City chose Oak View Group before rival KeyArena bidder withdrew, documents show

Four days before a company proposing to renovate KeyArena angrily withdrew its offer, documents show a city executive team had already recommended that Mayor Ed Murray accept a $564 million proposal by the rival Oak View Group (OVG) of Los Angeles.

OVG is to be confirmed at a 2:30 p.m. news conference Wednesday at KeyArena as the city’s official choice to renovate the 55-year-old sports facility. Also expected at an afternoon news conference, at which Murray and company CEO Tim Leiweke are planning to attend, are announcements regarding new equity partners that could impact OVG’s future NHL and NBA ambitions.

After a memo from the executive team was given to Murray on May 31, he met one final time last Friday with a 10-member community advisory panel also examining the proposals by OVG and the Seattle Partners (SP) group. Two days later, the SP group withdrew its $521 million renovation proposal and sent a scathing letter to Murray criticizing the city’s process as unfair and suggesting it was considering a flawed economic model to get KeyArena rebuilt.

“Late Friday is the day I made my final decision, and we would have contacted people on Monday to let them know,” Murray said in an interview Wednesday morning. “I’m not going to question their reasons (for pulling out). Was I surprised? Yes, I was a little surprised.”

Murray did imply the SP group likely got wind of his decision beforehand: “I’ve never seen anyplace leak as much as Seattle City Hall.’’

Documents newly released by the city show the three-member city executive team felt OVG had a superior financial and design plan compared to SP’s proposal. The executive team memo to Murray outlined deficiencies in the SP financial and design plans, especially the group’s $250 million public-bond funding request that “would be the largest debt offering in the city’s history.”

Murray agreed the bond proposal was “a non-starter with the public and with the council.”

In contrast, the memo said, “a major strength of OVG’s construction financing proposal is that it does not require an upfront infusion of city dollars.”

OVG has guaranteed the full construction costs, saying it would seek $197 million in a Goldman Sachs loan and the remainder through private equity. OVG also seeks $50 million in federal historic-preservation tax credits but would cover the cost if those are not obtained.

Finally, OVG seeks a minimum $40 million in various city taxes and revenues associated with the arena after it is built. The company would guarantee what the city currently garners in such revenues from KeyArena and seek the next $40 million after that, though Murray said the city likely would make changes to that during upcoming negotiations.

On design, OVG was lauded by the city executive team for its plan to “dig down” 15 feet and present a “true historic preservation design standard” that would not only meet local criteria but federal as well.

“They are really building an entire new arena under the same roof,” Murray said. “It was a complete rebuild. The other proposal tended to be more of a remodel/rebuild with some questions around the rooflines.’’

The design was cited in the memo to Murray as a major weakness in the SP proposal due to its extension of KeyArena’s roof at the south end and few changes from a prior 1995 renovation in other parts of the venue.

“Seattle Partners has not added the variety and flexibility of spaces that OVG has with the expansion of the floor plate,” the memo states. “Seattle Partners has maintained 58% of the concourses and in doing so has kept many of the constraints that were issues from the 1995 KeyArena remodel: narrow upper concourses, more limited concession offerings and limited club spaces with sightlines in the bowl.

“There is also a strong possibility that AEG’s proposed Arena design would not meet federal or local landmark preservation standards,” the memo adds, referring to Anschutz Entertainment Group, one of the members of Seattle Partners. “The extension of the roofline falls out of line with what was asked for in the RFP, as the City asked for either a tear down/rebuild or a design that is respectful of the existing historic roofline.”

The city must work out a final contract with OVG that the Seattle City Council would have to ratify in months ahead. In the interim, the council is expected to decide by September whether to allow a new, all-private $600 million arena project pitched by entrepreneur Chris Hansen in the city’s Sodo District to continue.

The memo to Murray notes that the city-commissioned 2015 report by the AECOM architectural firm stated it would cost a minimum $150 million in KeyArena renovations to build a facility that had a chance at being profitable if a Sodo arena is built. It says the city already has rejected the idea of building two major facilities and concludes that “this effort to redevelop KeyArena is the appropriate path for the city to undertake.”

Various city subcommittees also took issue with elements of the SP project in a detailed report presented to Murray on Friday.

A city financial team reviewing both proposals found the SP group had “optimistic and aggressive” financial projections.

It criticized the SP use of backloaded debt as being well outside the city’s traditional financing structures. The SP plan to charge a $5 “facility fee” per ticket was criticized as too high.

OVG was also criticized for overly optimistic projections in some cases, with the committee recommending the city seek strong guarantees against construction cost overruns.

On operations, a city committee noted OVG would pay $2 million toward Monorail expansion, another $1 million toward “wayfinding solutions’’ for fans driving in and parking and another $1 million to the city’s new computerized traffic-light system. But the OVG proposal was criticized for its lack of adapting to the Seattle Center campus and surrounding community.

Some criticism was mitigated by OVG’s recent decision to eliminate a planned 850-stall parking garage that various committees found more disruptive than helpful. As well, it was generally surmised that while OVG could expand its program to better engage the community, the SP proposal — stronger on community engagement — likely could not overcome the poor arena design.

City staffers concluded SP “would need to make significant changes to their proposed design’’ to compete with the OVG bid. SP had lobbied the city for a “re-bid” opportunity — as did the Uptown Alliance community group, which was on the 10-member city advisory panel.

But Murray said none of the other nine panelists made the same request. Murray declined Friday to reopen the proposal process, and by Sunday SP had pulled out.

“We’ve been going on around this for a decade and a half,’’ Murray said. “It is time to make a decision about what we’re going to do with KeyArena, and that time has come.”