Golden State Warriors New Arena Plan Will Die By 2015

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The Golden State Warriors New Arena Plan for San Francisco’s Pier 32 is dying and will effectively go the way of the DoDo by 2015.

If you recall, this blogger went over to the party announced for the project in May of 2012, and asked if the owners were prepared to be sued by the City of Oakland for the NBA Basketball team’s unpaid bond obligation for the existing Oracle Arena that was rebuilt in 1998.

warriors-arenaI reported then that the project was said to cost $500 million, but I believed it was going to be greater than that.

Then, when I had a chance to really look at the proposal, I could not see it coming in at less than $1 billion. I wrote that blog post September 17, 2012, and said this:

With all of that, and using the Barclay’s Center Arena, currently under construction for the Brooklyn Nets (what the Oakland Warriors should be, and a good reason to sue the Golden State Warriors), as a model, it’s difficult for this holder of both graduate and undergrad degrees in City Planning, and with a long history of experience with evaluating development projects for California Redevelopment Agencies to see the Warriors Arena at less than $1 Billion.

The construction costs in San Francisco and in Brooklyn are similarly expensive, and both Arenas are to be built on platforms. The difference is the land under both. The Barclay’s Center is only partly built on a platform, but the ground under it is solid and not part of waterfront shore, and not in an area prone to earthquakes. Even with that, it’s cost started at $800 million, before clocking in at $1 billion. In San Francisco, this cost of proper development of the piers alone could push north of $150 million alone, perhaps to $200 million.

Given what the Warriors Owners want to build, the land constraints, and current cost templates for similar facilities, it’s hard to see a cost less than $1 billion for a New Arena at Piers 30 and 32 in San Francisco.

Then, on July 25th, 2013, KCBS Susan Kennedy ran this webpage headline: “Price Tag For Warriors SF Waterfront Arena Grows To $1 Billion.” And the issue was the same land development problem I pointed to months before. And KCBS’ Kennedy reported that Warriors Owners Joe Lacob and Peter Guber were determined to press on, even with that news.

But the bottom line is that arena can’t work for $1 billion at that site unless you have an investor either public or private who’s willing for pay for at least $500 million of that cost of $1 billion and then live with the fact that they’re not going to see that money returned to them in less than a 40 year period, which effectively makes them a bond issuer of a sort – if they’re the government, they are a bond issuer.

It’s not just the large opposition to the development, it’s the plain economics of paying for an arena of that size of just 19,000 people with a cost of $1 billion in a population area with far less size and density than in the New York Metropolitan Area, which clocks in at $19 million people, versus $6 million in the San Francisco Bay Area.

The sheer economic nuttiness of paying $1 billion for a room that costs almost the same at MetLife Stadium’s $1.6 billion boggles the mind. MetLife seats 82,000 people, so its easier to recover the cost of making that facility in a reasonable amount of time – you can’t do that with what the Warriors are proposing and with just private money.

By stark contrast, Barclays Arena, with a cost of $1 billion, came into being after a 511 million public financing deal via the Empire State Development Corporation. That special company is owned by the City of New York, and so Barclays Arena, where the Brooklyn Nets play, is effectively publicly owned, not privately owned. That’s not the case for the Golden State Warriors proposal, and there’s no stomach here in California to do that kind of deal at this time (I’ll explain why later).

So, it comes as no surprise that, as Phil Matier and Andrew Ross reported in the San Francisco Chronicle, the expected opening of the Golden State Warriors New Arena is being pushed back to 2018.

I will go a step beyond that and say the deal’s dying and should be dead by the end of this year, if not before.

The Warriors do belong in Oakland, but saying that is nice, and all, but the question of merit is how are we going to pay for that new arena?

We can do it, but Oakland’s overall problem is a totally unsophisticated level of understanding of financing of facilities, and so much to the point that when a deal goes bad, like that for the Oakland Raiders, the city doesn’t want to do one again.

That explains why we can’t seem to grow Oakland in the way we should: a total lack of big city-type thinking, and a huge degree of small town-type fears. When you mention a sports arena, someone will say “We should spend the money on schools.” The problem with that thinking is it assumes the “money” is sitting somewhere, and is totally divorced from the truth, which is the facility itself produces the cash from its use over time!

See? So, you design the financing for the building so that schools will benefit from some level of revenue production. See? That’s the way it’s done, but in Oakland we don’t have elected officials who get that.

Stay tuned.

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