Ratner “inadvertantly” sues NYC over Nets arena tax bill

A strange story emerged last week when the New York City news site DNAinfo reported that developer Forest City Ratner was fighting the property tax assessments on the Brooklyn Nets‘ new arena, filing a court petition claiming that the city had made an “erroneous” valuation of the land at nearly seven times its actual worth. This was weird, as DNAinfo noted, because FCR doesn’t actually pay any property taxes on the arena:

In a 2009 report, the city’s fiscal watchdog, the Independent Budget Office, estimated Forest City Ratner received $761 million in subsidies and tax breaks from the city and state to erect the arena and develop the 22-acre Atlantic Yards.

Under the deal’s terms, the city agreed to forgo collecting property taxes on the site. Instead Forest Ratner makes payments in lieu of taxes, or PILOTs, to the city.

The PILOTs cover the debt service on the $511 million in tax-exempt bonds that helped fund the Atlantic Yards development. The law requires PILOTs be less than or equal to the property taxes that Forest City Ratner would pay on the arena.

In other words, FCR’s PILOT payments are going to pay off FCR’s own arena debt — mostly in order to give FCR a whopping big savings from using tax-exempt bonds. So you’d think that if anything, FCR would be fighting for a high assessment in order to justify the tax break on the bonds — as was the issue with the New York Yankees‘ similarly constructed deal.

So, WTF? Was this an attempt at some even more byzantine tax dodge? The answer arrived late Friday night, and it couldn’t have been more awesome:

On Friday developer Forest City Ratner withdrew its challenge to the city’s appraisal of the Nets home, claiming it made a mistake…

In a letter sent to the city’s Law Department and Finance Department on Friday, FCR said it goofed on challenging the appraisals of the Barclays Center and other developments on the 22-acre Atlantic Yards property.

“In challenging the assessments on Forest City properties, petitions on its arena and B2 sites were inadvertently included,” the letter said. “Forest City has instructed our attorneys to discontinue these petitions immediately.”

So basically, either some FCR lawyer filed a kneejerk challenge to the property valuations of every one of the company’s properties, in hopes of shaking loose a better deal, without checking to see if they were actually paying any taxes on them; or some FCR lawyer filed a challenge without realizing that it wasn’t to their advantage to bring down the valuation of the Nets arena. Either way, as Norman Oder of Atlantic Yards Report notes, “these people are professionals–they’re supposed to do better than this.”

5 comments on “Ratner “inadvertantly” sues NYC over Nets arena tax bill

  1. And here I thought the office of the tax assessors were independent and unbiased in their work. How would a well known project with reasonably well publicized costs arrive at an assessment 7x higher than the owner if not used as a way to bilk federal tax subsidy behind the scenes ?

  2. Tax assessment has nothing to do with construction costs, by law — it’s all about resale value. And it’s notoriously hard to come up with a set figure for the value of a building like a sports arena, since it’s not like you can just look at what other arenas sell for. It’s like trying to put a value on the Brooklyn Bridge.

  3. Ok, reading up some more it’s determined by how much revenue the commercial property can generate. And the NBA is lothe to open up the real financial books entirely. So would the Prudential Center or Izod Center’s tax assessment be a starting point ? Certainly you can’t evaluate the business model and revenue streams of every business you mean to assess.

    Was a part of this Barclay’s center tax funding that it would be assessed as a private property a single time in order to increase the overall property tax base of the city and then take the arena off the “payment due” ledger, essentially spreading the arena’s property tax bill throughout the city ?

  4. Surprise, surprise, surprise…
    Did Ratner’s minions “think” that somehow this challenge might slide through without anybody noticing? Naw, this’ll go under the radar in NYC. Right?
    It’s the 6-year old mentality, just because they have an accounting degree on the wall doesn’t mean that they’ve advanced past that stage – “pro’s” or not.

  5. Paul, the silly thing was that they put together a list of all their properties that would be taxed and challenged a bunch of them. For some reason, they had included the arena property and said it was too high a tax bill, when the high tax bill was done to allow Ratner to get those bonds at a lower interest rate and with federal tax exemption. If Ratner’s lawyers had pursued getting the property tax assessment lowered it would have made the bond payments drag out much longer (been more costly to Ratner) and probably forced them to be reissued/restructured at a higher interest rate due to no longer being federally tax exempt (be more costly to Ratner). It’s like a child whining for a whole bunch of milk and cookies and then complaining that they received more milk and cookies than they could eat.