Deal closes for Zappos’ move downtown

It's official.

The deal to move online retailer Zappos into downtown Las Vegas closed Wednesday.

The City Council voted unanimously on three motions that allow a developer to buy City Hall for Zappos to renovate and import as many as 2,000 workers.

The deal, which has been in the works for more than a year, is the brainchild of Zappos CEO Tony Hsieh and is being hailed by cheerleaders as a major milestone in Las Vegas history.

Zappos, its workforce of mostly young employees, and technology startup companies looking to follow in its footsteps are expected to transform the landscape of a downtown known largely for small casinos, cost-conscious tourists and persistent homelessness problems.

In voting to sell City Hall for $18 million to Resort Gaming Group, which will lease the property to Zappos and its corporate parent, Amazon, City Council members gushed in anticipation of a downtown revival.

Councilman Bob Coffin, 69, a lifelong Las Vegas resident, compared the arrival of Hsieh and Zappos to that of reclusive mogul Howard Hughes in the 1960s.

Hughes used his wealth to buy hotels on the Strip and thousands of acres that were developed to become Summerlin.

"He poured millions upon millions into this town, and he changed the whole dynamic," Coffin said of Hughes, who at the time clashed with Las Vegas' old guard.

"It is eerily similar to me that someone is coming into town who really believes in this town who wasn't here stuck in the old ways."

COUNCIL'S FINAL STEPS

The votes Wednesday authorized the council's final steps in the transaction.

One approved changes to the development agreement between the city, Resort Gaming Group and Amazon; the other two allowed the city to sell City Hall and an option on several acres on the other side of Las Vegas Boulevard for less than the appraised value.

The biggest change was to reduce the city's exposure to risk on a private loan Resort Gaming Group intends to take to contribute toward renovations of the building, which was dedicated in 1973.

The cap on the loan, which the city agreed to back up if the company can't repay it, was reduced from $18 million to $7.5 million.

Bill Arent, director of the city's Office of Business Development, said lowering the cap is possible because Zappos and Amazon are ready to put their own cash into the renovations.

"The majority of the renovations are going to be directly funded by Zappos with a cash contribution," Arent said.

With backing up the renovation loan, the city already had agreed to finance $15 million of the $18 million purchase, meaning it will get $3 million upfront and the remainder in subsequent years.

Zappos, with Amazon's backing, has agreed to lease the site for at least 15 years, which Arent said ensures the lowest risk possible for the city.

"It is an extremely strong deal to the benefit of the city and our development partner, Resort Gaming, which is the landlord," Arent said.

In addition to the lower loan cap, the votes Wednesday authorized selling City Hall, two parking structures and adjacent buildings for $18 million, about $7.7 million less than the highest appraised value of $25.7 million.

The council also approved an option for the developers to buy as much as seven acres of city property bordered by Las Vegas Boulevard, Eighth Street, Stewart Avenue and U.S. Highway 95 for $21.25 per square foot, which adds up to about $6.3 million.

The price represents a discount of about 15 percent from appraised fair market value but is set to grow 6 percent annually to give the developers incentive to make the purchase soon.

HSIEH HAD BIGGER DREAMS

After the vote, Hsieh briefly spoke to the council.

He described the deal as the culmination of a process that began years ago. Zappos moved to Henderson from San Francisco in 2004, when the company employed about 70 people.

But even then Hsieh and other executives had bigger dreams.

"Originally we thought, 'Let's be like other companies like Apple or Google or Nike that have these amazing campuses,' " Hsieh said.

"When this opportunity came up to move downtown we started rethinking that."

Instead, Hsieh worked with Amazon, Resort Gaming Group CEO Andrew Donner, former Mayor Oscar Goodman and others to put together the City Hall deal, which will enable Zappos to build within an existing community.

Already, Hsieh and other top Zappos staff have moved into condominiums a block from City Hall and contributed to efforts to attract new businesses that have already yielded five technology startups.

"I happen to be the face right now here in front of you, but this is really about much more than Zappos," Hsieh said.

In addition to boosting development downtown, the deal means city officials aren't facing the prospect of moving into a gleaming new City Hall on Main Street and leaving recession-weary taxpayers stuck with an empty, decaying structure.

Arent's presentation to the council said the infusion of Zappos workers will have an economic impact of nearly $273.4 million downtown.

"It is a miracle come true," Mayor Carolyn Goodman said of the deal.

NOT EVERYONE IS HAPPY

Others weren't as thrilled.

Downtown business owner Stan Zeer, who owns a commercial property on Fremont Street, worried the move would crowd out longtime businesses in favor of new entrants catering to the desires of arriving Zappos workers.

He asked the council to consider in its motions some relief for businesses he said could get pushed out.

"What we are saying is do it in a fair way and do not displace existing business owners and their employees," Zeer said.

His plea failed. The council voted without making further changes after City Attorney Brad Jerbic said Zeer's concerns were beyond the scope of the property deal.

A timeline presented to the council said the deal will close escrow by April. Zappos will start renovations in the summer and be ready to move in by late 2013.

The city plans to move into the new City Hall building by the end of the month.

Contact reporter Benjamin Spillman at bspillman@ reviewjournal.com or 702-229-6435.