Market challenges complicate Tidewater Landing financing

PAWTUCKET — Economic headwinds may be starting to hit Tidewater Landing.

The proposed soccer stadium on the banks of the Seekonk River is undergoing some foundation-laying work, but the team’s developer, Brett Johnson, was trying to raise funds for the stadium as recently as February, according to investor pitch materials reviewed by The Boston Globe.

Meanwhile, the City of Pawtucket says that its redevelopment agency has not yet gone out for the tens of millions in bonds that will make up the bulk of the public’s portion of the support for the project. City officials had originally said that would happen months ago, but now it’s unclear when it will.

“The City’s top priority has always been protecting taxpayers,” Grace Voll, a spokeswoman for the city of Pawtucket, said in an email Wednesday. “Given the market challenges of the last year, including a global pandemic, rising interest rates, tighter market conditions, and a looming banking crisis, the State financing and private debt components of the capital stack have not made fiscal sense to close to date. While these challenges exist and we continue to work through these issues as partners, the developer has already committed over $25 million to begin work and put foundations in the ground.”

No public funds have gone into the construction so far, according to people involved in the project.

Mike Raia, a spokesman for developer Fortuitous Partners, said in an email: “The Fortuitous team has secured and invested tens of millions of dollars in private investment for both the club and the development prior to any public funding being made available. Like any startup venture, this project is in a perpetual investor raise. The developer has had sufficient funds available to move forward with development and has invested nearly $25 million to date to begin construction of the stadium.”

The soccer stadium is supposed to open for spring 2024, although it’s not clear exactly when: Raia’s statement on Wednesday said that the first match for the newly minted Rhode Island FC, in the second tier of men’s American soccer, hasn’t been determined. But, he said, “Rhode Island FC will be a part of the USL league in 2024.”

The stadium is on a formerly polluted parcel along the Seekonk River. Though in a different physical location than McCoy Stadium, it was supposed to patch a hole in the civic fabric of Pawtucket with the departure of the PawSox for Worcester.

The partially publicly funded stadium would be privately owned. It’s being developed by Johnson, a Brown University graduate who’s also involved in Ipswich Town FC in England’s lower levels.

While Rhode Island FC announced a head coach, a president, and a brand, some financial aspects of the deal are still unsettled about a year out from what’s supposed to be kickoff.

State and city officials had pledged $45.5 million in public financing for the stadium, after shifting nearly all the public support from future phases of the broader plan, which is also supposed to include commercial, retail, and residential development. That shift in public funding came after the cost of the stadium soared to $124 million.

The bulk of the state’s commitment for the stadium would come through what is called tax increment financing, when a public entity borrows money from bond investors and pays them back — ideally, with the additional tax revenue generated in a particular area around a development.

The district around the stadium from which tax revenues are pledged to pay back the bonds covers a swath of Pawtucket broader than just the stadium and the area right around it. According to the state’s own projections, the stadium alone won’t raise enough new tax money within the district to pay for itself, although there’s enough tax revenue there already — even without the stadium — to pay back the bonds. Defenders of the project say the “fails to pay for itself” argument doesn’t take into account housing and other development that Johnson pledges will still happen. Opponents say it’s a boondoggle, and that these economic headwinds were predictable.

But interest rates are rising and, as the city’s statement acknowledged, a banking crisis is looming. Rising interest rates make it more expensive to borrow money, which in turn makes it harder to finance projects like stadiums.

The deal, as it stands now, was hammered out by the state Commerce Corporation, the city of Pawtucket, and the developer. The state’s portion of the bonds was supposed to be issued by the Pawtucket Redevelopment Agency. That still has not happened.

Matt Sheaff, a spokesman for the McKee administration, said in an email that the administration’s “top priority has always been protecting taxpayers while at the same time providing much needed economic revitalization to downtown Pawtucket.”

“This project contains important taxpayer protections including that no state funding will go to the project until it reaches a certificate of occupancy,” Sheaff said. “While there currently are market challenges impacting projects across the nation, our team continues to meet regularly with the City and the developer to continue advancing this project and navigate those challenges.”

There’s been action on the private side, too. According to materials reviewed by The Boston Globe, Johnson was raising funds from private investors last month. The pitch deck showed Johnson was raising $50 million in equity, half for the team itself and half for the stadium. The capital would be used for, among other things, stadium design, permitting, and construction, the pitch deck says.

The materials praised the virtues of Johnson’s business successes, and the market opportunity in Rhode Island. The team says it has sold 3,500 season ticket deposits, which are going for $24. Much of the development area is in what’s called an opportunity zone, which gives investors certain tax advantages.

The master development agreement with the city, approved in November, says that the developer had already provided proof that it had secured and has access to enough capital to complete the stadium and an associated riverwalk, so it’s not clear why Johnson has been seeking new investors.

The team has apparently had recent success in doing so: According to a social media posting in March, Daniel Theis, a German professional basketball player formerly of the Boston Celtics, joined the ownership group.

“Squad keeps getting stronger (and taller),” the posting said, using an emoji for bulging eyes.

Squad keeps getting stronger (and taller 👀)

We are thrilled to welcome @dtheis10 to the RIFC ownership group! ⚓️ pic.twitter.com/bqNi8CYcoO
— Rhode Island FC (@RhodeIslandFC) March 10, 2023

This story has been updated with a comment from the McKee administration, and from a spokesman for developer Fortuitous Partners.

Brian Amaral can be reached at brian.amaral@globe.com. Follow him @bamaral44.