Virginia Beach recently entered the municipal bond market to secure funding for a surf park development project supported by Pharrell Williams. The Virginia Beach Development Authority successfully priced approximately $189 million in debt, with the bond proceeds going towards the construction of various facilities for the Atlantic Park project. This includes a 3,500-person entertainment venue, parking structures, land acquisitions, and other associated projects. The city itself provided financial support to help build the $350 million enterprise, which will feature a surf park as its centerpiece along with a mix of residential, commercial, and entertainment spaces.
The Largest Public-Private Partnership
According to Patrick Duhaney, Virginia Beach’s city manager, this development represents one of the city’s largest public-private partnerships aimed at boosting tourism in the area. By bringing in marquee acts and capitalizing on the unique attractions like the music venue and surf park, Virginia Beach hopes to significantly impact tourism and draw visitors to the ocean-side enclave. Unlike previous high-yield debt offerings tied directly to project revenues, these bonds are secured by the city’s yearly appropriation payments to the authority, providing investors with a level of protection in case of underperformance.
Investor Confidence and Credit Ratings
Dora Lee, research director at Belle Haven Investments, noted that there is strong investor demand for these bonds due to the city’s financial strength and commitment to appropriations. Virginia Beach holds a top-tier Aaa credit rating from Moody’s Ratings, which highlights the city’s robust economic base, including above-average property wealth and resident incomes. While the appropriation-backed bonds are graded slightly lower at Aa1 due to the annual non-appropriation risk and the essential nature of the financed projects, Moody’s analysts remain optimistic about the city’s overall financial stability.
Virginia Beach, located near the North Carolina border, is a significant tourism destination that attracted over 13.6 million visitors in 2022. The city’s tourism sector contributed over $143.8 million in tax revenue from hotel accommodations and restaurant sales during the 2023 fiscal year. With the development of Atlantic Park and its diverse attractions, Virginia Beach aims to further capitalize on its tourism potential and continue to draw visitors to the area.
Risks and Past Municipal Bond Defaults
While the current bond offering for the surf park development has generated substantial interest from investors, it’s crucial to acknowledge the risks associated with municipal bonds funding tourist attractions. Historically, projects like water parks and themed amusement parks have experienced defaults, raising concerns about the long-term sustainability of such investments. However, with Virginia Beach’s strong credit rating and financial position, coupled with its commitment to annual appropriations, investors may have greater confidence in the success of the Atlantic Park project.
In the wake of the pandemic-induced slowdown in tourism, many municipalities are turning to municipal bond offerings to fund projects aimed at attracting visitors and revitalizing their local economies. Cities like Cincinnati, Ohio, and Broward County, Florida, have issued significant amounts of debt to prepare for an anticipated increase in tourism and visitor spending. By leveraging municipal bonds, these cities can finance essential infrastructure and entertainment developments that have the potential to drive economic growth and create new opportunities for residents and visitors alike.