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October 21, 2014

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How Zappos’ move to downtown Las Vegas was sealed

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Justin M. Bowen

Zappos CEO Tony Hsieh and Las Vegas Mayor Oscar Goodman answer questions Wednesday, Dec. 1, 2010, at the Las Vegas City Council meeting, when it was officially announced the existing City Hall building would be used as the corporate headquarters for online retailer Zappos.com.

Zappos at City Council (12-1-2010)

Zappos CEO Tony Hsieh speaks Wednesday, Dec. 1, 2010, at the Las Vegas City Council meeting, when it was officially announced the existing City Hall building would be used as the corporate headquarters for online retailer Zappos.com. Launch slideshow »

As with any big civic breakthrough where politicians are involved, there was no shortage of people lining up to take credit for Zappos’ decision to move its headquarters to downtown Las Vegas.

However, what was hailed Wednesday as a victory for the City Council and staff wouldn’t have happened if downtown business operators hadn’t lobbied the online shoe retailer’s CEO, Tony Hsieh, and helped him see the potential for the company to play a dominant role in the development of a major city — an opportunity unlikely to be found in any other American metropolitan area.

“I personally just hope to see something that, at one point in history, I had a part in and made a difference,” said Michael Cornthwaite, who operates the Downtown Cocktail Room, Emergency Arts and the Beat coffeehouse on Fremont Street, east of Las Vegas Boulevard.

Cornthwaite was among the downtown people who about a year ago started talking to Hsieh, 36, about the area’s potential.

Hsieh (pronounced SHAY) liked downtown. It reminded him of an early version of a popular section of Austin, Texas, dotted with bars and coffee shops, he told the Sun.

That wasn’t by accident. The city and downtown business owners committed $5.5 million in 2007 toward repaving streets, widening sidewalks and adding neon signs to a three-block area known as the Fremont East District.

The city offered other incentives, too. Las Vegas reimburses businesses up to $95,000 for neon signs and facade improvements and, since February, has waived the $20,000 tavern-limited license fee for new businesses.

The renovations were an attempt to bring business into the unadorned part of Fremont Street — a stretch that isn’t lined with casinos or covered by an electrified canopy that projects images accompanied by music — that for years was ignored.

The improvements worked to a point. Some businesses moved in, including a few bars.

Hsieh wanted to do more.

Cornthwaite said he spent time brainstorming with Hsieh, “painting the picture of having a huge impact on not only a little area, but on the whole city, on an American, major metropolitan area.

“He didn’t need much of a picture. Unlike most, he immediately got it,” Cornthwaite said.

Hsieh acknowledged that the reason he is moving downtown is because he simply likes East Fremont. In a video shown before Wednesday’s City Council vote to approve the deal bringing Zappos and its 1,000-plus employees downtown, Hsieh talked about the “tech community” and its need for “the types of bars, lounges and coffee shops that we’re seeing really grow in downtown Las Vegas.”

In an interview Wednesday at his Zappos office in Henderson, Hsieh said his enchantment with downtown Las Vegas was solidified by another area business operator — Andrew Donner, CEO of Resort Gaming Group.

Hsieh and Donner were walking around East Fremont this year. Donner mentioned the city’s plan to leave City Hall in 2012.

Click to enlarge photo

Zappos CEO Tony Hsieh, Las Vegas Mayor Oscar Goodman and members of the Las Vegas City Council answer questions in November 2010 at the Las Vegas City Council meeting, when it was officially announced the existing City Hall building would be used as the corporate headquarters for online retailer Zappos.com.

“I had no idea what was going on in local politics,” Hsieh said. “But I said, ‘Wouldn’t it be cool if we could move Zappos there?’ ”

It was a throwaway thought, like Hsieh wondering aloud whether an indoor ski slope could be built downtown — something similar to one he had seen in Dubai.

Plus, Cordish Cos., a Baltimore-based development company, had exclusive rights to develop the City Hall site.

Hsieh said at the time he had no plans to move Zappos, which he started in San Francisco and moved to Henderson in 2004, where it grew into a billion-dollar-a-year enterprise.

Public officials’ statements that Hsieh had been looking to leave Nevada aren’t true, he said. “We always knew we were staying here.”

Not long after that downtown walk, Hsieh said, Donner told him Zappos moving into City Hall might not be so far-fetched.

Donner had dealt with the city before. He has part-ownership of the closed Lady Luck, a longtime downtown eyesore. And there appeared to be little movement in Cordish’s plans to build a sports arena at the City Hall site.

Donner “made it come together,” Cornthwaite said. Then city employees did their jobs and filled in the details.

Click to enlarge photo

Las Vegas City Hall is shown at 400 Stewart Ave. in downtown Las Vegas.

To persuade Cordish to relinquish its rights, the city agreed to pay it $2.5 million and give it a chance to develop an arena in Symphony Park, which is home to the Smith Center for the Performing Arts and the Cleveland Clinic Lou Ruvo Center for Brain Health.

Donner’s company is purchasing City Hall and 18 acres for $25 million. Zappos will lease the property from Resort Gaming.

The deal calls for a $3 million down payment, a $5 million balloon payment in 30 years and a $22 million, 30-year promissory note held by the city at 5.125 percent interest. The city will vacate the building by April 1, 2012.

Over 30 years and from the property sale, the city expects to collect $97 million used to offset the $147 million price tag of the city hall scheduled to open in 2012.

“Tony wants to do good and wants to have a positive impact, and improve a community and a city — and he knows it’s good for business, too,” Cornthwaite said. “I think above and beyond that, it’s great for the culture, the economy, the whole core of the city.”

It’s almost impossible to find anyone with anything negative to say about the deal and its prospects for downtown, bringing a new energy and successful business culture to the area.

“Just think what would have happened without Zappos doing this,” one developer said. “City Hall would have sat empty. It would have been a blight on downtown for years.”

Touring Zappos

Zappos headquarters in Henderson offers daily tours to anyone who is interested in seeing the inner workings of the billion-dollar company. Launch slideshow »

Daily tours of Zappos’ Henderson office open the company’s culture to outsiders. One section of workstations is decorated as a jungle. There’s a dark room with couches and fish tanks where employees unwind. Every computer and desk is adorned with personal items, figurines or toys. Hsieh sits in the middle, next to his secretary, his financial officer and other employees. The only four-wall offices are those of the attorneys.

Lunch and vending machines are free.

When Zappos moves downtown, it will have acreage across the street that Hsieh envisions as a future “corporate campus” to enhance the work experience even more.

“Imagine the possibilities downtown,” he said in a text message. They might include the other idea he tossed around during that walk with Donner.

“An indoor ski slope down here, not just for employees, but for anyone — it wouldn’t be too expensive, it would be fun for kids,” he said. “I haven’t given up on that idea. We need to get this (City Hall deal) done first, then we’ll see.”

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  1. Excited to see how the area grows into a tech community. Wish more big brands would make the move to vegas.

  2. Compared to all the other "deals" the city has made to get business to Downtown, this is the first that actually benefits everyone involved and makes the most financial sense...

  3. Downtown 3.0!