Brooklyn Nets’ “affordable” apartments will cost up to $3500 a month

Those who recall the original Brooklyn Nets arena slogan of “Jobs, Housing, and Hoops!” may have been wondering when the “housing” part will enter the equation, what with development still halted on the modular housing tower whose builder quit saying it was financially unfeasible. Down the block from the arena, though, there’s another building going up, and New York City Mayor Bill de Blasio was excited to announce yesterday that it will be all affordable units:

“There are very few phrases I like better than 100% affordable housing, so this program is off to a good start.”

As Crain’s New York reports, though, “affordable” doesn’t actually mean so much affordable:

The 298 apartments at 535 Carlton will be available to tenants from five different income tiers: half for tenants who earn up to 165% of the area median income for a family of four, which is $83,900 a year; 15% for tenants earning up to 145% of the AMI; 5% for those earning up to 100%; 25% for those earning up to 60%; and 5% for those earning up to 40%. More than half the tenants in the new building will pay rent of about $3,500 a month for a two-bedroom apartment.

Yes, it’s still housing, and yes, there’s some benefit to getting more apartments of any kind in a borough that’s facing rising demand. (Though there’s also a growing amount of evidence that new upscale development tends to drive even more increased demand than it helps to quench.) But it still means that the overall project is getting something on the order of $2 billion in cash and land and tax breaks to build a private sports arena and an unknown number of apartments that will mostly be way more expensive than most locals can afford. But at least you can’t put a price on giving Brooklynites the chance to watch … er, professional basketball?

 

AEG reportedly looking to buy two-year-old $1B Nets arena for $500m, wants Isles out

The New York Post is reporting that the arena-management giant AEG (still owned by Philip Anschutz, contrary to what he suggested two years ago) may be looking to buy the Brooklyn Nets‘ arena, according to those ever-popular “sources.” Also, that he doesn’t want to pay what arena majority owner/Nets minority owner Bruce Ratner of Forest City Ratner wants to get for the building:

AEG is said to be willing to spend up to $500 million on the 19,000-seat concert and sports arena, or slightly more than 12 times Barclays’ roughly $40 million in expected 2014 operating profits, sources said.

However, Forest City, which last month forecast that profit number would soar 63 percent to $65 million in 2016, is said to be seeking a lot more than $500 million.

Those projections sound awfully optimistic, given that the Barclays Center only took in $30 million in its first year of operations, barely enough to pay off its $29 million a year in construction debt. AEG would undoubtedly love to have its own concert facility in New York City — though given that right now the company gets to play the Brooklyn arena and Madison Square Garden off against each other when bidding for events, it can’t be too unhappy with the status quo, either. Though maybe with the Islanders due to arrive next fall, they might be worried about not having enough open dates at both arenas to keep the bidding wars going, maybe?

And speaking of the Islanders, buried way at the bottom of the Post article is this:

AEG believes Yormark is paying too much to keep the arena booked, sources said. It was Yormark who guaranteed $50 million a year to the New York Islanders once they move to Barclays next season.

“AEG sees the Islanders deal as too risky,” the source said.

After roughly five years, Barclays can get out of the Islanders contract, sources said.

This is the first I can recall hearing about a $50 million revenue guarantee for the Islanders — the highest number I’d seen previously was $10 million in annual payments from the arena to the team, while the arena kept most hockey revenues — and definitely the first I’ve heard about the Islanders having a five-year out clause. (And the first Islander fans have heard of it, too, apparently.) That would make the decision to move the Islanders to Brooklyn make a bit more sense — if there’s an out clause, both Ratner and Isles owner Charles Wang get to effectively conduct a trial run in Brooklyn. And if it turns out no one wants to go see hockey in a basketball arena 20 miles from their traditional home base, the Islanders can conceivably move back to a renovated Nassau Coliseum, currently set to be downsized to 13,000 seats (but at least 13,000 seats placed properly for hockey) by … Bruce Ratner.

All of this is a hell of a lot of speculation based solely on a report based on unnamed sources in a newspaper that doesn’t have a great track record with its “exclusives.” Take it all with a grain of salt for now, though if you want to jump to conclusions of the “almost brand-new arena can’t even sell for more than half what it cost to build” variety, don’t let me stop you.

Ratner puts debt-ridden Brooklyn Nets arena up for sale after just two years

Bruce Ratner, the developer who spent ten years buying the New Jersey Nets and then fighting a bitter court battle to tear down houses in Brooklyn to make way for a new arena and brought in a Russian billionaire partner to help pay the bills, is celebrating his ultimate victory the only way he knows how: by putting the arena up for sale.

Developer Forest City Ratner is marketing its majority interest in the Brooklyn arena that is home to the NBA’s Brooklyn Nets, seeking a buyer for some or all of its 55% stake in the building, according to people familiar with the matter.

An arena spokesman declined to offer details, but said in an email that “Our goal is to identify a strategic partner as we continue to capitalize on the great performance of Barclays Center.”

“Great performance” sounds nice when shopping the place around to buyers, but the fact of the matter is that the Barclays Center hasn’t done great in terms of its bottom line: It just about barely broke even in its first full year of operations, 2013, despite record-setting ticket sales. (The Wall Street Journal’s Eliot Brown, who earlier reported that the arena turned a tiny profit, now says that the arena reported a small loss in 2013.) And while arena revenues were up in the first half of 2014, they’re still well below projections, and not likely to improve significantly as the Nets honeymoon wears off and a trade war for concerts heats up with the newly renovated Madison Square Garden. (Yes, the Islanders arrive in 2015, but as we’ve seen elsewhere, sports teams often cost as much in lost concert revenue as they pay in rent.)

The reason for all this red ink? The $29 million a year in debt that Ratner saddled himself with, while turning over majority ownership of the arena’s biggest money-maker, the Nets, to Mikhail Prokhorov in exchange for more cash to feed the arena’s $1 billion construction budget maw. Even the most successful arenas don’t churn out that kind of profit margin year after year, which is no doubt one reason why Ratner is looking to cash out, though it’ll be extremely interesting to see what price he gets for a building saddled with $500 million in debt, not to mention Brook Lopez’s tender feet.

There’s much more, as you’d expect, at Atlantic Yards Report, including the observation that Ratner is really only selling operating rights to the arena, since it technically belongs to the state of New York in a complicated tax-dodge arrangement.

The big question remains, however: Why on earth did Ratner care so much about this project that he moved heaven and earth (and Daniel Goldstein), plus assumed half a billion dollars in debt, to make it happen? The man has never shown any interest in basketball, and ditched control of the team as soon as possible after the project was approved. There was the theory that the arena was a loss leader for getting hold of valuable Brooklyn land to develop with housing, but Ratner’s planned housing towers are doing even worse than the arena, though he’s still shopping around in China for investors. That leaves … wanting to drum up foot traffic for his mall across the street? Wanting to make even more of a name for himself in Brooklyn real estate, even if it’s not an especially positive one? Presumably he had something in mind all along — or maybe it’s just Hanlon’s Razor.

Brooklyn arena tower builder ups and quits, affordable housing back on “maybe someday” timetable

Skanska, the Swedish construction giant that previously stopped work on the first housing tower slated to accompany the Brooklyn Nets arena — which, so it happens, is right down the street from the library where I am typing this — has now quit the project altogether, on the grounds that it is a fruitless money suck:

Skanska USA Building canceled its contract Tuesday for the much-anticipated yet long-delayed modular apartment building at Forest City Ratner Cos.’ 22-acre Atlantic Yards project, which was recently rebranded Pacific Park—though the long-running legal dispute is far from over.

“We could not continue to incur millions of dollars in extra costs with little hope that Forest City would take responsibility for fixing the significant commercial and design issues on the project,” Richard Kennedy, co-chief operating officer at Skanska USA Building, a subsidiary of Swedish construction company Skanska, said in a statement.

The timing of the announcement was not accidental: As Atlantic Yards Report reports, Forest City Ratner and Skanska had a court date today to try to resolve the construction contract, which has now officially expired. Instead, Skanska wants FCR to re-bid the work back out to them as a job (enabling them to keep running the custom modular construction unit factory — aka GIANT LEGO FARM — at a price they’re happier with), while FCR wants the judge to order the factory to reopen, and let FCR run it, or something like that. The judge, from the sound of it thoroughly disgusted with the whole matter, ordered the two sides back to the bargaining table, but if all they’re going to say is “Screw you!” “No, screw you!” then this isn’t going to get very far.

And speaking of not getting very far, what likely happens next?

Scarpulla did give Forest City a smaller win, agreeing was a “Major Decision” for the LLC to change its managing member, and forced Skanska to hold a vote it had otherwise avoided.
That vote, presumably ending in a 3-3 tie, would trigger a months-long deadlock process contemplated by contract, leading to potential buyout of one or the other’s interests.
That, over time, also would jeopardize the modular factory’s future, given the need to rehire and/or retrain workers, and further delay the completion of B2.
No wonder Scarpulla several times urged the parties to consider mediation. “I’m not trying to scold anyone,” she said. “I’m just saying that the path you’re going down is just going to cost you more money.”

Yep, this is only going to get uglier from here. Good thing it’s just a private construction dispute, and not something that was being counted on as the payoff for hundreds of millions of dollars in tax breaks and other public subsidies — oh, wait.

Nets arena housing halts construction, as builder says newfangled design “just doesn’t work”

I’m not up to researching the Atlantic Yards section of The Brooklyn Wars just yet (current status report: wrapping up Coney Island chapter, starting to move on to Bushwick and Downtown Brooklyn), but I may have to make an exception for this news: Work on the housing tower next door to the Nets‘ arena, which in recent months had finally started to take shape as the first of the project’s promised housing component, abruptly shut down this week amid complaints by the builder that designer/arena owner Forest City Ratner massively underestimated costs.

Take it away, Charles Bagli of the New York Times:

Skanska on Wednesday unilaterally closed the factory in the Brooklyn Navy Yard where 157 workers assembled and built the steel-framed modules for the first of a planned 14 prefabricated apartment buildings, at Flatbush Avenue and Dean Street.

A day earlier, Skanska ceased work at the construction site, where the building rises to only 10 floors of its 32-story height, 21 months after work started.

“The purpose was to save time and money and they’ve done neither of those things,” said David Burney, a former commissioner of the city’s Department of Design and Construction.

For those who haven’t been religiously following the Atlantic Yards saga, this building was supposed to be a breakthrough in “modular construction,” where sections of the building are assembled offsite by assembly-line workers and then stacked up like Legos to make a giant apartment block. (As you can see from the work done so far, they even picked Lego colors.) This required building an entire factory to manufacture the modular units, which, surprise surprise, took a while; the finished building was originally supposed to open this summer, but remains only one-third completed.

And it looks like it’ll stay that way for a while, to hear Skanska tell it:

Richard A. Kennedy, co-chief operating officer of Skanska USA, was emphatic that, contrary to Forest City’s claims, it had not “cracked the code.” Its design, he said, was flawed.

“It just doesn’t work the way it was sold to work,” he said. “We’ve had real challenges with it that’ve delayed the project and led to cost increases. We finally came to the decision to stop work on the project until our significant commercial issues are resolved.”

Forest City, Mr. Kennedy said, had ignored its “design responsibility” under the contracts.

“It was represented to be a complete and buildable modular design,” he said. “That simply was not the case and that’s what we’ve been struggling with.”

None of this should be terribly surprising, given that using modular construction on anything over 20 stories is “quite out of the ordinary,” as Brooklyn modular architect James Garrison told me shortly after the project was first announced, since taller building require stiffer frames for wind resistance, which isn’t modular’s strong point. Still, here we are, two years after the arena opened, and the promised 6,430 units of new housing (one-third of which were supposed to be “affordable,” though it turned out most of those would go to families earning more than $100,000 a year) currently amount to one half-finished building that will now likely be tied up in litigation, or at least some really nasty out-of-court wrangling. According to a new deal negotiated in June to speed up development, Forest City Ratner will be subject to up to $2,000 per unit in penalties if the buildings aren’t completed by 2025, but the way things are going, it has to be a serious worry that FCR will just throw in the towel and take the fine.

New book “The Brooklyn Wars” to rake muck of Nets arena deal

I know I already ask my readers here to become Supporters of this site (which reminds me, I need to set my next members-only chat date soon), but I do want to alert you to another project I’ve just launched that may be of interest: “The Brooklyn Wars,” a book drawing on my decade-plus of reporting on the massive changes that my home borough has undergone.

I’ve launched a Kickstarter site where you can preorder the book and win fabulous rewards. (One FoS reader has already availed himself of the “Go to a Nets game with Neil and have him complain about the terrible sightlines the whole time” level.) And yes, there will be sports subsidy content: One of the four main sections will focus on the machinations behind the construction of the Brooklyn Nets arena and what it’s meant for its Prospect Heights neighborhood and Brooklyn as a whole since.

Please check it out if you’re interested — and given the way nearly every city seems to have its own burgeoning mini-Brooklyn, or at least is trying to create one by force of will, it’s a story that should have relevance far beyond the confines of one borough. Besides which, everybody is fascinated by Brooklyn, right?

Nets arena cheap seats should come with oxygen bottles

I attended my first Brooklyn Nets game last night, and my overall impression didn’t change much from my earlier visits to the Barclays Center for concerts: The design lends itself to major foot traffic jams both getting in and getting out, the acoustics are lousy, and the food is overpriced even by sports concessions standards. ($7 for a small container of popcorn, $6.75 for a square slice of pizza, beers starting at $8.50.) Mostly, though, since we had bought cheap tickets for the last rows of the upper deck, the overall impression was: Man, these seats are ridiculously high.

How high, exactly, is a question I’ve been trying to figure out since getting home from the game. The roof at Barclays Center peaks 137 feet above street level, and the floor is about 20 feet below. The New York Mets‘ Citi Field, by contrast, is 116 feet tall, with a field that’s pretty much at grade. Now, the last row of seats at Barclays isn’t quite up to the peak of the roof, but it’s pretty close — meaning that, at least by this rough guesstimate, the worst seat at the Nets’ 18,000-seat arena is just about as bad as the worst seat at the Mets’ 40,000-seat stadium.

If anyone out there has more precise figures, please share them, as this is a very rough back-of-the-envelope estimate. Still, it’s a reminder of just how bad a double layer of luxury suites can be for the views of everyone sitting above them, not to mention an indication that something went badly wrong in the design when Bruce Ratner was value engineering it. And, of course, it’s only going to get worse for hockey.

 

Brooklyn Nets project wants to raise more cash by selling more green cards

Atlantic Yards Report had a long story yesterday (it doesn’t have any other kind) about how the Brooklyn Nets‘ arena developers are looking to do another round of EB-5 financing, the mechanism that allows foreign investors — mostly Chinese, in this case — to jump the line for green cards if they’ll extend interest-free loans to U.S. development projects in blighted neighborhoods. It’s well worth a read if you’re interested, especially for the bit about how the Chinese government will actually be benefitting from this as a co-investor, but I just wanted to call out this quote it pulls from an article last year by Dartmouth business professor John Vogel:

One of the oddities about the EB-5 program is that the U.S. government is giving out the green cards, but the entrepreneur who puts together the investment gets the money. This scheme seems inefficient and open to corruption. If our government really believes that it is a good idea to sell green cards, maybe we should drop the pretense that this is a job creation program. It might be more efficient to have the money go directly to the U.S. Treasury and reduce the deficit by billions of dollars a year.

This is actually an excellent way of looking at it: Green cards are a public asset, one that the government mostly chooses to give away in order of application, but which here are being handed out in exchange for investment cash. In other words, the government is selling green cards, but it’s not getting the money — that’s going to private developers.

Now, you can say that it’s encouraging private development in places that need it (though it’s tough to imagine anyplace that needs a hand in promoting development less than Brooklyn), but still, is that the most efficient way to get housing built? Vogel suggests using the money to reduce the deficit, but it could equally be used for government construction projects, or jobs programs, or just handing out cash to poor people. It’d be nice to see a cost-benefit analysis of this, but somehow I doubt the lobbyists who helped institute EB-5 in the first place are going to be pushing for funding of that.

 

New arena has Nets’ value soaring, Nets’ profits in the toilet

The new Forbes NBA franchise value figures are out, and the Brooklyn Nets jumped almost 50% in value for the second straight year, thanks to their new arena in the borough of artisanal mayonnaise. Which must mean they’re making money hand over fist, right?

The Nets are on track to lose at least $50 million this season even with an extended playoff run, thanks to a $101 million payroll and luxury tax bill of at least $80 million.

Um, okay, then. There are three possible takeaways from this. One, which is Atlantic Yards Report’s view, is that it doesn’t matter how much money you lose on a pro sports team, since you’ll make it up when it’s time to sell. Two would be that Forbes’ team valuation figures are on crack. (It’s worth noting that the magazine’s annual profit and loss figures have been pretty much on target when compared to data later publicly released, but their team valuations haven’t matched up that well with sale prices.) Or three, people who buy sports teams will pay crazy money to sit in the owner’s box, even if it’s to own a team that has no hope of ever turning a profit. I wouldn’t have picked owner stupidity at one time, but recent evidence has me less certain.

Barclays Center barely breaking even despite #1 arena ranking

Hey, remember how the Brooklyn Nets’ Barclays Center was rated the top-grossing arena in the U.S. for the first half of 2013, and I concluded that it could be “an exception to the rule that arenas don’t usually make money” after paying off construction costs? Turns out I may have been slightly hasty:

In its first full year in operation, the arena brought in about $30 million in operating profit, the company reported on Monday, far less than the more than $76 million projected when the arena began construction in 2010.

That’s from the Wall Street Journal’s Eliot Brown, who took to Twitter to add:

So even the top-grossing arena in the country barely broke even in its first full year. Apparently John Christison was right when he said it’s tough to make money on these things. (Which isn’t really a surprise, him being a longtime arena manager and all.)

Norman Oder of Atlantic Yards Report takes a closer look at why the Barclays Center had that $46 million shortfall in operating profit, and finds that it’s virtually all added expenses:

Brown’s article doesn’t link to the actual SEC filing, so we’re at a dead end for the moment on how the Barclays Center managed to blow through an extra $50 million in spending in its first year. More on this later, I hope.

[UPDATE: Brown informs me that the SEC and bond filings aren’t exactly comparable because they don’t use the same accounting measures, so it’s probably not an extra $50 million in spending. His conclusion that the Barclays Center is barely breaking even stands, though. One possible explanation: Even though the arena is doing gangbusters business, it’s likely doing so by offering “generous deals to woo big names, either by offering low rent or by guaranteeing a performer a high portion of ticket sales,” as Brown reported in October.]