Music Promoter Live Nation's Maryland Concert Hall Plans: Done Deal or Not?

The long-term lease arrangement between multinational music promoter Live Nation and Montgomery County, Maryland for Live Nation to operate a Fillmore-style music hall in Silver Spring, Maryland appears to be a done deal. But is it?

Signed last week, the lease provides for Live Nation to operate a music hall in downtown Silver Spring beginning in 2010. The term of the lease will be 20 years with options for 2 five-year extensions. Montgomery County meanwhile will build and own the venue out of which Live Nation operates if the transaction goes through as planned. Whether the Live Nation music hall materializes depends in part on a novel interpretation of land use law.

Predecessor Birchmere Deal Failed

The predecessor to the Live Nation deal didn't make it this far. For several years, Montgomery County negotiated with local area music hall the Birchmere in Alexandria, Virginia to open a location in Silver Spring. Legislation was enacted committing $8 million in public funds to the project. Community support buoyed the proposal. When the negotiations reached the penultimate stage and the community anticipated announcement of the signed agreement, a sudden reversal occurred.

Initially, there was talk of the deal being scratched over the prospective siting of two dumpsters in an alley behind the music hall. In the face of a community of raised eyebrows, the County quickly changed gears, attributing the breakdown to the alleged failure of the Birchmere to have signed a nonbinding letter of intent at the start of the negotiations. Whatever the real cause, the deal was off. County Executive Ike Leggett announced the impasse in the newspaper. The Birchmere owners said that was the first they heard of the deal's demise. They tried to revive the negotiations but Leggett stood firm and opened negotiations with the multinational company Live Nation, instead.

Montgomery County's negotiations with Live Nation were shrouded in secrecy. Leggett conducted the negotiations personally, shutting out input from the members of the county council. When another prominent regional music arena, the 9:30 Club, sought to introduce its own proposal for operating a music hall at the Silver Spring site, Leggett ignored the favorable community reaction and rebuffed the offer, instead negotiating exclusively with the multinational Live Nation.

The Role of Lee Development Group

A key player in the Live Nation deal - and an unusually silent one- is the Lee Development Group. Lee owns not only the land on which the music hall is to be built but the entire block on which the land is located. The plan calls for Lee to donate the land for the Live Nation facility to Montgomery County. In return, Lee will obtain valuable vertical construction rights enabling it to develop a hotel and retail establishment on the remainder of the block that would otherwise violate height restrictions. These development rights are at the heart of the Live Nation deal. And they are precisely why the deal is anything but done.

The Lee-owned property is prime real estate- the value of the parcel being donated to the county alone is estimated at $3.5 million- in a newly constructed and vibrant downtown area.

The Plan Changes

When the Birchmere deal was under consideration, Montgomery County planned to sell the land for the music venue to the promoter. There was also $8 million in public funding contributing to the building of what was to be a privately-owned venue.

The Live Nation arrangement has replaced the term providing for the initial purchase of the land by a private company with a 20 year lease with the option for two five year extensions. The $8 million in public funding- $4 million from the state and $4 million from the county- will no longer be turned over to a private company but will be used by the county itself to fund the building of a concert hall it will own. Leggett has publicly acknowledged that these changes reflect the comments received by Montgomery County officials from concerned citizens when the Birchmere deal dissipated and when Live Nation submitted its letter of intent proposing a 20 year lease with an option to buy. The changes may make it easier for the Live Nation project to win approval, but the approval is still far from certain.

Legal Impediment Remains

Despite the structural differences between the Birchmere and Live Nation deals, both rely on one dubious premise. Under applicable land use laws, a developer can obtain valuable vertical height development variances for donating land to the County for a public use. Traditionally, the public use is green space which offsets the overbuilding sought by the developer. The rationale behind the green space reservation is to even out the environmental effects of the property use by permanently pairing the overdeveloped parcel with an undeveloped one.

In a novel interpretation of this law, Montgomery County officials will attempt to have a music hall designated a public use. The success of the Live Nation deal depends on this artifice.

A privately owned and operated music hall charging the public fair market value to attend concerts being designated a "public land use" was met with objections when the proposed Birchmere deal details became known. The outcome of any legal challenge was close to predictable. If the Birchmere arrangement could be called a public use, so could any commercial enterprise's business operations.

Thus, the terms were adjusted in the Live Nation proposal. The County would maintain ownership of the property, and the deal would ensure the building's availability for some public use during daytime hours when the music hall was not in operation. The deal requires Live Nation to make the space available for at least 36 free or low cost public uses per year. Are these changes sufficient to overcome the fact that the primary use is the operation of a private facility? Would interpreting the land use law to embrace this building as a public use vitiate the purpose of the law- letting publicly owned green space offset privately owned superdevelopment? Allowing the overdevelopment of the Lee property while concurrently permitting a high use development of the parcel being donated to the county would seem to not only undermine the regulation but to generate the exact opposite effect of what the regulation intends.

The Live Nation lease arrangement primarily supports business interests of a private nature. Lee Development would obtain its overbuilt hotel and retail establishment. The thriving multinational company Live Nation, with 42 venues in North America and Europe and $1052 million in reported revenues in the fourth quarter of 2006, would secure the right to run its music hall for at least 20 years, albeit out of a publicly owned facility.

While the public would own a building generating $90,000 annual lease income, it would also acquire a privately operated music hall in its environs, one more business, in lieu of the green space the land use laws contemplate. And a precedent eschewing green space in favor of buildings as the public use trade-off in allocating height variances.

Live Nation may have signed a long-term lease to operate a Fillmore-style music hall in Silver Spring, but as its deal with Montgomery County comes under public scrutiny, its materialization is anything but a certainty.