Quick Facts about the Water Park Project
The City is in the process of studying the feasibility of this project. The data contained in these FAQs will be updated as new information becomes available.
- Bloomington property taxes are not put at risk with this project.
- A nonprofit entity, Provident Resources Group, (not the City) would borrow the money for and build the water park using a lease from the City.
- Estimates of tax benefit to the city include an additional $1 million in admissions taxes, as well as an incremental increase in lodging tax revenue.
- Mall of America (owned by Triple 5) does not receive profits from the water park. Any excess profits primarily flow to pay off the project debt. Triple 5 affiliates would receive a market rate development fee as the developer, management fee as the management company, and land lease payments for the land rent.
- Poor performance by the water park (lower attendance and/or revenue than projected) would not create direct financial exposure for the City. The financial performance is back-stopped by certain sales and use taxes (admissions, food/beverage, lodging and sales taxes) that would be “turned on” at Mall of America, would be limited to Mall of America property, and would be paid by MOA visitors.
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What is the water park project? (Background)
The water park project in South Loop would be one of the largest indoor water parks in North America with a building footprint of approximately 250,000 sf and a total area including all interior multi story floor areas around 335,000 sf. The project would cost approximately $250 million.The West Edmonton Mall (WEM) in Canada (which the MOA is somewhat modeled after and is also owned by Triple 5) has a 215,000 sf integrated/attached water park that brings in over 500,000 users annually. The WEM water park adds to the vibrancy and resiliency of that large mall. Not only does the WEM water park have slides and other rides, its large wave pool hosts evening beach themed gatherings and surfing leagues, allowing for greater utilization of the venue.
The water park would add a new amenity to the Minneapolis-St Paul region and to Bloomington itself. It would also create new demand for hotel rooms. The proposed South Loop water park would be open to the public. While new hotels may be built nearby, the water park would not have any special contractual relationship with a particular hotel. Any relationship between the water park and hotels would treat all hotels the same - meaning that if the water park provides discounted tickets to hotels, all hotels would be offered the same discounted ticket price.
What would be the City’s and Port’s involvement, and why?
Many cities develop and own pools and water parks (and other recreational facilities) within their boundaries. While the proposed water park may become the largest indoor water park in North America, it is still at its core a water park amenity that citizens within a city and from outside of a city may use, and from that perspective it is ‘just’ another public water park. The proposed water park will certainly complement and expand the recreational facilities program in Bloomington for the benefit of its citizens and visitors, and provide an amenity to the Minneapolis-St. Paul area that does not exist today. In order to deliver the project, the City, Port and Triple 5 (owners of MOA) analyzed numerous financing models, ranging from traditional private financing, to a fully publicly financed model. Private financing interest rates are high enough to make the project unfeasible.
The model being studied now is one where a nonprofit owns the leasehold interest in the water park, and the nonprofit borrows for the construction – thereby the borrower and lenders are the parties responsible for the project. The nonprofit can borrow using lower interest rates, which make the project feasible. The City and Port would not be borrowing for the construction or pledging property taxes to the proposed water park debt (mortgage).
The City would contingently agree to impose certain sales and use taxes that it has the authority to levy and collect, but it would only levy and collect those sales and use taxes if the water park does not perform as projected. These pledged sales and use taxes are comprised of admissions, food/beverage, lodging, and sales taxes – all of which would only be ‘turned on’ at Mall of America if the project does not perform as projected. The commitment to turn on the sales and use taxes, which sales and use taxes are turned on, and what triggers them will be set forth in the closing documents and agreements before the project closes on financing. The Port would finance and build the shared public infrastructure for the project using Tax Increment Financing generated by Mall of America (further described under a separate FAQ: Shared parking and a skyway are planned for the project, what money pays for that?).
Additionally, the Mall of America is about 10% of the City’s tax base. About 30-40% of the City’s hotel room nights are attributed to MOA, and the hotels in Bloomington make up about 7.5% percent of the City’s property tax base. The $58.4 million general fund levy in 2018 would be $9 million higher without existing lodging and admissions taxes that go to the General Fund (holding City services constant). Continued health of MOA is important to the reputation of the City as well as directly impacting the amount the City needs to levy in property taxes to operate. Connecting the proposed water park to the MOA provides resilience to the City General Fund revenues discussed above.
The water park could offer a discount to Bloomington residents; the impact of which would have to be weighed against the actual water park revenues.
Can the water park project be accomplished with private financing without a nonprofit?
Nonprofit borrowing interest rates are much lower than traditional for-profit borrowing rates. Nonprofit borrowing rates are between 5-6% annually. The blended borrowing rate utilizing a for-profit model would be between 7-10%. Cashflow projections using the nonprofit model are positive, and cashflow using the for-profit model is negative.
Why does MOA want a water park in South Loop near the mall?
Triple 5 (owner of MOA) was a pioneer in building large retail malls which were also diversified with entertainment and restaurants. Retail continues to change in the age of Amazon, and new projects that Triple 5 is building have about a 50% non-retail component. MOA has performed much better than most bricks and mortar retail developments due in part to its entertainment and tourism focus, but continuing to diversify the MOA project with new traffic generators (e.g., attached hotels and office as well as more entertainment opportunities) is a top priority for Triple 5. MOA is about 70% retail today. Triple 5 has been interested in having a water park attached to the MOA project since the original 1980s. It’s proven to be an asset to the West Edmonton Mall, helping that mall stay competitive. Triple 5 is building a water park as part of the American Dream New Jersey project (a large retail and entertainment project similar to West Edmonton Mall and Mall of America), which may include the largest indoor water park in North America, unless the water park at MOA is built to exceed it. (The largest indoor water park in the world is in Germany in a former zeppelin hangar which is 710,000 sf.)
What money would be used to finance the water park?
Based on the proposed nonprofit financing model, the water park is projected to support itself with revenues from ticket sales and food/beverage sales inside the water park. If those revenues do not support operations, maintenance and debt payments, then sales and use taxes would be triggered at MOA to pay for any shortfalls. No Bloomington residents’ property taxes would be at risk for the project.
When would construction start?
The City continues to analyze the feasibility of the water park project. If the project continues on the current schedule, construction could start as early as the first quarter of 2020, and be complete in 2022. It is important to note that like any large development project, the water park project is still in a phase where construction is not guaranteed and there are many factors which could cause the project to be delayed or cancelled.
Who owns the land where the project would be built?
Triple 5 (MOA owner) owns the land where the project would be built. In the model currently being analyzed, water park revenues would pay for the market rate land lease and the lease would be in place for 50 years. The City would sublease the land to the nonprofit during the term the debt is outstanding.
What formal action have the City Council and Port Authority taken related to the water park project?
On March 6, 2018, the City Council and Port Authority directed staff to continue analyzing the project. On November 1, 2018 the bodies confirmed their support for the project. On January 31, 2019, the City Council and Port Authority were again updated on the project and continued to support design and development of the project. On April 17, 2019, the City Council and Port Authority executed a Development Services Agreement with MOA WP Development (a MOA/Triple 5 affiliate). The $10.1 million design and development cost is shared by MOA WP Development (25%) and the Port Authority (75%). The Port Authority funding is from the South Loop Development Fund, which are funds statutorily dedicated to be spent on economic development project, only in the South Loop District. In July and September the City and Port selected the nonprofit, Provident Resources Group, the be the nonprofit owner of the waterpark. Provident would borrow and operate the facility. In September 2019, the City and Provident selected Barclays to be the senior underwriter for the bonds/debt.
Is this nonprofit ownership structure a way for Triple 5 (owners of the MOA) to profit from the water park and avoid paying taxes?
The nonprofit itself cannot be a T5 entity - it must be a true third party. The nonprofit entity has not been selected yet. The City Council and Port Authority selected Provident Resources Group (Provident) as the nonprofit for the project on July 1, 2019. Provident does get an annual fee, but that is projected to be below $200,000 per year for their work including managing the nonprofit board structure needed for the project and expenses. In this project structure, Triple 5 is prohibited from receiving profits from the water park through a number of nonprofit, IRS, and tax exempt bonding rules, except for receiving a management fee and a lease payment for the land – both of which need to be no more and no less than normal industry/market rates. Triple 5 would also receive a market rate development fee if the project financing closes.
Are city property taxes going to go up or be at risk for the water park?
No city property taxes are being pledged for the water park. If revenues from the water park are not sufficient to cover debt and operations, additional sales and use taxes would be imposed only at MOA (not citywide) to cover any shortfalls. These taxes imposed at MOA include admissions, food/beverage, lodging and sales taxes. The city would receive profits from the water park after the debt is paid off; without the debt service payment (i.e., mortgage payment) the city stands to benefit from those surplus revenues.
Is the financing that was used for the Vadnais Heights Sports Complex in 2010 the same as the proposed financing for the water park?
The type of financing for the proposed water park in South Loop is fundamentally different than that used for the Vadnais Heights Sports Complex. The Vadnais Heights Sports Complex was financed with Annual Appropriation Lease Revenue Bonds, which allowed Vadnais Heights to determine each year if they wanted to appropriate funds to pay the debt service each year. The City of Bloomington will not be issuing debt for the water park. Another entity (which has not yet been chosen) will issue qualified 501(c) bonds and the nonprofit entity who operates the water park will be required to pay the debt service on those bonds with revenues from the water park. The City of Bloomington will have neither the obligation nor the option to appropriate funds to pay the debt service each year on the water park bonds.
What are the next steps for the City related to the water park?
A number of City Council and Port Authority meetings will be held in 2019 to consider agreements that further develop and outline the project. The project is scheduled to close on financing in February of 2020.
Shared parking and a skyway are planned for the project, what money pays for that?
Approximately $50 million for shared parking and a skyway would be built at the same time as the water park. These public improvements would serve all the adjacent land uses. Funding for this would come from tax increment financing (TIF) generated by the MOA project itself. This TIF can only be spent on infrastructure (which is mostly parking) related to the MOA project. MOA TIF comes from two sources. The first is traditional TIF generated before 2016 when the MOA ‘came out of the TIF district.’ This means that since 2016 the MOA tax base is included in Bloomington’s calculation of tax base. The second is new TIF generated since 2015 (via a 2013 MN Statute change); this new TIF is calculated as the part of property taxes the MOA pays into the metro wide Fiscal Disparities pool. The 2013 law change means Bloomington finally benefits from the fiscal disparities program, because it was for decades the largest contributor into the fiscal disparities pool. Minneapolis, only since 2018, surpassed Bloomington as the largest gross contributor.