XL CENTER IN FULL CRISIS MODE PART 1 

By: Gerry Cantlon, Howlings

HARTFORD, CT – The XL Center seems to be finally reaching an outcome.

Last Thursday, at its monthly meeting, the Capital Region Development Authority (CRDA) unveiled a cost estimate of $107.2M to update the nearly 50-year-old building. But this is by no means a done deal.

This estimate was presented to the entire board of the CRDA by two estimators and the design team, SCI Architects, of the yet-still unopened sports betting facility at the XL Center and Construction Manager, Dimeo of Providence, RI. Unfortunately, they now have to marry the theory they presented with real-world economics, which is not a sure bet with rampant inflation in the marketplace.

“It does have a 25% contingency built in (to the proposal) and it’s based on the construction cost and material required, that’s why the contingency is so fat and now it goes out for bid,” remarked CRDA Executive Director Mike Freimuth.

The CRDA oversees the XL Center and contracts with a private operator to manage it. They’re on their sixth in 26 years. Currently, it’s the Oak View Group (OVG), a Los Angeles-based conglomerate that bought Spectra out of all its building operations (more than 300 in North America) last November. They assumed the remaining terms contract that expires in 2025 to operate the XL Center, a deal “grandfathered” by a pandemic extension.

The mantra now coming from the halls of the CT Convention Center, where the offices of the CRDA are located, and the state Capitol building is as well, is “land the budget.”

“If (the estimates) go $107M or below, we’ll go forward. If the bids come in higher than $107M, then we’ll have a different conversation and various questions before us. Can we find more money? Do we have done more engineering (studies)? Can we put off certain things until a future phase? Can we leave stuff on the table?

“In that case, neither party, the state or OVG, would be obligated to go forward. So if we can’t find a solution above $107M, we don’t execute the agreement.

“If we get below $107M, we can execute the agreement, which allows OVG to come in and manage the building under terms negotiated with them and investments in the building that will be constructed over a two-year window,” Freimuth said. “And if it goes forward the next two summers, the XL Center will go dark during that time period, then re-open in the fall for basketball and hockey.”

The CRDA, the quasi-public state agency that oversees the 48-year-old arena that, ‘s owned by the city because of the water pipes that come into the building that help make the ice for the brand-new chiller system and flooring installed over the past three years.

This spring and summer will determine the actual costs of a significant, necessary upgrade, which is the estimated above of $107.2 million.

But the question lingers if that can be done for that money.

The effort is an attempt to move beyond years of thick folders of drawings, colorful renderings, open public hearings, grand plans, and ideas coupled with inexact, wildly optimistic cost projections (a powerful feature of CT construction projects – never on time or under budget) that have changed over time and in the last ten years.

The decision also comes as the CRDA is hip-deep in negotiations with OVG for an ambitious, yet not agreed to, millions of dollars in private investment required for this project and a new lease of potentially up to 20 years. However, OVG appears to be unfazed by the number.

“We’ve been talking with (them) about the $100M range for two years now. The scope of the work we are putting out to bid and what OVG has wanted and expects, that helps them accomplish their building plans includes the stage reconfiguration (to a price point of 13,500 fans facing the stage), the loading dock issue (they did a study on last summer and made the necessary physical changes last year) all are important to OVG and our models,” commented Freimuth.

Accomplishing the 13,500 facing the stage can be tricky but is doable, according to Freimuth.

“You can put 15-16 thousand people in there, but move the stage forward the seats behind the stage. You can recess the stage; you can get 270 degrees of eyeballs. The closer you bring the stage forward the more seasting you lose. OVG came up with 13.5 number,” commented Freimuth.

The renovations have focused on the lower half of the arena, known as the “Lower Bowl Strategy.” It’s an enormous task aimed at making the XL Center more competitive with new arenas in the marketplace for events in the 21st century on a regional and national scale.

The idea is to help the venue turn a profit (which it never has during the CRDA term) and carry it through another two decades of functionality.

A major renovation would target the necessary addition of premium seating to command MUCH higher ticket prices to match the market and new amenities and features they wish to install. There are also much-needed upgrades to the concourse needed for the building, which is inadequate in the 21st century, and becomes a glorified sandbox during large crowds.

“We’re responsible for the operating subsidy (and) in turn we pay them a simple, straight forward management fee. The deal includes an incentive mechanism and in the ten years I have been here, we’ve never triggered it.”

But are they making the building profitable? Has it ever been?

“Maybe in the magical, halcyon days of the (Hartford) Whalers, they did. That’s ancient history. Since I’ve been here, none.”

The technology systems presently are archaic. For example, its WIFI system would become priority number one. This is partly to accommodate the heavy social media posting and texting done during events and event seat food ordering.

The CRDA will complete the full scope of designs in the coming months and seek bids for the different renovation components to see if the actual costs are close to the $107.2 million estimate and projections.

“The deal is designed at a certain number. When they make a profit, we split it with them as they realize from their initial investment. At the same time, they would be responsible for negative losses, deficits, or cash flow. There are no guarantees in any of this.

“The idea is that by reconfiguring the building for specific events, they can make a profit on, especially concerts. That’s the big payday in these buildings.

“We haven’t been able to secure concerts for two reasons.

“One, the building is technically (deficient) and physically tired. The second is the casinos (in Western MA and eastern CT) that can underwrite these shows to drive people to the casinos. You can’t compete with that.

“All we can do to compete is have a building that produces better revenue and operating expense profile and the ability to sell tickets in multiple, variable pricing and style of seats, and that’s the concert business,” said Freimuth.

The CRDA and OVG want the numbers to come in line together. A ballooning of renovation costs will doom this project if returned bids are higher than expected.

“The losses, pre-pandemic, were in the $2.5-3 range and during the pandemic was above $4M. We’re coming back to the general $2.5-3M range,” said Freimuth.

The funding mechanism, a sunset of federal COVID funding known by its acronym of ARPA, will end after this budget year as it will be retired.

Governor Ned Lamont has maintained two benchmarks he has not wavered or changed on that must be met before he will put the expense on the bond agenda.

First, the operating subsidy must go away. Who will pay for it? As Freimuth stated, it rose to $4M during the pandemic. It was covered with federal funds, but with that money now being retired, it will be back around in the $2M range.

Secondly, a private entity (i.e., OVG) must be found to invest in the building kicking in at least half the cash needed for the long overdue renovation when it finally does commence. The state isn’t going in alone, and finally, the public-private laws will need to be rewritten, a most likely tortuous exercise to come.

XL CENTER

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