City Government and Commercial Real Estate and Local Government and Indiana Sports Corp. and Development/Redevelopment and Sports Business

Sports Corp. made city a sports giant, but real estate plans fell short

July 14, 2008

Construction of Pan Am Plaza in the mid-1980s was a major step in the evolution of Indianapolis into a sports town worthy of hosting a Super Bowl. But the office building, parking garage, skating rinks and public gathering place came up short over the years in other ways for both taxpayers and the developer, the Indiana Sports Corp.

By the time the Sports Corp. sold the last of its Pan Am holdings early this year, the fountain was dry, the plaza was crumbling, and the torches that heralded the 1987 Pan American Games hadn't seen flames in years. Meanwhile, to facilitate the sale, the city quietly watered down an agreement struck in the mid-1980s to protect the original investors--Marion County taxpayers--who paid for the land on which Pan Am Plaza sits.

The original vision called for the plaza properties to serve as an endowment of sorts for the not-for-profit Sports Corp.--spitting out enough revenue to support the group's efforts of luring sports-governing bodies and major events. Initially, the idea worked, but eventually the properties became a drag.

In 1995, the Sports Corp. sold the underground parking garage after defaulting on a loan. The group returned the plaza's office building to a lender in 2003. And it shut off the fountains and extinguished the torches in the last few years to focus limited resources elsewhere.

Private developers now are plotting the future of the prime property at Georgia Street and Capitol Avenue, hoping to capitalize on neighbors Lucas Oil Stadium, Union Station, Circle Centre mall and an expansion of the Indiana Convention Center set to replace the RCA Dome.

"The front door of the convention center will be facing this property, and we were in no condition to maintain it," Sports Corp. President Susan Williams said.

Rewriting the rules

The city gave the Sports Corp. the properties known as Square 88 in 1986, in exchange for a 30-year agreement restricting development on the plaza. The agreement said the requirement to maintain a "first class urban plaza" could be waived after 20 years if the owner paid a $3 million, inflation-adjusted fee to the city.

But late last year, the city agreed to reduce the protected portion of Pan Am Plaza from 88,000 square feet to 10,000 square feet without any payment, citing minimal use of the plaza and decaying infrastructure.

Enforcing the payment could have stalled a great redevelopment opportunity, said Maury Plambeck, who has served as director of the city's Department of Metropolitan Development since 2002.

Plambeck said there was "no magic" to the 30-year term of the covenant.

"That was going to end in the near future," he said.

But the waiver doesn't sit well with local attorney and activist Paul K. Ogden, who is preparing a lawsuit challenging the move. His question: Why should the Sports Corp. get the fee waived because it failed to maintain the plaza?

The fee, if enforced and adjusted for inflation, could add up to $6 million to city coffers.

"Basically, the Sports Corp. owes money to the city of Indianapolis," Ogden said. "It's a tough position to take that the taxpayers shouldn't have gotten anything out of the deal."

The original restriction on use of the plaza was the product of intense negotiations, according to a 1986 letter from two local attorneys who represented the city in the discussions with the Sports Corp.

"Obviously, if the department had agreed to the first, second or even third draft of the project agreement, the city and mayor would have been extremely vulnerable to public criticism, both now and in the future," wrote Michael D. Moriarty and Paul S. Mannweiler. "I hope we have a final project agreement which protects the city without hindering the developer."

On the other hand, the city's move to reduce the protected area allowed all the properties to return to tax rolls for the first time in more than 20 years. And the sale of the plaza--to locally based Kite Realty Group Trust and Coastal Partners of California--likely means taxpayers won't have to foot the bill for expensive repairs to the plaza.

"This was the best decision from a public-policy standpoint," Williams said.

The city's total price for the 16 parcels it assembled for Pan Am Plaza is unclear. A review of dozens of records turned up only one purchase agreement: a $1.5 million deal in August 1985 for several parcels owned by The Salvation Army.

A $15 million bond issue--secured by $1 million from the city--funded construction of the parking garage, with the Sports Corp. shouldering the obligation of paying the debt service. The office building was privately financed.

'Small price to pay'

Pan Am Plaza was designed as a creative way to run the Sports Corp. without coming to the city for checks all the time, said Dennis Dye, a vice president with locally based Browning Investments Inc., which developed the plaza for Sports Corp.

The plaza would provide a public staging area for the convention center and RCA Dome. The 1,150-space underground parking garage would support a new hotel in Union Station and other nearby venues. The office building, originally built as a media center for the Pan Am Games, would house national sports governing bodies at below-market rents, supported by revenue from tenants paying market rents.

He said later downtown projects, such as Circle Centre, might not have been built without the momentum created by construction of Pan Am Plaza.

"In my view, it was a pretty damn good idea," Dye said. "It worked out for a significant amount of time. It was one of a number of blocks that attracted major events. I think it's a pretty small price to pay for what we've gotten out of it."

The Sports Corp. will not miss all the extra expenses, such as the $120,000 it spent a few years ago to repair a beam holding up the garage, said Williams, who has led the not-for-profit since 2005.

The torches were costing $25,000 a year to operate, and the fountains ran about $50,000 per year. She said shutting them down was a trade-off that allowed the Sports Corp. to reallocate resources.

The Sports Corp.'s real estate holdings were substantial for a relatively small organization. The not-for-profit has 22 employees and an annual budget of $2 million to $2.5 million.

Also weighing on the Sports Corp.: the twists and turns of real estate and credit markets, and subsidized tenants such as the Indiana World Skating Academy, a not-for-profit that maintains its own space but doesn't pay additional rent.

"Talk to anybody who owns a building that's 25 years old," Williams said. "They become hugely expensive to operate. The operation and financial challenges were really distracting from the core mission. The financial exposure was tremendous."

In 1995, the Sports Corp. defaulted on a loan for the parking garage and had to sell it for $4.25 million--less than its loan balance of $10 million--to a holding company controlled by Northeastern Security Development Corp., a distressed-property specialist based in New York.

In 2003, after losing millions on the 2002 World Basketball Championship, the group had to return the 139,000-square-foot office building to lender John Hancock Financial Services, which sold it to Coastal Partners for $8 million.

"[The plaza] never became the revenue source for the Sports Corp. that the creators of this notion had hoped for," said John "Jack" Swarbrick, a partner at Baker & Daniels and a former chairman of the Indiana Sports Corp. "It was nevertheless a very important development for the community and Sports Corp. for what it contributed over the years."

Losing the office building and parking garage left the Sports Corp. with ownership of the plaza, the skating rinks and the basement of the office building, which connects to the underground garage.

Looking forward

Kite owns 85 percent of the partnership that acquired the remaining Sports Corp. holdings. The purchase price for the four-acre site was not disclosed.

An early site plan for Kite's and Coastal's renovation of Pan Am Plaza shows 70,000 square feet of low-rise space for restaurant, retail or entertainment users. The plans call for retail space where the rinks now stand as well as a new building on the plaza's southeast corner. The site plan also shows a smaller, refurbished public space.

That's just one scenario developers are considering, said Tom McGowan, Kite's chief operating officer. He said they would like to do a larger project if they can gain control of the parking garage.

"We felt it was the best undeveloped piece in the city of Indianapolis," he said of the site.

The sale agreement requires Kite and Coastal to pay the Sports Corp. another $2 million if they win control of the garage or find a way to build more than 150,000 square feet.

Developers have eyed Pan Am Plaza for years, and Browning Investments and a partner proposed an Inter-Continental convention headquarters hotel for the site last year. But the city opted instead for a site near White River State Park, where a JW Marriott now is under construction.

One factor in the decision was that the garage owner was not on board with the plan. However, Armand Lasky, a Northeastern Security Development official, said he's had constructive conversations with Kite.

Freed of the plaza, the Sports Corp. plans to focus on its mission--nurturing the sports juggernaut it helped build. The group helped land several national amateur sports governing bodies and the headquarters of the NCAA. And without the groundwork the Sports Corp. laid, the city's successful bid for the 2012 Super Bowl likely would not have been possible.

Sports Corp. now is working with several national governing bodies--including USA Gymnastics, USA Diving, U.S. Synchronized Swimming and USA Track & Field--on plans to stay in Indianapolis and take space in the Disciples of Christ Building at 130 E. Washington St. The groups are considering Olympic branding for the building, Williams said.

And the Indiana World Skating Academy, displaced by the sale, is working on plans for a new facility at the fairgrounds. The General Assembly has allocated $4 million, a big chunk of the estimated $10 million cost.

If all goes as planned, the plaza will have a whole new look when the Super Bowl arrives in 2012. But a flag, torch and plaque commemorating the Pan Am games will remain as a nod to the past.

"The Pan Am Games changed the way the city viewed itself in a profound way," Williams said. "People still talk about their experience with the games. That will not be forgotten."

Source: XMLAr00100.xml
ADVERTISEMENT

Recent Articles by Cory Schouten

Comments powered by Disqus