Council OKs lowering price of City Hall for Zappos move

The sale price for Las Vegas City Hall became $7 million cheaper Wednesday after the City Council amended a deal to bring the Zappos corporate headquarters downtown in exchange for the promise of more jobs.

The contract's financial arrangements also were changed to present less risk to the city, said Bill Arent, director of the city's business development office.

City Council members unanimously supported the changes.

"We don't have anybody else banging down the door to buy City Hall," Councilman Steve Wolfson said. "There is some risk in this deal. But I don't know many big deals that are risk-free."

"The only risk I see," said Councilman Steve Ross, "is not making this happen."

Councilwoman Lois Tarkanian said she voted for the amended contract "reluctantly."

"I have qualms about this," she said. "I don't see a solid piece of evidence that there won't be more changes coming up.

"Do we have a solid commitment that we'll have that corporate headquarters here?"

An email from Zappos executive Chris Nielsen to City Manager Betsy Fretwell said company officials don't anticipate requesting any more financial incentives but also said the changes were needed for the deal to go through.

Without the modifications, the company was "unlikely to finalize a transaction" for the City Hall property, according to a June 7 email. "We do not anticipate requesting any additional material financial incentives from the city."

Las Vegas is building a new city hall on Main Street that is scheduled to be ready in February.

After the city moves out, Resort Gaming Group plans to buy the old City Hall, at Las Vegas Boulevard and Stewart Avenue, renovate it and lease it to Zappos, an online retailer based in Henderson.

Andrew Donner, head of Resort Gaming Group, told Tarkanian that his company already has spent $1 million pursuing the deal and noted that several Zappos executives, including CEO Tony Hsieh, were in attendance.

"They're not saying what they're going to do. They're doing what they're doing," Donner said.

The original purchase price was
$25 million, but the council agreed to lower it to $18 million. Resort Gaming will put down $3 million and pay the rest over 30 years, with the city holding the note.

That note, however, will be subordinate to a private construction loan of up to $18 million for Resort Gaming's work on the property.

That loan must be paid back in 15 years, leaving the city as first lienholder for the remainder of the 30-year payback term.

In a worst-case scenario in which Zappos leaves and payments aren't met, the city will be able to take back the building, Arent said. Zappos' initial lease is 15 years and will be guaranteed by its corporate parent, Amazon.com.

"We know upfront that we have a guaranteed revenue stream," Arent said. "There's very minimal risk."

Zappos promised to bring 1,200 employees to the building, up from the 750 originally promised. The building will be renovated to handle as many as 2,000 employees.

"This building was designed for 600, 700, 800 employees," Donner said.

It also needs more extensive renovations than expected, both to meet Zappos' needs and because it's more than 30 years old.

"We're spending more money, and we're bringing more bodies," Donner said.

Resort Gaming also has an option on about 18 city-owned acres immediately to the east of City Hall for the expansion of Zappos' campus. One parcel at 405 Sixth St. is still privately owned, and Donner's company has negotiated a
$1.75 million purchase of that land.

The city has agreed to step in and buy that property so that it owns a nearly uninterrupted chunk of land encompassing Sixth Street and Seventh Street between Stewart Avenue and the freeway.

If Resort Gaming opts to buy back that property for development, the agreement sets the purchase price at
$1.75 million plus 4 percent.

To introduce the agenda item, about 200 Zappos employees crowded into the council chambers, flash-mob style, and danced while waving pom-poms and wearing T-shirts emblazoned with the faces of Mayor Oscar Goodman and Mayor Pro Tem Gary Reese.

Wednesday was Goodman's and Reese's last full City Council meeting, as their terms of office are ending. Their successors will be sworn in July 6.

Contact reporter Alan Choate at achoate@reviewjournal.com or 702-229-6435.