Stadium Developments: Creating a Window of Opportunity for Investors

When news was released that Miami Gardens would host the 2020 Superbowl LIV, heads turned.  The city is hosting their record 11th Superbowl, more than any of the 14 other prestigious host cities,  and with that comes a lot of responsibility, and potentially — a lot of revenue.

This “major award” comes with a price tag, though–  South Florida recently spent $400 million dollars as part of a two-year deal to renovate Sun Life Stadium, including regrading the lower bowl to bring seats closer to the field and ripping every single seat out of the stadium.

With such a hefty cost, is it really worth it?  Cities making epic stadium renovations as Miami did in 2017 aren’t necessarily guaranteed anything except a spot on the selection committee’s short list.   Could there be other benefits to revamping stadiums, such as increased property values or increased revenues around town?

Investors are quick to jump on an opportunity to invest in commercial properties near a new stadium, creating a bubble of increased value. But how long do investors have to get in on the hefty Superbowl-ring sized ROI, and when have they missed the chance to get off the bench?

Stadiums cause a spur of development in often lower income or underutilized areas of a city. But, we wanted to know how much these stadiums actually affect the value of an area. With so many investors jumping on the opportunity, how long is an investment in the area actually a great investment?

The construction of new arenas and stadiums has a positive impact on real estate values for nearby homes, according to a report by the Real Estate Investment Network. Homes in neighborhoods close to new stadium builds — or proposed stadium builds — on average, have premiums ranging between 3 percent and 15 percent, depending on the different types of housing, parking options available, and the distance from the stadium.  Using Reonomy data, we decided to explore if these projects have the same effect on commercial properties.

Investors and developers follow big projects like new stadiums to identify areas likely to increase in value. Directly following an opening of a new stadium, there is typically a very large push for development growth, even in areas with few other amenities and little accessibility. If stadiums are announced near a CBD or transit center, that growth in value is even larger. Businesses want to be around people – and stadiums tend to draw huge crowds. But how long does the spike in value last?

Is the economic impact of these stadiums and surrounding developments as lucrative as it seems?

While close proximity to a stadium usually results in initial price inflation of commercial properties, the regular presence of fans may lead to a constant source of noise, incivilities, traffic congestion and a scarcity of parking. When there isn’t an influx of patrons flooding the surrounding area of the stadium, around 284 days out of the year, the stadiums stand unoccupied. Blocking out areas of the neighborhood when not in use, reducing foot traffic, and breaking up communities are all factors with the potential to create a price depreciation effect. But when stadiums benefit the local community, this can help to create a sustained property increase.

Stadiums that have been able to utilize their facilities when the venue is not being commandeered by the home team have been very lucrative in terms of renting out the venue to concerts, festivals, trade and car shows, and even sporting events for a different sport or a lower level of play, such as high school or collegiate team championships.

In fact, the Wall Street Journal reported in 2019 that musicians currently bring much more revenue to stadiums than athletes, a fact that was considered when “Los Angeles-based Oak View Group, an entertainment and sports-facilities company backed by private-equity giant Silver Lake, [decided] to develop eight new arenas over the next three years, six of which will forgo major-league teams, largely to keep their calendars clear for concerts.” This brings additional revenue not only to the venue, but also stadium gift shops, food service vendors, and provides increased income for security and maintenance personnel.  This in turn has increased the year-round value of the property, as well as the surrounding areas. But how far of a radius is considered stadium adjacent?

According to a study by Victor Matheson, an economist from Holy Cross, stadiums usually only boost property values within a half-mile of the venue. In an attempt to understand the markets surrounding stadiums, we took a look at data in Reonomy surrounding 4 recent stadium projects identifying spikes in sales, and the effect that initial development has on the surrounding area.

Post-Super Bowl: What is the economic impact of the new US Bank Stadium?

The city of Minneapolis seems to be doing its best to incorporate the area around the stadium to function as a usable and attractive space to live and work through shopping, dining, office buildings and innovative public spaces. The city is investing in revitalizing an under-used area to better serve the community.

The Mill District, the name for the area around the stadium, contains many former industrial properties from when Minneapolis was the flour milling capital of the world. But now, old factories and mills have been converted to housing and mixed use buildings. The population is growing in the area, as are projects announced after the funding and breaking ground of the new stadium.

One of these projects is The Commons. A new, city funded 4.2 acre urban park located among new office and residential buildings, close to light rail, and adjacent to the US Bank Stadium. The Commons was created to serve the downtown community, workers, visitors, residents of Minneapolis and the region. It also hosts events connected to the US Bank stadium.

In the year before opening (2015) the sales in the half mile around the stadium skyrocketed in both price and number. While the rest of the sales in the greater Minneapolis area stayed fairly consistent, there were nearly double the number of sales in the Mill District, and a significant increase in price, with average sales price at 17M in 2015 compared to a 4.8M average sales price in 2014.  However, since those initial investments, area sales have dropped. Only 40 sales were made in 2017 within the ½ mile radius.

The city of Minneapolis views the stadium and the surrounding area as an investment – and the opportunity to create another more prosperous area in the city that had previously held a lot of vacancies. As cities are expanding and density is increasing, how cities deal with new developments will determine who moves there.

The new residents of the Mill District may have large pocketbooks, as 2019 saw the addition of the sales office for the planned 41 story Eleven tower, luxury condos that are so expensive to build, developers haven’t been entirely transparent about the price tag or loan required to take on such an undertaking, 118 condos and 7 penthouses.  The project is so exclusive that it won’t even hit the MLS, it’s being marketed by word-of-mouth only. It will be interesting to see if the project is billed as a success, what other projects may pop up, and how other recent Super Bowl hosts can compare.

Mercedes-Benz Stadium: Atlanta

The Atlanta team owner Arthur Blank built the Falcons’ new home, Mercedes-Benz Stadium, a $1.5 billion arena with the N.F.L.’s largest video board and enormous windows that face the Atlanta skyline. But the surrounding area is not so glamorous. Two of the poorest neighborhoods in the U.S. – English Avenue and Vine City – are right outside the development.

Blank wants to rebuild the neighborhoods that surround the stadium. Blank’s plans are ambitious not only because of the neighborhood’s history (previously the home of Civil Rights leaders including MLK) and decay, but also because he has claimed that he hopes to effect real change in the lives of his neighbors — encouraging investors and developers to continue to make purchases in the area.

Average sale price for commercial properties in the .5 mile radius of the Atlanta stadium lot in 2017 (2.7M) was more than triple that of 2015 (785K). Not only priced higher, but the sheer number of sales also grew exponentially, doubling from 2015 to 2017. Getting in early could offer big rewards if Blank is successful in his effort to uplift the surrounding area.

“Sometimes, these stadiums and facilities are built and not much happens around them; stuff takes place on the inside but not much on the outside,” said Blank, a co-founder of Home Depot. “It’s not about how many buildings you build, but how you change the quality of life of the people living there.”

In general, the city of Atlanta has had fairly consistent sales prices over the last 5 years. The increase of the average sales price in the half-mile radius is now in line with market trends of the city, as can be seen here. This means that the surrounding area of the stadium, previously a much lower value area, now is selling property at a similar value to Atlanta in general. This is a significant change given the area was not only the poorest in Atlanta, but one of the poorest in the country.

 

L.A. Rams Inglewood stadium: in the works.

What will happen, and how are investors acting?

L.A. investors are already convinced of the positive economic impact that the stadium build will have on the surrounding area. Investors in Inglewood are moving investments to the area around the stadium that will not be complete until 2019.

Data from the Reonomy platform allowed us to see that in conjunction with the announcement of the stadium, the average sale price of the surrounding area more than doubled from a $900,000 avg in 2016 to a $2M avg in 2017.

While the average sales price is still lower than the L.A. average, the increase in sales value within the Inglewood area is substantial. Especially because average sales price in L.A. shrank substantially from 2016 to 2017, from an average of 4.5M in 2016 to an average of 2.9M in 2017. Here we will see why investors are trusting this as an indicator of growth based on past development around arenas and stadiums. According to the LA Times, one real estate agent spent months waiting for a good offer on an empty retail space on La Brea; in the post-announcement week alone, he got six.

The nearby streets, lined with strip malls and gritty auto body shops, are attracting interest from real estate investors who hope rents and property values will rise, as well as business owners who believe the stadium will bring a flood of new visitors.

In addition to the stadium, the development firm of Stan Kroenke (the owner of the Rams) is investing in a mixed-use development. The mixed-use project is adding 2,500 residential units, 890,000 square feet of retail, 780,000 square feet of offices, a hotel, casino and a 6,000 seat entertainment venue. One league owner has called the overall package an “NFL Disney World.” And unlike typical NFL stadium deals, the city is putting up no upfront money, though the developer will be able to recoup costs for the roads, sewers and other infrastructure by keeping a portion of the additional tax revenue generated by the project.

Hard Rock Stadium – Miami Gardens, Florida:  Hosting it’s Xth Superbowl

On Sunday, February 2nd, Super Bowl LIV will showcase a duel between two of America’s favorite red and gold teams: the San Francisco 49ers and Kansas City Chiefs.  The Hard Rock Stadium, located in Miami Gardens, Florida will host, and it’s no stranger to Super Bowls, having hosted them a record 11 times, more than any of the other 14 cities that have hosted.

As mentioned in the introduction to this article, this stadium underwent a significant renovation in 2017.   When we consider data for the Miami venue, we have to take into account the multitude of Super Bowls that the city has hosted throughout the years into our data.

Will the Investments Pay Off?

CRE investors continue to seek out opportunities around stadium developments because of this initial bump in area value. However, prices and total valuation typically don’t end up increasing all that much over time. Investors must make the decision if it is worth the investment. Get in early enough, and property around a stadium can produce returns in value. Miss that window of opportunity and the ROI on an investment around a stadium will likely be fairly low.

As we can see in Minneapolis, sales in the area surrounding the stadium have slowed dramatically after the initial bump, but sales and prices in Miami continue to thrive, year in and year out due to continued stadium success, due largely in part to the city’s ability to continue to capitalize on the Sun Life Stadium.

As for these stadiums, we will see just how the property values continue over time and if the investors were successful in their efforts to encourage growth and economic success.

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