City OKs Annual Loans to Arena Developers

The Santa Ana City Council, acting as the community redevelopment agency, agreed Tuesday to loan developers of the proposed indoor arena as much as $3.5 million annually for 30 years.

The agency voted 6 to 1 to approve the loan. Councilman Richards L. Norton balked on voting for the loan because he said he was not given a copy of the financial agreement until Tuesday’s meeting began at 5:30 p.m.

Councilman Miguel A. Pulido Jr., who represents the district where the arena is to be located, said the agreement allows the developers to seek financing from banks.

“I think it’s fantastic,” Pulido said. “I’m very, very pleased that we have approved this. We can now start seeing the developers in action.”

Earlier this year, the city had been considering providing the developers an annual subsidy of $1 million per year for the first 10 years. But city officials emphasized Tuesday that the agency would lend money to developers and that the actual amount of the loan could be lower, depending on how well the arena is doing.

“This is a loan, not a subsidy,” said Robert Hoffman, redevelopment and real estate manager for the city. “The city will recoup the money.”

Norton told the council he was not opposed to the arena.

“On the surface, I think this (agreement) is positive except I just haven’t had the time to study it,” he said.

City Manager David N. Ream said the final agreement was not distributed to the council because city officials were still finalizing the contract as of Monday. But he said that the city staff had continuously briefed council members about the arena’s progress.

Approval of the financial agreement is nearly the last city action needed to build the proposed $75-million sports arena. The city and the arena partners must now negotiate a lengthier financial legal document that would detail obligations that each side must follow. The arena developers must also seek a building permit to start construction in fall, 1992.

Under a memo of understanding approved Tuesday, the city’s redevelopment agency will dip into its tax increment funds and lend the Orange County Arena Partners $3.5 million per year for 30 years. The tax increment money is from the city’s South Main Redevelopment Project area, where increased property taxes from that area are put into special funds to pay for renovation in the area. The arena will be located within the project area on Edinger Avenue and Lyon Street.

The contract agreement also calls for the agency to reimburse the development partners for up to $500,000 in preliminary planning expenses if project financing is not given final approval.

In exchange for the multimillion-dollar loan, the city will keep 35% of the net profit plus 100% of any surcharges and sales taxes from such sources as parking, tickets, and concession stands. Developers will also have to pay 8% interest on the loan.

According to the agreement, the arena partners will have to find a professional team and pay for all operational costs of the arena.

Developer Anthony V. Guanci, president of King-Guanci Development Inc. of Newport Beach, said in an interview that the loan will pay extra costs the arena accrues, as well as show project financiers that developers have available funds.

Negotiations between city officials and arena partners have been going on for more than a year, said Cynthia Nelson, director of the city’s Community Development Agency.

The Santa Ana arena will be privately built and owned by King-Guanci Development Inc. of Newport Beach and its partners. The Spectacor Management group will operate the arena, with bookings to be handled by MCA Entertainment Inc.

With Tuesday’s action, Santa Ana pulls even with Anaheim, which wants to build a nearly identical sports arena. Last month, the Anaheim City Council approved its financial agreement with developer Ogden Corp. of New York.

In its agreement, Anaheim will be liable for up to $2.5 million annually for 30 years. Ogden Corp. will build the $100-million, 20,000-seat facility on South Douglass Road. The agreement will provide the city with as much as 30% of the net arena profits after 15 years.