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Thin Ice

Plans for a $250 million sports complex in Chesterfield are going gangbusters, the owner says. So where's the money?

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Steve Burton's grand plan for a multimillion-dollar Olympic sports complex in Chesterfield County is pedaling ahead fast and furiously. It's just unclear if the finish line is paved with gold or a dead end.

Burton has produced no documentation that he has the finances or the wherewithal to build his $250 million, 250-acre sports complex near Brandermill. The clock is ticking. Tax-exempt bonds are scheduled to be sold in March, according to Burton's application to the county and the state to qualify for $30 million in federal Recovery Zone bonds. He also hasn't finalized the purchase of the 250 acres on which he plans to build the massive sports facility. SportsQuest owns a meager 5-acre plot in the nearby Waterford Business Park.

That hasn't stopped an enormous marketing push from SportsQuest, which plans to erect a megasports town of sorts, featuring an outdoor velodrome bicycle racing track, an ice-skating rink, a sports arena for football and basketball and other sports, a bevy of outdoor soccer, football and lacrosse fields, not to mention $150 million in retail, restaurants and corporate office buildings.

Burton, who owns a speed-skating team that operates out of the Richmond Ice Zone off Midlothian Turnpike, envisions the facility becoming a hub for Olympic-caliber athletes, and is selling memberships to the facility akin to those at a fitness center. He says he's also recently purchased an indoor sports facility nearby, the Richmond Indoor Sports Experience, which specializes in training youth baseball and soccer players.

The linchpin to the deal, Burton says, is the recent allocation of federal stimulus bonds — the $30 million in tax-exempt bonds — that he says will allow his company to access millions in institutional capital to pay for the project. The state awarded the $30 million in bond allocations to SportsQuest late last year, the largest in the metro area, intended for projects that are “shovel-ready,” according to the governor's office.
The only problem? The project doesn't appear ready for the shovel. Construction has yet to begin, and Burton has yet to show he has the money to make the deal fly.

“There is nothing in this document that suggests this is shovel-ready,” says an investment banker who specializes in public finance, after reviewing Burton's application to the state to receive federal stimulus bonds.

The bonds, despite wide publicity to the contrary, are anything but a sure deal. The tax-exempt Recovery Zone bonds that Burton hopes to use to help finance the project will require a letter of credit from a financial institution — no easy task in today's tight lending environment — and investors who purchase the bonds will require proof that Burton has enough signed leases and revenue coming to cover the bond debt.

Burton remains undeterred. He says he has enough private capital, and has signed enough members to cover the first phase of the project, which he refers to as the east campus — 17 soccer, lacrosse, field hockey and football fields and an amphitheater for outdoor music and other events at a cost of $30 million. 

He says so much money is rolling in that he won't even need a letter of credit. “We have sufficient revenue streams to support the bond issue,” Burton says, explaining that much of the money will come from the players and fans. “Players of all the sports, fans watching the professional sports, and players in the weekend tournaments, those are the three primary sources of revenue.”

Burton also says he has millions in commitments from national sponsors, as well, but declines to offer specifics.

“We are going to open the east campus doors in 2010 with millions in revenue,” Burton says. Construction is set to begin soon with at least nine of the fields completed by Labor Day, he adds. The rest, including the amphitheater, is scheduled to be complete by the end of the year. Even better, Burton says he has enough cash to build the first phase without a drop of bank financing. All told, he says he has $50 million in financial commitments from investors and other revenue streams.

“Right now we are building the east campus with zero debt,” Burton says.

There are doubters. For starters, those in the finance business wonder why Burton would attempt to float high-interest bonds to build the complex if he has so much capital behind the deal. It would be far cheaper to simply seek a traditional bank loan for the second phase of the project, which includes the arena, administrative building, outdoor cycling track and other sports facilities.

“If you can get a letter of credit, it would be cheaper to get money from a bank. This kind of bond money isn't going to do it for him,” the investment banker says. “The truth of the matter is people are not financing these kinds of deals right now.”

The bonds are equivalent to high-interest junk bonds, except as tax-exempt bonds the interest will be slightly lower, perhaps a percentage point or two. “I haven't seen a letter of credit or much of a bank loan in the last couple of years” of the size Burton is seeking, says Bonnie France, an attorney in the public finance group at McGuireWoods. “[Banks] really haven't been typically active in the market as investors.”

A local businessman and investor familiar with the project concurs. “In this market, dreamers are a dime a dozen,” the investor says, calling the chances of Burton attaining financing as “remote.”

For his part, Burton says going to the bond market allows him and his investors to attract more private capital without giving personal recourse, or financial guarantees, that banks traditionally require for such loans. “It allows equity investors to support the program without having to make personal guarantees,” Burton says.

SportsQuest, however, will have to show it has the revenue streams to cover the bond debt, plus millions in interest, before the bonds will sell, the investment banker says. Considering that Burton has yet to break ground and doesn't have a timetable for perhaps the most profitable portion of the project — the $150 million in retail, restaurants and corporate office buildings — it's difficult to see where the money will come from.

“I'm not the developer. I'm just providing people dirt,” he says of the retail and office complex. “I have no ability to disclose who those developers are. … We have interest. No one has made any announcements so the market can read what they want to read from that.”

Chesterfield County's economic development officials have been touting the project as an economic generator. Burton says the complex will generate 500 jobs, most of which will be full-time. By comparison, American Family Fitness, Richmond's largest private health club, has seven fitness centers and more than 115,000 members. The entire chain employs a close to 1,100 people.

Although Burton declines to name his investors, one is Powhatan developer J. Mark Sowers, who owns the vast majority of the 250 acres where the complex will be built around the intersection of Powhite Parkway and state Route 288 in western Chesterfield. He says he's close to finalizing the deal to sell the property to Burton.

“The deal is going through,” Sowers says, explaining that Burton has the land under contract and expects to close on purchasing the property in the next few weeks. “I think it's very realistic. It is under contract and I expect to start closing very, very soon.”

But consider Burton officially on the clock. The Recovery Zone bonds must be sold before Jan. 1, according to the U.S. Treasury Department, and bond counsel for Burton has informed the state the bonds are set to be sold by March 15.

Burton, the proverbial dreamer, says the financial picture is becoming clearer by the day. He realizes some don't think he has the ability to pull off such an ambitious project, but suggests that will change once the first phase opens later this year.

“As soon as they see those fields come online,” he says, “it will be a pretty interesting story.”

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