Pharrell Williams-backed surf park gets Virginia Beach bonds

Virginia Beach tapped the municipal bond market to help fund a surf park development backed by multi-Grammy award winning artist Pharrell Williams. 

The Virginia Beach Development Authority priced about $189 million of debt on Thursday with some of the bond proceeds financing the construction of a 3,500-person entertainment venue, parking facilities and land acquisitions, as well as other projects associated with the development. 

The city had pledged some of its own cash to help build the $350 million enterprise called Atlantic Park, which will be anchored by the surf park and includes a multi-purpose event venue, residences, offices, retail space and restaurants. The project's developer — Venture Realty Group — had tapped muni investors for unrated, high-yield bonds early last year. 

Atlantic Park

"It's probably the largest public-private partnership the city has done" to boost tourism to the ocean-side enclave, Patrick Duhaney, Virginia Beach's city manager, said in an interview. 

"We hope to be able to bring marquee acts to Virginia Beach," Duhaney said. 

"We're excited about the music venue and the iconic surf park," he said, because the city expects it to generate a tourism impact.

Unlike the high-yield debt sold in 2023 that was backed by revenues tied to the project, these bonds are secured by yearly appropriation payments made by the city to the authority, according to offering documents. That insulates investors from risks if the project underperforms; they'll be borne by the government and its taxpayers.

The offering will have "plenty of investor demand," according to Dora Lee, research director at Belle Haven Investments. "There's very little risks involved with this bond because it is backed by appropriations from the city and the city remains very strong financially."

Virginia Beach boasts an Aaa credit rating from Moody's Ratings, which cited the city's "diverse and regionally significant economic base that benefits from above-average property wealth and resident incomes." 

The appropriation-backed bonds are graded one notch lower at Aa1 given the risk of annual non-appropriation as well as the "essentiality of some of the projects financed," Moody's analysts led by Matthew Jaffe said in a May 1 report. 

The bonds were sold competitively in three tranches.

The city, located close to the border with North Carolina, is a major tourism destination, hosting about about 13.6 million visitors in 2022, according to bond documents. Virginia Beach had collected more than $143.8 million of tax revenue from hotel rooms and restaurant meals during the 2023 fiscal year, the documents detail. 

Muni deals funding tourist attractions have a checkered past. The list of defaulted bonds is a long one, including a water park in Edinburg, Texas, and an iron and steel manufacturing-themed amusement park in Bessemer, Alabama. 

Recently, more municipalities have sold debt to take advantage of demand for visitors after a pandemic-induced lull. Local governments including Cincinnati, Ohio, and Florida's Broward County have doled out hundreds of millions of dollars in bond offerings to prepare for an increased inflow of visitors.