DALLAS - A planned aquarium in Grapevine, Tex., could be eligible for financing by municipal debt, thanks to a new development corporation approved Tuesday night by the Grapevine City Council.
The council's unanimous approval of the Aquarium Development Corp. of Grapevine opens the facility up to the use of tax-exempt debt as well as opening up the 501(c)3 for tax-free operations.
However, aquarium developers are quick to point out that municipal debt is just one of several options being considered to fund the $30 million facility. Grapevine, located near Dallas-Fort Worth International Airport, is building its tourism base, which already boasts a major discount mall, a Bass Pro Shop, and the soon-to-be-opened Gaylord Texan Hotel. The resort hotel includes massive convention and meetings space as well as entertainment venues on Grapevine Lake.
"We haven't finalized anything yet," said Erik Pederson, owner of U.S. Aquarium Team, a company that designs and builds aquariums. "The idea of using tax-exempt financing is very interesting, and we are eager to pursue that avenue. However, we are also considering other options with other types of investors. This could be a conventional debt-and-equity financing."
Pederson says he is investigating those options with the help of Texas-based financial adviser Larry Williamson. Pederson's company has built aquariums at the Mall of America in Bloomington, Minn., and in San Francisco. He has also built and operates UnderWater World in Guam.
After touring such facilities as the failed Ocean Journey aquarium in Denver and the successful Tennessee Aquarium in Chattanooga, Tenn., Grapevine leaders decided that Pederson's approach to building aquariums would work for the city.
"Some of these facilities have folded, while others have done quite well," said city manager Roger Nelson. "If you look at Ocean Journey, for instance, the owners only had about 15% equity in the facility -- the rest was all debt, and a lot of debt."
Ocean Journey, funded almost entirely with bonds, has been criticized by many aquarium developers as too expensive from the get-go. Those concerns turned out to be true, and Ocean Journey ended up defaulting on $56.8 million of revenue bonds just three years after they were originally sold by the issuer now known as the Colorado Educational and Cultural Facilities Authority. In October, bondholders were finally paid 26.8 cents on the dollar for their investment.
He said the Chattanooga facility has done well despite the facts that there is no international airport in that city and that it is not a top-tier tourism destination. The aquarium is privately owned and operated.
He said he expected the Grapevine aquarium to be a lease-purchase type of agreement between the city and the 501(c)3 run by Pederson's company. He said the start-up cost of $28 million to $30 million is about half of what was spent on Ocean Journey.
"The nonprofit will pay for the aquarium and its operations with the revenues generated by the aquarium," Nelson said.
The aquarium would have to pay annual debt service as well as its maintenance and operations costs. If those terms were met, the city would own the facility at the end of 20 years, but if they weren't, debt holders could opt to take back the facility.
"We looking at probably high-yield interest rates," Nelson said. "But then, this deal is not backed by the full faith and credit of the city."
The aquarium proposed by Pederson includes a three million-gallon tank, and visitors will walk through the facility in a tube "like walking on the ocean floor," Nelson said.
