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Philips Arena project could be catalyst to develop ‘Gulch’

By Maria Saporta
As published in the Atlanta Business Chronicle on Nov. 4, 2016

The agreement to spend $192.5 million to dramatically renovate Philips Arena likely will lead to the redevelopment of the area between Mercedes-Benz Stadium, Underground Atlanta and Centennial Olympic Park, according to both Atlanta Mayor Kasim Reed and Tony Ressler, the principal owner of the Atlanta Hawks.

Rendering of new Philips Arena

Rendering of how the revamped Philips Arena will look in the fall of 2018 (Special: Atlanta Hawks)

The renovation of Philips, announced on Nov. 1, also will include $142.5 million in public financing, a stark difference from the model that built Philips Arena.

The deal also will drastically change the interior design of Philips, which had been a one-of-a-kind arena that had stacked all the luxury skyboxes on one side of the arena. The redevelopment of the entire area around Philips would realize dreams that have existed for decades. Countless development plans have been proposed to redevelop the railroad “gulch” that is just southeast of the arena — from multimodal stations to an Omni South to casinos to a mixed-use office, residential and entertainment complex.

“I’m hopeful that because of the investment we are making today, the gulch will be developed,” Reed said during the press conference.

He added the possibility that the “redesign of this highly important venue” could revitalize the entire corridor between the new stadium for the Atlanta Falcons and Atlanta United and the redevelopment of Underground Atlanta.

It’s even possible that Ressler’s brother — Richard Ressler, founder of Dallas-based development company CIM Group— could end up being the developer of the area around Philips.

“You’ve got Richard Ressler, who has expressed interest in developing the gulch,” Reed said during the press conference.

Tony Ressler Kasim Reed

Atlanta Hawks owner Tony Ressler and Mayor Kasim Reed announcing deal to renovate Philips Arena

Tony Ressler elaborated. “As we said from the first day we took over (the NBA franchise), we were committed to rebuilding…the Atlanta Hawks foundation to help develop the downtown area to be the best center it can be,” Ressler said. “My brother’s CIM Group is probably the largest urban developer in America today. He has been spending time in Atlanta looking to figure out ways they can help. We have tried our best to participate in the redevelopment of a world-class franchise here for the next 35 years.”

The $192.5 million renovation of Philips includes an 18-year lease extension for the Atlanta Hawks to remain in the downtown Atlanta arena through 2046.

The financial structure of the deal is quite a departure from the one used when Philips was originally built for $250 million. Most of the renovation costs ($110 million) will be paid for by an extension of the car rental tax. The city also is allocating $12.5 million from the sale of Turner Field and another $20 million from the sale of several other city properties to the arena project. The Atlanta Hawks organization will then cover the balance of $50 million to renovate Philips.

When Philips was originally built, no tax dollars were invested in the arena. The revenues of the car rental tax, which had been put in place for the project, went to public infrastructure improvements, including sidewalks, streets and a new parking garage for the arena.

The cost of building the arena fell to Turner Broadcasting System, then-owner of the Atlanta Hawks. The entire arena development was financed privately by the Turner organization through revenue bonds based on the business Philips Arena was expected to draw.

The arena is now under the purview of the Atlanta-Fulton County Recreation Authority.

Philips Arena has been one of the most successful in the country — ranking fourth in the nation in terms of most programmed venues. Philips hosts about 170 events a year, including major concerts, family shows and the circus, in addition to the Hawks’ home games.

Rendering of the transformed Philips Arena - how it will look in the fall of 2018 (Special: Atlanta Hawks)

Rendering of the transformed Philips Arena – how it will look in the fall of 2018 (Special: Atlanta Hawks)

Although it was not mentioned at the press conference, it is thought that Tony Ressler and the other Hawks owners would be the beneficiaries of all the revenue collected in the leasing of Philips.

The naming rights of the arena also will soon be up for renewal. Philips signed a 20-year deal for the naming rights in February 1999, which means less than three years are left on that deal.

“The naming rights will be the domain of the Atlanta Hawks,” said Reed, who added during the press briefing that the deal was good for the city. “They were adamant during the negotiations to make sure our balance sheet stays strong.”

Reed also made a point of saying no new tax dollars would be going to the arena — just the extension of the car rental tax.

One of the reasons the arena renovation will be so costly is the redesign of the suites.

When the design for Philips Arena was first unveiled, then Atlanta Hawks President Stan Kasten boasted about the novelty of stacking all the suites on one side. It put all the catering and food for the suites on one end of the stadium.

It also permitted fans in the suites to be much closer to the court because there wasn’t as much of a step back for the regular seats.

But it proved to be harder to sell the suites on the higher levels because of the distance.

The redesign will wrap the suites on two levels around the bowl, which is much more of a traditional arena design.

The deal will need approvals from the Atlanta-Fulton County Recreation Authority and from the Atlanta City Council, which must approve the sale of the city properties so the $20 million in proceeds can go to the arena project.

The plan is to complete the deal by the end of the year, which is the same time frame for the closing of the sale of Turner Field.

Atlanta City Council member Keisha Lance Bottoms, who is also executive director of the Atlanta-Fulton County Recreation Authority and a 2017 mayoral candidate, said, “I look forward to signing off on all of these deals by the end of the year.”

Maria Saporta, Editor, is a longtime Atlanta business, civic and urban affairs journalist with a deep knowledge of our city, our region and state.  Since 2008, she has written a weekly column and news stories for the Atlanta Business Chronicle. Prior to that, she spent 27 years with The Atlanta Journal-Constitution, becoming its business columnist in 1991. Maria received her Master’s degree in urban studies from Georgia State and her Bachelor’s degree in journalism from Boston University. Maria was born in Atlanta to European parents and has two young adult children.

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