By James C. Sherlock

Updated September 18, 2024 at 10:07 AM and 3:27 PM

Atlantic Park is due to open on nearly 13 acres of city land near the Virginia Beach oceanfront in May of 2025. The new entertainment district is the largest public-private partnership project in the history of the Commonwealth’s biggest city.

It is striking in concept. There was real vision behind Atlantic Park. Readers are urged to read a 2019 article in Virginia Living to get a sense of it.

The idea for execution of the concept was simple at first.

• The city owned land that had been a surface parking lot in the 25 years since the old Dome concert hall was torn down;
• In the winter of 2016-17, several developers submitted proposals to redevelop the property;
• At that same time, the city wanted to build a new concert hall;
• The city’s development authority issued a request for qualifications to fold its requirement into a broader plan that would redevelop the entire property.

In 2017 the city planned to provide the land (now $40 million value) and pay for the concert facility and a parking garage.

In 2020, dollar costs after the final agreement with the developer were planned to be $95.6 million. Developers would pay for the rest. The original concept evolved under redesigns, delays and constant renegotiations. Seven years later Atlantic Park is under construction.

Today it is considered by municipal bond professionals to be a major risk – a “speculative bet” of

• over $300 million in equity and Virginia Beach Development Authority (VBDA) and Atlantic Park Community Development Authority (the CDA) revenue bond obligations that will be made by city council appropriations; and
• two city properties, the land and a package of 400 parking places, worth a total of $52 million leased to the developer at a dollar a year for up to 100 years.

Two major story lines have emerged. One is about the deal between developers and the City Council. The other is about the surf park venue, its owner and its funding and its economic risks. Each is complex and costly enough and brings enough risk to warrant telling in this multi-part series.

This is the lead article about the developer-city deal.  And how so much money was shifted from developer obligations to city obligations in the four years after the 2020.

Later in the series we will discuss how tax exempt municipal bonds were issued for the surf park by the state with VBDA authorization.

Note before we start that only the City Council can commit city funds. Its appointees at the Virginia Beach Development Authority (VBDA) and the council itself organized as the new Atlantic Park Community Development Authority (the CDA) recommend city spending and debt payments for city manager and council budget approval. At approval, they are appropriations.

A public private partnership. Local governments have a fiduciary duty to use public land for public benefit. Schools are one such use. Others are public buildings, parks and public recreation facilities. Contributing limited public support including public land to commercial developments can prove a net value to taxpayers in increased taxes and fees.  

But the Virginia Beach City Council took control of the Atlantic Park deal in 2017 and proceeded in a different direction. The selection of the developer was free of normal processes, standards and commitments. The acquisition process dragged out for years.

A Dome Site (Atlantic Park) Development Agreement was signed between the city and the developer in 2019. Key developer commitments:

The Developer (at its sole cost and expense) will construct the Developer Improvements…. Developer Improvements contemplated by the Preliminary Master Plan are anticipated to have a total estimated development cost (which shall refer to the soft and hard costs customarily included and funded under a typical construction loan budget) of approximately Two Hundred Thirty Million and 00/100 Dollars ($230,000,000.00).

The Developer will arrange for all equity and financing necessary to develop and construct … Developer Improvements.

That $230 million in developer commitment in 2019 inflated to $282 million in 2024 dollars.

In 2022, the financing of the surf park proved such a roadblock that the developer reached a point of default in the agreement. City Council forgave it.

They turned the surf park over to a North Carolina 501(c)(3) to finance it through a Virginia state bond authority.

City negotiator turmoil. City negotiators constantly changed with elections and changes within the city staff. City turmoil over six years included:

• three mayors and 21 other individual council members who filled 11 seats;
• three city managers;
• three directors of economic development (and Virginia Beach is awaiting its fourth). The one under whom Atlantic Park was initiated later resigned and pled guilty to embezzlement in an unrelated matter; and
• the tragic massacre of city workers in the Public Works Department.

A skilled, experienced and stable developer team was on the other side of the table.

Who owns what? The project is being built and will be owned as a condominium. There are some common rules, and common land, but three owners. The land is parceled according its use. 

1. The city owns the concert hall and the parking garages and the land. The 3,500-patron “Dome” concert hall will be able to open a wall to accommodate 1,500 more outside on an event lawn. It will be owned by the city and run by Live Nation which kicked in $5 million for changes it wanted.

2. The developer team will construct the entire project. It will own 309 apartments and more than 100,000 square feet of commercial spaces that will be leased to restaurants, offices, retail and experiential retail establishments. It also owns licenses for food and beverage service throughout the project.  

3. The surf venue is the signature feature, and the one upon whose success the rest of the project depends. The developer team planned to own it from the beginning of the project in 2017. In 2022, that team had to change course to get financing. It recruited a new owner, P3 Foundation, a 501(c)(3) in North Carolina that specializes in public private partnerships. P3 Foundation created a Virginia subsidiary, P3 VB Holdings, the borrower and owner.

Public funding, council view. Advertised city funding to date appears below as presented to City Council on May 28 of this year.

Six years of Virginia Beach Capital Improvement Program (CIP) budgets below show the growth of the city’s cumulative commitment to the construction of Atlantic Park:

• from $37.5 million in 2019;
• to $95.6 million in 2020;
• to $104.5 million in 2021;
• to $109 million in 2022;
• to $139 million in 2023; and then
• to $153 million (in the image above) in 2024.

Those represent $153 million in CIP commitments. That is the city’s talking number.

City Debt. But the city borrowed the vast majority of the money. In 2023 the Atlantic Park Community Development Authority (CDA), which is the city council reassembled to tax and issue bonds, issued these:

Then, in 2024, the Virginia Beach Development Authority issued these.

Public Funding – an equity and bond view. Atlantic Park was financed with three bond series, the one in 2023 from the CDA and two of the three VBDA bond series issued in 2024.

Below is what can be calculated of the total public funding commitment measured in equity and in bond principal and interest:

Instead of the $153 million presented to the city council on May 30, that equity and bond P&I view appears to well over a $300 million investment.

It is clear that the city council slide combines the 2024 Series C bond principal with the 2024 Series A offsite infrastructure principal plus the 2021 offsite infrastructure equity and presents those figures as the city contribution.

The author does not have an explanation for the missing 2024 bond interest and the absence of the 2023 CDA bond issue principal and interest.

Other city costs. In addition to the slides above, in the deal the city leased:

• $40 million worth of land to the developer for a dollar a year.
• 400 parking spaces that cost the city $30,000 each to build to the developer at a dollar a year plus payments into a maintenance fund. So call that another $12 million.

Developer debt. The developer has committed $30 million in equity and borrowed $86 million from local banks. The developer team formed limited liability companies among its members to fund various parts of its obligations.

Surf park debt. Surf park debt is $63 million in principal issued in three series of state municipal bonds at yields of 9% tax exempt (senior series), 9.25% (subordinate tax exempt) and 10.25% (subordinate taxable).

The bonds are mortgages on the property. Bond payments are to be made from surf-park revenues backed by a deed of trust for the facilities.

With those junk-level yields, principal and interest (P&I) payments will total over $207 million for a facility with limited capacity. The city has to consider the opinion of the bond buyers – that it is at risk of not generating enough revenue to pay its operations and maintenance costs and the debt payments.

Commentary. The council and its two bond authorities had the authority to do what they did.

But someone may wish to explain…

• why the developer commitment of $230 million to park construction in 2019 resulted in an expenditure today of $116 million. Counting the $41 million surf park it intended to own, $155 million;
• why the city is up from planned appropriations of $95.6 million in 2020 to over $300 million today and still owns only the concert hall and the parking; and
• what happened with the surf park fiasco that puts the whole project at risk?

Mayor Bobby Dyer will know the whole story and can tell it from an insider’s perspective. He has been on Council for 20 years and has served as mayor since November 2018.

He voted aye every step of the way.

City costs updated Sept. 18 to reflect information from 2024 VBDA bond issue.