Unrivaled Funding Deal Goes To Council - Washington Post

Rezoning Needed For Music Hall In Silver Spring

By Miranda S. Spivack
Washington Post Staff Writer
Monday, September 29, 2008; B01

When Montgomery County Council members today examine a plan to bring Live Nation to downtown Silver Spring, they will be considering a deal unlike any the county has made before.

Until now, Montgomery has funded only nonprofit arts and entertainment organizations, usually by constructing their buildings, acting as their landlord, and making grants to keep them afloat. It has not directly subsidized a for-profit enterprise such as Live Nation, a publicly traded entertainment company that had $4.18 billion in revenue in 2007.

Nor have county officials before asked the planning agency to put aside customary oversight of new development and approve part of a project without seeing the whole. The council and the state legislature already have agreed to spend $8 million in public funds to build a music hall for Live Nation to hold rock-style concerts for about 2,000 standing patrons at the Colesville Road venue. The next step is for the council to approve a zoning change, which members will begin debating today.

A council majority appears to have coalesced around the plans, although some still have questions.

The deal requires the county and state to pay to construct the $8 million building. The county would own it and rent it to Live Nation for $7,500 a month. Live Nation would spend about $2 million outfitting the inside of the hall, which they are dubbing Fillmore Silver Spring. Lee Development Group would donate the former J.C. Penney facade and land, worth about $3.5 million.

The Leggett administration estimates the project would provide at least $1 million annually in taxes and additional spillover benefits to local businesses.

To cement the deal, County Executive Isiah Leggett (D) promises to:

· Require the county to absorb most cost overruns or lower Live Nation's rent if the company pays for overruns.

· Loosen county liquor laws to allow Live Nation to serve alcohol and light fare prepared off site, a rarity in Montgomery where liquor licenses and sales are tightly controlled by county government. Only the Strathmore music center, which hosts symphony and dance performances and other concerts, has a similar arrangement.

· Allow Lee Development to retain development rights for a project on the remainder of the property for 15 to 18 years, more than twice the usual time, while limiting planning board oversight of eventual plans.

· Waive a county requirement that up to 20 percent of the property be set aside as public-use space, customarily outdoor space. Instead, the deal would use the Live Nation building, about 14 percent, as the required public-use space for the undesigned, adjacent Lee project. The Live Nation building also would be considered the Lees' public amenity, avoiding a separate requirement for green space, landscaping or other enhancements negotiated between the builder and the planning board in exchange for greater density.

· Provide Live Nation with about $800,000 annually in tax breaks and an opportunity to profit from a sale of naming rights.

· Limit the county's leverage to change the deal, because the Lees would own the property until the building is constructed.

As with nonprofit groups the county is supporting, the county also would allow Live Nation to lease the venue to others and keep the rent money, estimated at $6,000 a night. Live Nation would provide about 36 more nights a year at a reduced rent to community groups, in the range of $1,200 a night, depending on market conditions. The county at times would use the hall at a reduced rental or for free. Live Nation would donate $30,000 annually to help pay for a downtown Silver Spring festival. "We are very committed to Fillmore Silver Spring," spokesman John Vlautin said.

"This is a really good deal for the county," said Leggett's top aide, Timothy Firestine, who formerly headed the county's finance department. The proposal is similar to a plan crafted during the administration of former county executive Douglas M. Duncan (D) to try to attract the Birchmere music hall to Silver Spring. That fell apart last year after five years of negotiations.

Nearby in the District, developer Douglas Jemal said he has been trying for a decade to get Live Nation to come to Washington. He said he hopes to entice a House of Blues, another Live Nation brand, to the Mount Vernon Square neighborhood.

"They are like Whole Foods. They change the whole environment in an area," Jemal said. He expects Live Nation to seek aid from the District government before any deal is finalized. "They don't come for nothing. Everybody wants them."

But the Silver Spring proposal has encountered some vocal critics. In July, the county planning board voted 5 to 0 to recommend against the land-use portion of the deal. Last week, a council staff lawyer raised similar concerns. Planning board chairman Royce Hanson called the proposal a "blank check" for the Lees, even though he would like to see Live Nation come to Silver Spring. Hanson also said that the Leggett administration's proposal would slow development in downtown Silver Spring, not stimulate it by allowing the Lees to retain density and traffic allocations but not use them for years. That could delay other developers until the Lees decide to build.

Council legislative attorney Jeffrey Zyontz said the proposal would cut down on required public-use space, usually outdoors and free to anyone walking by, in exchange for more indoor space that people have to pay to enter. The greatest impact, he said, would be in Silver Spring and potential projects in Bethesda.

"The council must decide if that exchange is in the public interest," Zyontz advised.

Leggett aide Diane Schwartz Jones, who is shepherding the deal, praised the zoning measure "as a means of getting land for free to provide cultural opportunities while correcting some existing urban decay. . . . This is a tool to do something to help the communities and area businesses."

Until the Live Nation proposal surfaced, the county had only once before, indirectly, helped a for-profit entertainment company. In 2006, the council approved a Duncan administration $2 million economic development grant to the Bethesda Theater Alliance. The alliance owns the renovated art deco Bethesda Theater, which is managed by Broadway's Nederlander company.

To attract Live Nation, which describes itself as "the largest producer of live music concerts in the world," Montgomery patterned parts of its proposal after agreements it has made with nonprofit arts organizations. Round House Theatre and the American Film Institute in Silver Spring, Strathmore in Kensington and Imagination Stage in Bethesda occupy county-owned buildings either constructed or renovated by Montgomery. They are allowed to earn income, as would Live Nation, from renting out the county-owned venues. AFI takes in more than $200,000 annually in rentals, and Round House Theatre collects about $90,000.

The county's experience as a construction manager and landlord at the other entertainment venues has been mixed. The potential for cost overruns at the Live Nation site is unknown.

When the county built Strathmore several years ago, it came in nearly 100 percent over original estimates of $50 million to $60 million. The public paid most of the $100 million in costs, although some money was donated by private sources. For Live Nation, Jones said the county would cut back design features to control costs, if necessary.

Five council members have indicated that they will back the deal: Phil Andrews (D-Gaithersburg-Rockville), Valerie Ervin (D-Silver Spring), Nancy Floreen (D-At large), George L. Leventhal (D-At Large) and Duchy Trachtenberg (D-At large).

"The project will be good for Silver Spring in a lot of ways," Ervin said. "I think people will look back and say we did the right thing."

Don Praisner (D-Eastern County) and council president Michael Knapp (D-Upcounty) have expressed reservations but are thought to be leaning in favor.

Two council skeptics say the plans don't do enough to reward the county for its role. "I find some of the demands to be unreasonable," said council member Marc Elrich (D-At large). Council member Roger Berliner (D-Potomac-Bethesda) called it "a bad business deal that has morphed into a bad land-use deal."

Bruce Lee, of Lee Development Group, is frustrated by the critics.

"This is a backwards deal where the county came to us asking us to consider donating very valuable land, well ahead of any future project. They have never done that before. It does require a lot of thinking outside the box. We are simply asking for protections," he said.