THE CRITICAL MASS REPORT

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October 5, 2015

Prepared by:

2436 Professional Drive, Suite 300 Roseville, CA 95661

T (916) 641 2734 F (916) 921 2734 www.capitolpfg.com

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Recent Development in Downtown Sacramento ... 12 

ECONOMIC ANALYSIS 15  UP-FRONT CONSTRUCTION IMPACTS ... 15 

ONGOING OPERATIONAL IMPACTS ... 16 

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An economically successful urban setting is dependent on the existence of several alternative facilities serving a variety of interests. These types of facilities include: sports facilities, entertainment venues, theaters, museums, restaurants, bars, retail establishments, boutiques, hotels, housing, grocery stores, and offices. The creation of a critical mass of entertainment, cultural and retail venues within walkable distance from each other in Sacramento’s urban core will create a destination and attract people from throughout the region, which is key to revitalization.

Downtown Sacramento is undergoing exciting changes that are invigorating the entire region. For the first time in recent memory, out of area investors have a strong interest in the Downtown market, which will increase the capital available for economic development. The construction of a new MLS stadium in the Railyards area of Downtown Sacramento is a key aspect of the downtown development plan that will bolster the economic climate. The stadium project coupled with the investment into other entertainment, cultural and retail venues and development of hotel, housing and offices will bring strong economic activity back to Downtown Sacramento.

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The Sacramento Republic Football Club (Republic FC) is a United Soccer League (USL) team that held its inaugural season in Sacramento in 2014. The team launched at Hughes Stadium at Sacramento City College to great success and then transitioned to its current home at Bonney Field, located on the grounds of Cal Expo. Major League Soccer (MLS) is looking to expand its league and Sacramento has been identified as a viable contender as a possible expansion location.

Republic FC has implemented a business model based on a proven pathway to MLS by expansion cities including Seattle (2009), Portland (2011), Vancouver (2011), Montreal (2012), and most recently, Orlando (2015). These cities hosted USL clubs that demonstrated a successful market, developed a fan base and generated revenue through sponsorships and ticket sales. The proven

FIGURE 1

Proposed MLS Stadium

business model of these clubs not only resulted in securing MLS expansion rights, but MLS record attendance and club valuations. According to Forbes, two of the top four most valuable MLS franchises are Seattle Sounders and Portland Timbers. Four of these five USL-to-MLS expansion cities rank in the top 10 for average attendance in 2015.

Republic FC has outperformed these other markets at the USL level, and has a current season ticket base of 9,500 – 135 percent higher than any other current USL team.

One of the key qualifications for a successful MLS bid is the construction of a soccer-specific stadium in a downtown core close to transportation and other amenities that can accommodate between 18,000-22,000 people. Republic FC has developed a preliminary plan for the development of a new stadium in the Railyards Specific Plan in Downtown Sacramento, as shown in Figure 1, with a target opening date in 2018. The facility will be conveniently located nearby public transportation options, including a Regional Transit Light Rail station located a block from the stadium.

The stadium would host approximately 20-22 soccer matches each year with additional college and high school sports games, professional and amateur rugby matches, women’s soccer, lacrosse games, festivals and concerts. Projected annual attendance for each type of event is identified in Table 1.

TABLE 1

Type of Event Estimated Annual Attendance

Soccer Matches 378,000-428,000

College Football Games 15,000

Rugby Matches 15,000

Lacrosse Games 7,000

Festivals 15,000

Concerts 10,000

Miscellaneous Sporting Events 10,000

Total Annual Event Attendance 450,000-500,000

Source: Sacramento Republic FC, October 2015.

In addition to the stadium itself, it is envisioned that the construction of a new stadium would occur in conjunction with additional surrounding development, including retail, restaurant, office space and residential units. This development would benefit from the existence of a nearby entertainment venue that attendees can visit before and after events.

MLS

MLS was founded in 1993 as a result of the United States’ successful bid to host the 1994 FIFA World Cup. The tier-one soccer league’s inaugural season took place in 1996 and featured 10 teams. MLS has grown to 20 teams currently playing in 2015. MLS announced in 2013 its wishes to expand to 24 teams by 2020. Since 2013, the league has granted expansion rights to Orlando City (began play in 2015), Atlanta (will play in 2017), Los Angeles (replacing Chivas USA with TBA launch) and Minnesota (expansion rights contingent on a stadium plan). Several U.S. cities are contending for future expansion rights, including Sacramento, S. Louis, San Diego and San Antonio. Miami has garnered rights through a

previous agreement between former MLS player

David Beckham and the league, pending a stadium

plan. Figure 2 provides a map of the MLS teams that are currently in the league, in addition to cities that have been granted expansion rights.

FIGURE 2

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MLS teams averaged 19,148 fans per game in the 2014 regular season, with attendance to date for the 2015 season up 11.14 percent from 2014 figures, according to MLS.

CHART 1 Source: MLS, 2015. 5,000 10,000 15,000 20,000 25,000

MLS Regular Season Attendance Has Had an Upward Trend

and Averaged Almost 20,000 Fans Per Game in 2014

Fifteen MLS teams have their own soccer-specific stadium. Figure 3 provides a summary of the soccer-specific stadium facilities for each team. Facilities for New England Revolution, New York City FC, Seattle Sounders and Vancouver Whitecaps are not included because their facilities are not specific stadiums. D.C. United will begin development of a soccer-specific stadium along with LAFC in Los Angeles in the near future.

FIGURE 3

Team Stadium Completed Year Total Cost Capacity Soccer

Chicago Fire Toyota Park 2006 $98,000,000 20,000

Colorado Rapids Dick’s Sporting Goods Park 2007

$131,000,000 (incl. adjacent soccer

complex) 18,671 Columbus Crew Mapfre Stadium 1999 $28,500,000 20,455

FC Dallas Toyota Stadium 2005

$80,000,000 (incl. adjacent soccer

complex) 20,500 Houston Dynamo BBVA Compass Stadium 2012 $95,000,000 22,000

LA Galaxy StubHub Center 2003

$87,000,000 (excl. adjacent sports

facilities) 27,000 Montreal Impact Saputo Stadium 2008 _{(in Canadian dollars)}$40,000,000 20,801 New York Red Bulls Red Bull Arena 2010 $200,000,000 25,219 Orlando City SC Orlando City Stadium _Construction Under $155,000,000 _(Est.) 25,500 Philadelphia Union PPL Park 2010 $120,000,000 18,500 Portland Timbers Providence Park _(Renovation) 2010 _{(renovation cost)}$40,000,000 21,144 Real Salt Lake Rio Tinto Stadium 2008 $110,000,000 20,008 San Jose Earthquakes Avaya Stadium 2015 $100,000,000 18,000 Sporting Kansas City Sporting Park 2011 $200,000,000 18,467

Toronto FC BMO Field

2007 (with Expansion and Renovation in Progress) $63,000,000 (original cost) + $120,000,000 (expansion and renovation) 30,000

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Republic FC began operations as a USL club in 2013 and went on to win the USL Championship in its inaugural season in 2014. Inaugural Day attendance at Charles C. Hughes Stadium at Sacramento City College set a USL regular season single match attendance record with 20,231, nearly doubling the league’s previous attendance record of 10,687. Republic FC went on to tie its own attendance record on May 17 and June 7 of 2014. Republic FC finished the 2014 regular season with a USL total attendance record of 158,107; breaking the previous mark of 112,748 set by future MLS club Orlando City SC. Average attendance for the 2014 USL regular season was 11,293 per match.

After its first four matches, Republic FC moved into a temporary, soccer-specific facility with a capacity of 8,000 on the grounds of Cal Expo, named Bonney Field. On June 20, 2014, Republic FC played its first game at Bonney Field to a sold out crowd and continued its sellout streak for regular season matches into 2015. In 2015, Bonney Field expanded to a total capacity of 11,442. Per Cal Expo Board approval, the team could expand Bonney Field to as many as 14,000 seats. Republic FC sold out all regular season matches in 2015 and broke its own attendance record set in 2014 by hosting a total attendance of 158,616 (not including playoff matches).

Republic FC currently leads all USL clubs with 9,500 season tickets, surpassing their total of 6,105 season tickets in 2014. The team capped the number of season tickets at 9,500 and has a waiting list with over 600 season ticket deposits for MLS-only season ticket inquiries.

If MLS were to grant Sacramento expansion rights, Republic FC would transition from USL to MLS. Historically, USL teams that moved to MLS-level (Montreal Impact, Portland Timbers, Seattle Sounders and Vancouver Whitecaps) averaged an increased attendance of 325 percent, as illustrated in Figure 4.

FIGURE 4

Sacramento could experience similar results as the other USL to MLS markets. These statistics support the estimated attendance figures of 18,000-22,000 used for the preliminary soccer stadium design.

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The Sacramento Railyards Specific Plan (The Railyards) calls for the development of a 244-acre site in Downtown Sacramento strategically located along the edge of the Central Business District (CBD). The project will integrate all the elements that are attractive to a modern urban lifestyle, including proximity to transit, work, recreation and entertainment. It is the largest urban infill project in the country and will nearly double the size of Downtown Sacramento.

The Railyards planning area is located immediately north of Downtown Sacramento’s CBD, east of the Sacramento River, south of the River District, and west of the Robert T. Matsui Federal courthouse. The site is situated between the confluence of the Sacramento and American Rivers. This development project is intended to be a 24-hour activated mixed use urban environment that will not “close

down after 5 p.m.” and be a walkable and bikable community with proximity to transit, including the site of the Sacramento Intermodal Transportation Facility. The Railyards will include entertainment, retail, housing, office space, parks, hotels, health care facilities and museums. The guiding plan for the area envisions significant capital investment into a currently under-utilized asset in a target development area to create a dense urban environment. It is the hope that this urban infill parcel will enable the City of Sacramento to move away from the patterns of decentralization and suburban sprawl and re-establish Downtown as the cultural, commercial and community hub for the entire region.

At build-out, the Railyards project will contain approximately 6,000 residential units, almost 5.8 million square feet of non-residential development and over 35 acres of open space.

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Downtown Sacramento, California’s capital city, strives to be the center of government, business and cultural activities for the six-county metropolitan region. Downtown Sacramento is considered to be the area east of the Interstate 5, to 16th _{Street on}

the east, to N Street on the South, and H Street on the North, as shown in Figure 5.

Historically, Downtown Sacramento has been the commercial and government center of the region, as well as the location of the State Capitol. From the Gold Rush days to the development of the Transcontinental Railroad, Sacramento was the central hub of the region. However, as the surrounding suburbs grew, the vitality of Downtown Sacramento waned. The development of the Golden1 Center at the current site of the Sacramento Downtown Plaza is leading the way in reestablishing Downtown Sacramento as the main employment, entertainment and cultural destination for the region. The creation of additional entertainment and cultural venues will further enhance the destination options for locals and visitors, thus adding to the economic strength of the downtown core.

According to the City of Sacramento 2030 General Plan, the CBD will be “Sacramento’s most intensely developed area. The CBD includes a mixture of retail, office, governmental, entertainment and visitor-serving uses…The vision for the CBD is a vibrant downtown core that will continue to serve as the business, governmental, retail, and entertainment center for the city and the region.”

FIGURE 5

Downtown Sacramento has experienced significant changes over the past decade, with a goal of becoming a vibrant urban community. But, additional revitalization and development is necessary in order to achieve this goal. Downtown Sacramento and the surrounding neighborhoods, offer a variety of assets and the urban framework that distinguishes it from the surrounding suburbs, making it a regional destination. Some of Downtown Sacramento’s assets include:

 Retail services

 Entertainment and cultural activities  The State Capitol

 Riverfront access  Street grid system  Walkable streets  Mass transit systems

 Infill development opportunities  Nearby residential neighborhoods  Parks and open areas

However, the Downtown Sacramento area is lacking housing in the city center, a 24/7 activated downtown including nightlife and a retail shopping district. There are very few residents living in the Downtown core, with approximately 459 market-rate dwellings, all rentals, and 712 single-room occupancy residences. There are only 17,700 residents within one mile of the core.

Additionally, there is perceived safety concern in the downtown area, especially in the evenings when the offices and government buildings are closed and lack of foot traffic exists. There is a clear distinction between the activity in Downtown Sacramento during weekday business hours and the evenings and weekends. Cultural and entertainment venues are needed during these off-hours to generate foot traffic through the downtown area, to make Sacramento’s downtown the center of urban life an activity in the region. The City of Sacramento has identified the downtown urban core as one of its key target areas in the 2013 Economic Development Strategy. In fact, the City’s top stated goal is to “Invest in Building Sacramento: Facilitate and Promote Projects and Program Initiatives that Support Economic Growth, Quality of Life and Job Creation in Key Areas of the City.” The first key area identified is economic development of the Urban Core.

As described in a report published by the Brookings Institute regarding the revitalization of downtowns, one of the key features is the creation of a “walkable urbanism”. Brookings states that this requires the “development of a complex mix of retail boutiques, hotels, grocery stores, housing, offices, artists’ studios, restaurants, and entertainment venues. A ‘critical mass’ of these pedestrian-scale uses must be established as quickly as possible…making certain that visitors can find enough to do for 4 to 6 hours; that residents daily needs can be comfortably met; and that rents and sales prices continue to justify new

construction or renovation. At that point, an upward spiral begins to create a ‘buzz,’ increases the number of people on the streets, raises land and property values, and makes the community feel safer.”

The City of Sacramento is currently in the process of creating a “walkable urbanism” and developing a “critical mass” of entertainment, retail and cultural venues in Sacramento’s downtown core. The City of Sacramento Mayor Kevin Johnson has implemented an initiative to encourage urban infill housing projects to increase the number of housing units in Downtown to 10,000 over the next 10 years. In addition to the construction of an MLS stadium in the Railyards, development projects in process in or near Downtown Sacramento include: the construction of the Golden 1 Center, a state of the art arena with the primary tenant of the National Basketball Association’s Sacramento Kings; the redevelopment of Downtown Plaza; the redevelopment of the J-K-L Corridor, the River District, the Docks and the R Street Corridor; the construction or renovation of the Community Theater; the construction of the Powerhouse Science Center; the development of the Intermodal Transit Facility; improvements to the Convention Center Complex; the development of the Railyards. Together, these projects will aid in the creation of a vibrant downtown.

Recent Development in Downtown Sacramento

Downtown Sacramento is at the threshold of a new era. Since the construction of the Golden1 Center began in 2014, Downtown Sacramento has seen an unprecedented amount of buildings purchased, with at least 15 properties sold. There is a new interest from non-local investors excited about investing in Downtown

Sacramento. Downtown Sacramento Partnership (DSP) projects that approximately 2.2 million square feet of retail, 4.6 million square feet of office, and 15,500 residential units will be built in the urban core over the next 10 years. West Sacramento’s Bridge District, just across the river from Downtown Sacramento, will add approximately 4,000 residential units and 500,000 square feet of retail space. The construction of an MLS stadium in the Railyards will provide an attractive alternative entertainment destination, bringing people to the area, resulting in additional foot traffic for local businesses and entertainment options for potential residents.

There are several active projects in Downtown Sacramento at various stages of development, some of which include:

An 18-acre parcel in the Northwest corner of the Railyards with plans to build a new hospital. The medical complex is

anticipated to open in the next 10 years.

 Project sf: TBD

Local and national rail and bus transportation hub

Project sf: 127,000 Retail sf: 30,000

Renovation into a Hyatt Centric Boutique hotel

 Project sf: 103,979  Retail sf: 6,546  Hotel Rooms: 159

Called the “Ice Blocks”, will be the conversion of an abandoned ice factory into an inner-city village with retail, offices and housing.

 Project sf: 200,000  Retail sf: 55,000  Housing Units: 145

Mixed-use project of residential units and entertainment-type retail space  Retail sf: 72,000  Housing Units: 137

Kaiser Hospital

Pair of 25-story high-rise buildings flanking a civic plaza

 Project: 10.13 net acres  Retail sf: 36,400-49,000  Housing Units: 1,171-1,267  Hotel Rooms: Up to 300

Sacramento Commons

Marshall Hotel/ Hyatt Centric

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Direct spending will occur through the construction of the new MLS stadium and on an on-going basis through operations of the facility, including team revenues, stadium revenues and out-of-stadium revenues from foot traffic generated by the facility.

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The construction cost of the stadium is estimated at $150 million. Of this, it is estimated that approximately 65 percent will be spent locally. However, a portion of the spending would have occurred anyway by local residents or spending that will occur outside Sacramento. These factors impact the actual economic impacts that are realized locally.

There are subsequent “rounds” of re-spending in the economy. The secondary economic impacts can be calculated using multipliers which capture what are called “indirect” and “induced” effects. These are the secondary changes in economic activity within the region that result from the re-circulation of the money spent by visitors within the local economy. The two types of secondary effects are more specifically characterized as:

 Indirect Effects – the changes in sales, income and jobs for firms that supply goods and services to those businesses that sell directly to the visitor.

 Induced Effects – the changes in economic activity in the region resulting from household spending of income earned through a direct or indirect effect of the visitor spending.

Further, the construction of the stadium will lead to the creation of full and part-time jobs.

As shown in Table 2, total gross economic output from the construction of the stadium is approximately $200 million. Additionally, the stadium construction will employ approximately 1,755 people.

Local agencies throughout the County of Sacramento will also benefit from property taxes generated directly and indirectly from the new stadium.

TABLE 2

Direct Construction Spending (Occurring Locally) $112,500,000 Indirect and Induced Construction Spending $86,658,863

Total Gross Output $199,158,863

Direct Construction Jobs 1,020

Indirect and Induced Construction Jobs 735

Total Constrution Jobs 1,755

Summary of Construction Impacts

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As previously shown in Table 1 of this Report, estimated annual stadium attendance for MLS soccer matches as well as other events is estimated to be between 432,000 and 556,000. Based on estimates from other MLS teams, annual team and stadium operational spending will be approximately $16 million per year, in 2015 dollars.

Additionally, there are four general areas of spending that will occur outside the stadium to the economic benefit of the region:

1) Food & Beverage 2) Retail

3) Transportation 4) Lodging

Based on data from studies conducted for other similar facilities throughout the country, with sports and entertainment facilities located in an integrated downtown area, it is estimated that event visitors will spend on average $25 per person on food and beverages, other retail, and travel and transportation before and after events at the stadium, as shown in Table 3. We can also estimate that approximately 5 percent of the annual visitors will stay overnight at a local hotel, motel or inn, which will add approximately $112 per person to their spending both before and after the event.

A large portion of the retail spending will translate to sales tax dollars for the City, County and State. Additionally, overnight hotel stays will directly translate into transient occupancy tax revenue to the City.

TABLE 3

Spending Allocation

Per Event Attendee Spending

Food & Beverage $15

Other Retail $5

Travel & Transportation $5

Total $25

# Annual Stadium Attendees 500,000

Total Event Visitor Spending $12,500,000

Spending Allocation

Event Attendee Spending

Hotel/Motel/Inn ($114/rm)* $57

Food & Beverage $40

Other Retail $15

Total $112

Total Overnight Visitors (5% of Total) 25,000

Total Additional Overnight Visitor Spending $2,800,000

Total Annual Spending $15,300,000

Overnight Visitors Day of Event Visitors

* Average room rate for June 2015 based on research by PKF Consulting USA in San Francisco.

In total, approximately $31.3 million of annual direct spending will occur each year as a result of a new MLS stadium in the Railyards. Annual direct spending is then adjusted for local spending and new spending (i.e., spending that would have taken place anyway). Then, indirect and induced output is estimated, resulting in total net output, as shown in Figure 7. Total net operational output of an MLS stadium in the Railyards is estimated to be approximately $25.6 million for Downtown Sacramento, $30.5 million for the City of Sacramento, $22.1 million for the County of Sacramento, and $13.8 million for the Sacramento Region, which includes El Dorado, Placer, Sacramento, Yolo and Yuba Counties.

FIGURE 7

Total Net Operational

Output

Downtown: $25.6 MM

City: $30.5 MM

County: $22.1 MM

Region: $13.8 MM

Considering the spending occurring over a 30 year period, total gross spending equals approximately $1.24 billion in the City of Sacramento, equating to $774 million on a net present value basis.

This analysis assumes that the stadium will be constructed within an integrated downtown atmosphere with access to public transportation, pedestrian friendly streets and businesses strategically located to interact with stadium attendees.

Jobs will be created through the operations of an MLS stadium. Currently, Sacramento Republic FC employs 69 full time employees and an additional 160 part time employees. Up to 120 additional full time equivalent employees will work for the team or at the stadium, based on current estimates by Republic FC with a new MLS team and stadium. Additional jobs will be created due to the indirect and induced effects of the expenditure patterns of those employed by the team or at the stadium. These 130-220 anticipated jobs are summarized in Table 4.

Furthermore, fiscal benefits will be realized by local government agencies. When considering property taxes, sales taxes, transient occupancy taxes and other taxes and fees, an estimated $2.2 million of annual taxes and fees will be realized within the County, approximately $800,000-$900,000 going directly to the City of Sacramento.

TABLE 4

Source: Estimated FTE employment from Sacramento Republic FC, October 2015.

Full Time Equivalent Jobs Created 75-120

Indirect Jobs Created 20-40

Induced Jobs Created 35-60

Total Full Time Equivalent Jobs 130-220

Estimated Full Time Equivalent Jobs

Created Through Stadium Operations

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A new MLS soccer-specific stadium constructed in the Railyards area of Downtown Sacramento can provide an entertainment venue for residents and visitors to the area and augment the current and planned development activity in Downtown Sacramento. This investment into several entertainment, retail and cultural venues will be a key factor in the revitalization of Sacramento’s downtown core, its retention of residents and recruitment of a future workforce. The stadium project can act as an anchor project to enhance and encourage the further development of the Railyards, a highly under-utilized asset, and provide an additional alternative entertainment venue to further attract locals and visitors to Downtown Sacramento.

The construction and operations of an MLS stadium will:

 Create over 1,755 jobs during the construction period and maintain an additional 130-220 jobs during ongoing operations.

 Generate $200 million of gross economic activity during the construction phase of the project.

 Generate $30.5 million of annual economic activity with ongoing operations in the City of Sacramento alone, totaling $1.24 billion over a 30 year period, $774 million on a net present value basis.

 Provide entertainment for an anticipated 500,000 annual visitors.

 Generate an estimated $2.2 million of annual fiscal benefits within the County, with approximately $800,000-$900,000 directly benefiting the City of Sacramento.

 Provide an entertainment asset to Downtown Sacramento to aid in a key economic development goal of the City of Sacramento.

Sacramento can achieve the renaissance of Downtown Sacramento through the revitalization of existing neighborhoods and the creation of the Railyards into a walkable hub of urban activity with a critical mass of cultural and entertainment options to attract a wide array of locals and visitors. An MLS soccer stadium will complement the economic development activities in the area and provide its own economic activity and job creation to help re-establish Downtown as the cultural, commercial and community hub for the entire region.