a use for the old venue -- including Hansen's potentially operating KeyArena along with a new facility -- the City Council wanted to see a more concrete commitment.

To bring an NBA team back to Seattle, Hansen plans to use KeyArena as an interim playing venue while a new arena is built. He would pay for the upgrades he would need, but the city also wants control of its own fund. The $7 million would be generated by taxes on KeyArena operations during these interim NBA seasons; no new taxes would be levied on the general public.

Under the new agreement, Hansen would also be required to reimburse the city $150,000 for the costs of studying the long-term vitality of KeyArena and the Seattle Center. 

"There are a lot of folks who feel very deeply about KeyArena, about Seattle Center as a whole, of course, and have great memories of how they watched the Sonics at KeyArena," Clark said Tuesday. "Part of this ... recognizes that we are setting up a competitive disadvantage for KeyArena by engaging in helping a new arena to come to life."

Additionally, the City Council would require looking at KeyArena -- or, at least, the KeyArena site -- as a potential alternate site for a new arena.

"That EIS needs to look at viable alternate locations," Clark said. "We are engaging in a process, and we're setting out what the terms of the deal would be for when the location's actually locked down, but as part of our requirement that EIS must look at other alternate locations. ... KeyArena is required to be one of those locations."

That said, Hansen has made clear that his offer is only good for the Sodo location.

Nick Eaton can be reached at 206-448-8125 or nickeaton@seattlepi.com. Follow him on Twitter at twitter.com/njeaton. Visit seattlepi.com's home page for more Seattle news.