Analysis: Could the Sounds strike out?

Sounds and Struever Bros. get their extension — but the deal is fraught with complications, and Metro Council may not give more time if they miss the new deadline

Email | Print By Richard Lawson

Tonight, the Metro Council gave the Nashville Sounds and its development partner Struever Bros., Eccles & Rouse additional time to forge the financial deal to get the $43-million riverfront ballpark out of the ground and open for the 2008 season.

Instead of needing to have the financial terms completed by Dec. 31, the parties now have until April. But one question remains. Why is it taking so darned long to get this done? The consortium of banks stepped up two years ago and the memorandum of understanding came 10 months later. Metro Council approved the deal last February.

The answer to the question isn’t simple. This deal is incredibly complex. Mayor Bill Purcell made it that way with his insistence that no taxpayer dollars be at risk. That meant no public bonds issued for the project, no matter how many stop-gaps the Sounds offered to mitigate risk to the taxpayers. That threw the deal into a totally private arena that entails a lot of moving parts.

The Sounds and Struever Bros. have to get a deal done. If they don't, the deal is likely dead. Observers say that the Council probably wouldn't approve another deadline extension. And if it dies, the Sounds would be back to ground zero and the opponents of putting the ballpark on the former Thermal site end up winning. One of those vocal opponents, At-Large Councilman David Briley, is running for mayor in next August's election, and having that site back in play for a ballpark, should the Sounds find another developer, could make for some interesting election-year fodder.

As such, much of the success of the project rests on the shoulders of Struever Bros. The developer has to pull together its equity and debt for the mixed-use development it wants to do next to the ballpark, probably in the neighborhood of $200 million to $300 million.

Complicating the matter may be the parties involved. The talk is that the Sounds and Struever Bros. don’t exactly have the most harmonious relationship, even though the minor league team brought the developer to the table. The Sounds haven’t had such a harmonious relationship with a lot of parties around the city, observers have noted. There has been talk, too, the Sounds may have another developer in the wings should Struever Bros. exit.

Glenn Yaeger, the team’s general manager, didn't dismiss the talk directly in comments today. "We're working cooperatively on this project to get it done," he said. "We're doing everything we can to help them."

Environmental clean-up is a lingering issue. The state still hasn’t blessed the former trash-processing site as clean, and there is a process to that end. It could be argued that the process should have been completed by now, or at least underway, considering that the original agreement stated that Metro would have it done by Dec. 31. To get Metro to check off on the extension, Struever Bros. had to agree to picking up the liability for the site cleanup. That condition has apparently worried some of Struever Bros.’s lenders and investors.

The Sounds still must have a deal worked out for $23 million in loans from the banks. Yaeger said the team is comfortable with the status of that part of the deal. Before that loan can close, however, the $17 million in tax-increment financing piece has to be in place, along with $3 million to cover the remaining construction cost. "They're not going to lend $23 million if there isn't $20 million sitting in the construction account," Yaeger said of the banks.

It takes time to design a project of the magnitude proposed. After months of work, the Sounds released that design on Monday. But even that process was complicated because Struever Bros. has been working on a development mix that would generate enough property taxes to cover the TIF loan, not to mention the public meetings to gain consensus on the design.

As it stands now, Struever’s proposal has a 140-room hotel with 170,000 square feet of office space and 17,000 square feet of retail space; a 180-room hotel; and a condominium tower with 224 units. Originally, there were going to 600 condos. But Struever Bros. altered that because of the number of units being built downtown now. It now doubts the market can bear the higher number.

A question remains as to whether Struever Bros. can pull together the investors and lenders for its portion of the project. The developer needs lenders for the development as well as the TIF loan.

In 2005, Struever Bros. proposed having the Metropolitan Development and Housing Agency issue bonds that would be paid back by the property taxes on the parcel, instead of the traditional method of securing bank loans. The bonds give a longer period for payback than bank loans, which rarely go more than 10 years. At the time, the last payment on the bonds would have been 2024, allowing more time for the development to ramp up and generate property taxes. The bonds also offer lower interest rates.

If those bonds are still an option, that's another complicating factor. MDHA hasn't used that mechanism in tax-increment financing.

There were long hours put in to get the extension. There will be long hours to get the deal worked out, and April could come quickly.