June 18, 2010
Newark celebrates new arena by laying off city workers, selling off water system
With the New Jersey Devils firmly ensconced in their new publicly funded arena, and the Nets set to join them for two years this fall, the city of Newark should be seeing the benefits of that new-sports-team economic pixie dust right about now, right?
To address what he calls the biggest budget crisis in a generation, Newark Mayor Cory Booker is proposing a radical restructuring of city government, which includes massive layoffs, cuts in employee benefits, departmental reorganizations and the creation of a municipal utilities authority.
Erm, okay, not so much, then. But at least the new arena must have helped spur some revitalization of downtown Newark?
The James administration always said the $200 million investment was not about an arena but about downtown development and tax revenue and jobs — not just arena jobs, but jobs from all the new retail stores, commercial spaces and residencies that were going up in the arena district.
On Thursday, all I saw was a lot of parking lots. The only arena district enterprise that the Devils brag about is the Brick City Coffee shop on the ground floor of the Rock's parking deck.
That's Newark Star-Ledger blogger Joan Whitlow, but it's the same thing I saw the last time I walked around the arena. (Though the New York Times' ever-rosy-eyed Ken Belson raved about all the development that is "planned.")
Now, it's certainly true that Newark's fiscal issues run deeper than a bad arena deal (whose total public cost is actually closer to $400 million than the $200 million figure Whitlow cites). But as Whitlow notes, it certainly isn't helping matters that Newark is stuck with hundreds of millions of dollars in added debt and a deadbeat tenant at a time when it's in desperate need of cash:
The previous administration, under Mayor Sharpe James, sank more than $200 million in city money into a lopsided partnership with the New Jersey Devils hockey team. The team put up $100 million to build the arena, known as the Rock. In return, the Devils got a lease so tilted, the team claimed the rent wasn't due because the city owed the Devils money. The lease even precluded the city from taking its recalcitrant tenant to court.
For months the city has been negotiating to collect the rent and get a few million more here and there out of a lease that provides too few financial sweeteners for Newark. But talks broke down this week. Most of the issues are headed for arbitration. The city is suing over the Devils claim for a couple million dollars a year in guaranteed parking revenues. Lawyers fees and legal risks: It's the mess that has grown from what I believe to have been a bad deal to begin with.
The lesson here isn't even so much "don't build a hockey arena"; it's "don't build a hockey arena that assigns almost all the costs to your city and then gets you nothing back in the lease." But then, since getting something for nothing is the modus operandi of most sports teams these days, in most cases no team is going to want your lousy hockey arena unless you agree to let them keep all the money from it.
I hate to say "I told you so," but I'll happily link to it.
June 04, 2010
Internets Celebrities debut "Stadium Status"
The fine folks at Internets Celebrities have released their latest video, titled "Stadium Status," and I can say without hesitation that it's the finest (and funniest) web video ever made on the subject of stadium scams.
Featured are myself (in the role of talking-head stadium expert) and Killian Jordan (as the angry Bronx resident), plus IC hosts Rafi Kam and Dallas Penn providing an 18-minute tour of the machinations behind the new Yankees and Mets stadiums and Nets arena. Find out why the the New York Times called them a cross between Michael Moore and Dave Chappelle! (Not that Moore has been funny in years. Or Chappelle, for that matter. Hey, wait, was the Times actually dissing them?)
Seriously, it's a great video, and you couldn't ask for a better primer on the ill effects of new stadiums on both our cities and sports fandom. At least, not until I finally get permission to upload video of the Shoddy Puppet Company's shadow puppet play based on Field of Schemes. It's hard to beat shadow puppets.
May 12, 2010
NBA approves Nets sale to Prokhorov
So much for that whole Zimbabwe thing: The NBA Board of Governors (in other words, the league's owners) voted yesterday to approve Mikhail Prokhorov as owner of the New Jersey Nets. Prokhorov now becomes the league's first non-North American owner, as well as its second richest after the Portland Trail Blazers' Paul Allen.
The final tally: Prokhorov pays $200 million, plus assumed $180 million in team debt, in exchange for 80% of the team and 45% of their new Brooklyn arena. Prokhorov also agrees to buy $100 million worth of arena bonds, something that looks like a worse deal for him now that the bonds may fall below junk status. As for how much Prokhorov will reap from the deal, that's hard to say without knowing how revenues will be shared between the Nets and the arena; in any case, this deal is more about face time with the American public than a few extra rubles in his bank account.
The sale probably marks the last major hurdle for the Atlantic Yards arena project in Brooklyn; despite the bond downgrade and a couple of lawsuits still kicking around, there's not much that can stop the project now that the residents of the arena site have all been removed and the financing is in place. So figure on them becoming the Brooklyn Nets by 2012, or 2013 at the latest.
April 28, 2010
Devils arena creates development, except for the actual development part
Ken Belson, the New York Times' favorite rose-colored sports business reporter, has an article today headlined "Devils' Move Paying Off for Team, and Newark." For the team, no duh — after all, the Devils got $358 million in public money to help build the place. As for the city, Belson's evidence comes down to this single paragraph:
The additional foot traffic has helped generate nearly $15 million in economic activity and helped created 708 jobs in Newark, on top of the 1,400 people who work in the arena when there are events. Marriott plans to break ground on a new hotel in September. Several housing developments and a park across from the arena are planned. A few sports bars will open on a street adjacent to the arena.
Belson doesn't give a source on the job-creation stats, but presumably they come from an economic impact report by the city, and we all know how unreliable those numbers can be. As for the rest, I last walked the area around the Newark arena the summer before last, and I described what I saw at the time (for a magazine that subsequently folded before my article ran) as:
The building is surrounded on three sides by parking lots, on the fourth by vacant storefronts. A large "Going Out of Business" sign looms across the street, advertising a furniture store that's been forced out after 85 years when the city took its building under the threat of eminent domain. Jack Stoecker, co-owner of the Green Street Cafe adjacent to one of the parking lots, says, "Hockey nights I'm sold out"; a block away from the arena on Market Street, meanwhile, merchants say they seldom see spillover business from fans, who prefer to go straight from their cars to the game.
That was pre-economic collapse, though it's certainly possible that, as Belson concludes, "the real gauge of the arena's success will coming in the next few years, as the economy recovers." Still, "too soon to tell" is a far cry from that cheery headline.
April 22, 2010
Atlantic Yards opponent takes $3m to vacate site
That whole Zimbabwe sanctions thing notwithstanding, the path to construction of the Nets' new arena in Brooklyn seems to be getting smoother of late. First, Freddy's Bar, which has been a main gathering point for arena opponents and even installed chains last year so patrons could help it resist eviction, announced it was moving to a new location, though owners promised to continue to fight the project. And then yesterday, Develop Don't Destroy Brooklyn leader Dan Goldstein agreed to take $3 million from developer Forest City Ratner in exchange for vacating his condo apartment by May 7.
Though the New York Times wrote that Goldstein also agreed to a "highly modified form of the gag agreement that Forest City had initially imposed on those it bought out," and quoted him as saying he's no longer allowed to "actively oppose the project," Goldstein himself released a statement that said he only agreed to no longer call himself a "spokesman" for DDDb:
For nearly 3 hours of talks mediated by Judge Gerges I refused to accept any kind of gag order. I would not have taken any amount of money to do that, and I did not.
I did agree to give up my title as "DDDB spokesman", but that's just a title. And I did agree to remove my name from one outstanding lawsuit which remains in court despite that. Otherwise I can do and say whatever else I want, and my agreement explicitly states that I have maintained my First Amendment rights.
Atlantic Yards Report notes that about one-quarter of Goldstein's windfall will go to attorney fees, and that "given that he did more than anyone [to fight the project], it's hard to fault his decision," though it does note that by withdrawing from the lawsuit against the eminent domain seizures, Goldstein weakens that effort's slim chance of success.
More broadly, coming on top of Freddy's relocation announcement, AYR notes that Goldstein's buyout deal is "an acknowledgment by a vocal opponent of the inevitability of the arena."
April 14, 2010
Prokhorov's Zimbabwe ties: Violation or loophole?
More on prospective Nets owner Mikhail Prokhorov's Zimbabwegate: International sanctions expert Usha Haley tells the Village Voice (okay, tells me) that despite the Russian billionaire's denials that he's had direct business dealings with associates of Zimbabwean dictator Robert Mugabe, she's still convinced that he's in violation of U.S. sanctions: "They have been working with Zimbabwe's officials that have been banned by the U.S. government — there's no doubt about that." In South Africa under apartheid rule, she notes, her research found that most international sanctions had little impact on companies' behavior, precisely because they were able to maintain business as usual via arm's-length agreements: "They erected facades, putting all kinds of administrative barricades between themselves and their operations in South Africa. In spirit, they violated these sanctions. And that's what I'm saying is happening with Prokhorov — except it looks like the trail is hotter with Prokhorov."
Whether the violation is of the spirit or the letter of the law, however, remains unclear. SW Radio Africa reports that "Prokhorov, through his Renaissance Capital investment bank, snapped up a significant shareholding in the government owned Commercial Bank of Zimbabwe Holdings in 2007." However, it adds:
The saving grace for Prokhorov, as exiled investment banker Gilbert Muponda explains, is that CBZ Holdings is not on the US targeted sanctions list. This is despite its key role in the sourcing of funds that sustained the oppressive Mugabe regime. Current Reserve Bank governor Gideon Gono ran the bank as Chief Executive for several years, earning a reputation as Mugabe's personal banker. Muponda told us that CBZ was now the country's biggest bank in terms of deposits, largely owing to help and support from the central bank chief and former boss, Gono.
(Thanks to Atlantic Yards Report for the link.)
The big question here is what the U.S. Treasury Department, which has jurisdiction over sanctions law, will do, and they ain't talking. Though they do have a really impressive list of things they can do to sanctions violators, if they want.
April 12, 2010
Would-be Nets owner Prokhorov charged with Zimbabwe sanctions-busting
Just when you thought the relocation of the New Jersey Nets to Brooklyn was all but a done deal, here comes another Shyamalanesque twist: New Jersey Congressmember Bill Pascrell Jr. has asked the Treasury Department to investigate would-be Nets owner (and arena investor) Mikhail Prokhorov's business dealing with the government of Zimbabwe, and whether they violate U.S. sanctions against that nation.
At issue appears to be an economic summit that Prokhorov's investment bank, Renaissance Capital, sponsored in February in cooperation with Zimbabwe's government, which is run by the increasingly violent and dictatorial Robert Mugabe. Executive order 13391, issued in 2003 by President George W. Bush, prohibits "anyone in the United States" as well as "U.S. branches and representative offices of foreign companies" from conducting transactions with anyone who has "undermin[ed] democratic institutions" in Zimbabwe.
Whether this directly applies to Prokhorov — who isn't a U.S. citizen or resident, and whose dealings with Zimbabwe came via his non-U.S. business interests, may not matter: Recall that the Nets arena's naming-rights deal with Barclays Bank almost blew up over the bank's ties to South African apartheid, among other things, and that the new Jets and Giants stadium is still without a naming-rights sponsor after its initial partner turned out to have
The immediate question is whether the NBA will put the Nets sale on hold — or should I say, further on hold — while the Treasury Department determines whether to investigate. Given that the NBA already dismissed Pascrell's charges once as not worthy of consideration, maybe not; on the other hand, the last thing NBA commissioner David Stern has to want is to have Capitol Hill reading about his league in the same sentence as African dictators. And as I've noted many times before, stranger things have killed development deals in this town.
April 09, 2010
NBA: No Nets sale until land is in hand
The NBA Board of Governors announced yesterday that it will likely postpone next week's scheduled vote on Mikhail Prokhorov as new majority owner of the New Jersey Nets until the state of New York has acquired all the land for the team's planned Brooklyn arena. "The Board will vote on Mr. Prokhorov's purchase of the Nets once a firm date is set for the State of New York to take full possession of the arena site, which the team expects to occur in the near future," said league official Joel Litvin.
For those scoring at home, there's still one lawsuit pending against state seizure by eminent domain of several properties, charging that the Atlantic Yards development plan has changed so much since 2006 that the state's original eminent domain justification is no longer valid. Oral arguments take place Monday morning; check Atlantic Yards Report for up-to-the-minute reports.
March 24, 2010
Even street signs giving Ratner the finger
With construction for developer Bruce Ratner's Brooklyn Nets arena looming, a disgruntled local took out their frustration on an electronic street sign yesterday, changing it from "Fifth Ave Closed" to "Fuck Ratner." (Credit to New York mag and Atlantic Yards Report for publishing photos of the unexpurgated version.) The new message was visible most of the morning, until it was changed around 10 am.
The New York Times cited a "contractor at the site" as blaming someone who cut the lock on a control box, enabling them to access a keypad and type in a new message. The New York Post, however, reported that "According to local merchants it was unlocked for days, allowing anyone to get in."
A Ratner spokesperson charged that the work of the "irresponsible prankster" had "compromised public safety" and promised a police investigation. The operator of a preschool across the street had a different interpretation: "It was hilarious."
March 12, 2010
Shovels fly at Nets arena groundbreaking
More than six years in the making, Brooklyn's Atlantic Yards project (aka the Barclays Center arena, aka the place the New Jersey Nets plan to play when they finally leave New Jersey) finally had its ceremonial groundbreaking yesterday. As you might expect, there were lots of shovels brandished and giant cardboard faces donned in protest. I didn't go myself, but you can read Curbed's blog for all the gory details, including photos of trays of turkey-lobster sliders.
If the word "ceremonial" didn't tip you off (let alone the turkey-lobster sliders), nothing of substance was discussed or revealed yesterday, about when the arena will open, when the associated apartment buildings will be built, when the state plans to seize the private properties that still stand in the way of construction, or anything like that. But Jay-Z was there!
March 03, 2010
Nets arena groundbreaking set for next week after court ruling
It's not quite all over but the shouting, but just about: A New York state judge dismissed a court challenge to the state using approved a court petition by the state (over landholder objections) to use eminent domain to seize land for the Nets' planned Brooklyn arena on Monday, clearing the way for construction to begin. Street closings are set to begin next Monday, with a ceremonial groundbreaking on March 11; as for evicting the remaining residents and businesses occupying buildings marked for demolition, the state Empire State Development Corporation says it "anticipates an orderly relocation taking place over the course of the next few months."
Barring a surprise injunction in one of the other remaining lawsuits, then, it looks like the Atlantic Yards project, or at least the Barclays Center piece of it, will be opening in Fall 2012 as planned — not as planned originally, mind you, but if you keep making enough predictions, one of them will be right.
Whether the rest of the project, including the affordable housing component, gets built anytime soon is another story, but Bertha Lewis, who brokered the housing deal in return for her support of the arena, has bigger fish to fry these days anyway.
February 19, 2010
Nets officially headed to Newark for next two seasons
This almost slipped past me, since it's only been reported at the bottom of NBA trade deadline pieces, but the New Jersey Nets finally got approval to move from the Meadowlands to Newark for the 2010-11 and 2011-12 seasons. The Nets will pay the New Jersey Sports and Exposition Authority $4 million to break their old lease; no immediate word on whether Newark's Prudential Center will still send concerts to the Meadowlands in exchange (though the two arenas did apparently agree to a "non-disparagement clause" to stop either side from publicly dissing the other), or how that whole ticket tax imbroglio worked out.
The long-term plan is for the Nets to be in Brooklyn starting in 2013, though work is still moving slowly at the planned Brooklyn arena site — there have been some street closings and a crane or two are on-site, but the private properties the state had said it would seize by eminent domain this winter are still waiting for the marshals to arrive. And they have their chains ready.
December 20, 2009
State senator charges Nets bonds are illegal
Freddy's Bar, one of the buildings slated for demolition to make way for the new Nets arena in Brooklyn, is installing chains today so that patrons can attach themselves to their barstools if the bulldozers come. But as surprise last-ditch efforts to forestall the Atlantic Yards arena project go, there might be more significance in a state legislator's surprise insistence that the arena bonds sold last week are illegal:
Suggesting that bonds for the Brooklyn arena were issued improperly, state Senator Bill Perkins yesterday asked Governor David Paterson to halt the "master closing" for the project scheduled for Wednesday and to stay condemnation proceedings until "serious questions... are addressed."
Had the bonds been issued by an Empire State Development Corporation (ESDC) subsidiary, they could be repaid via for payments in lieu of taxes (PILOTs), but the issuance would have had to have been approved by the Public Authorities Control Board (PACB), Perkins wrote in a letter. However, in an apparent effort to avoid the PACB, the ESDC created the Brooklyn Arena Local Development Corporation (BALDC), and that murky entity--which issued $511 million in bonds--should not possess a property tax exemption, the letter said.
In English, that seems to mean this: In order to take advantage of the Yankees dodge and use federally subsidized tax-exempt bonds for the arena, the Nets need to claim that their bond payments are really "payments in lieu of property tax." (For reasons that I really can't bear to explain again, tax-free bonds can only be paid off with tax revenue, not private rent payments.) But of course, to be "in lieu of" property tax, the property in question needs to not be charging tax that it otherwise could be.
Since the property is state-owned (or will be, once the private portions are seized by eminent domain), it's been assumed by all involved that it's exempt from property taxes. But as Amy Lavine, a staff attorney at the Albany Law School's Government Law Center, discovered, that's not necessarily so. She described the problem in an interview with Atlantic Yards Report:
"Basically, the LDC is not a public entity," she said. "And it's controlled by different sections of the tax code in New York State. Either ESDC didn't think of the implications of this or they didn't think anyone would notice, because it is rather esoteric. It seems that, under the tax section that applies to the LDC, they're not eligible for exemption from property taxes." (The LDC is subject to ยง420-a of the property tax code.)
According to the recent Court of Appeals decision in Lackawanna LDC v. Krakowski, the LDC leased property to a for-profit manufacturing company and the property was considered taxable, because manufacturing and economic development is not a tax-exempt purpose. Had the Legislature intended a blanket property tax exemption for LDCs, it would have done so expressly, as it has in other contexts, the court said.
And if they're not exempt from property taxes, she said, there's no way to divert property taxes to pay for the arena bonds, via PILOTs (payments in lieu of taxes), and so nothing backing the bonds.
"To go forward, I believe that the process has to start over and ESDC will have to do this properly and get it reviewed by the Public Authorities Control Board and the state Comptroller," she said.
Whether this legal argument is valid, I have no idea — as the one property-tax expert I contacted today remarked, "This is way above my pay grade." That said, major development projects in this city have been scuttled by more unlikely sources, so anything is possible. It'll be very interesting to see if Gov. Paterson responds, and if not, whether Perkins (or local opponents) then throws another lawsuit on the fire.
December 17, 2009
Nets-to-Newark deal "all but collapsed"
The Newark Star-Ledger is reporting that the plan to move the Nets to Newark in exchange for concerts going to the Meadowlands has fallen apart.
What appears to have happened: Earlier this week, state senate president Richard Codey introduced a bill to set up a new company, jointly owned by the state and the city of Newark, that would collect a $3-a-ticket tax and redistribute it to both the Izod Center and the Prudential Center. How exactly reshuffling money between the two facilities was supposed to help wasn't clear, but it turns out it doesn't much matter: Newly elected Jersey governor Chris Christie apparently didn't want to be rushed into a decision, so the deal is dead for now.
In any case, with Atlantic Yards construction looking like it's moving ahead — another lawsuit was dismissed yesterday, if you're keeping count — any Nets move would be for two seasons only. Nets execs, for their part, say they "continue to be encouraged" by the idea of an interim move — now they may have to decide if it's worth paying the $7.5 million fee to break their lease and get out of the Meadowlands two years earlier.
December 15, 2009
Nets bonds are sold, beating IRS deadline
Any thoughts that disinterested bond buyers might yet torpedo the Brooklyn Nets arena evaporated today, as a state development corporation sold $511 million in tax-exempt bonds today for the project. (The headline about "in two hours" slightly disingenuous; as I understand it, bond-selling is a drawn-out process that only becomes finalized once you have a buyer, so it's a bit like saying Roy Halladay traded in only two hours.) The press release indicates that the bonds sold at 6.48%, which is actually lower than team owner Bruce Ratner (who'll actually be paying off the bonds) was hoping for. It looks like Ratner saved himself a Devin Harris after all.
The bond sale means that the project will meet the December 31 IRS deadline for sale of the tax-free bonds, and presumably construction, or at least land clearing, could follow soon thereafter. In fact, Atlantic Yards Report notes that the city has already announced traffic changes to accommodate the beginnings of infrastructure work. The first of many, if the project is now becoming a reality.
December 14, 2009
Nets bonds inch closer to sale
With 17 shopping days to go, the Atlantic Yards Nets arena bonds still haven't been sold, as bond issuers and buyers continue to haggle over the price. Bloomberg News speculates that $500 million in tax-free bonds could go for an interest rate of 7%, based on similarly rated bonds recently issued in Texas — this would qualify as worse than Bruce Ratner hoped, but better than he feared.
Meanwhile, the $147 million in taxable bonds that will accompany the tax-free bonds — trust me, you don't want to know why, but if you really need to, start here — have been assigned junk-bond status, which, Atlantic Yards Report notes, could carry interest rates as high as 14%. The interesting twist here is that the rumored buyer for these bonds is Nets soon-to-be co-owner Mikhail Prokhorov. Because Prokhorov would own 45% of the arena corporation that would be paying off the bonds to himself, he'd effectively be earning a 7.7% rate on his money — though given that, according to his deal with Ratner, he gets to take title to the whole arena if it defaults on the bonds, you could argue that he's effectively covered his risk in other ways.
I can't tell if this is brilliantly creative finance or a scam — but given the players involved here, that's probably about right.
December 04, 2009
Nets naming-rights deal cut in half
Remember that record-breaking $20 million a year naming-rights deal that Barclays Bank signed for the New Jersey Nets' new Brooklyn arena almost three years ago? Turns out the real number is only a little over $10 million. The New York Observer's Eliot Brown, who pored over the 772-page arena financing document released last week by Goldman Sachs, reports:
According to documents related to the arena's financing that were released Thursday, Barclays will pay $10 million a year to the arena's owner for the 20-year deal. Looking solely at this, it would seem to make it a half-off discount, but there are a number of other untold fees paid directly to the Nets as part of the naming rights, according to the documents. Forest City Ratner declined to provide those numbers, and a spokesman for Barclays declined to comment. ...
Whatever the fees paid directly to the team, it's hard to think that they're twice $10 million a year. After all, a consultant's study attached to the documents refers repeatedly to the transaction as a $200 million naming rights deal, and uses that number as a basis of comparison for other naming rights deals.
If there was indeed a revision, it came either at the end of 2008 or earlier this year. The original 2007 contract expired at the end of 2008, but was extended after Barclays and Mr. Ratner's firm, Forest City Ratner, renegotiated. At that time, new terms were not released, though Barclays released a statement saying it was "unwavering in its commitment" to the project. The financial documents released now say the deal was again amended in August 2009.
This only makes the Brooklyn arena deal look worse for developer and Nets owner Bruce Ratner, who's already had to agree to sell off a large share of the team and arena to raise capital, and is looking at possibly $60 million a year in bond payments, plus up-front cash costs.
The Goldman Sachs documents (downloadable here after an annoying registration requirement also reveal that using the arena for hockey is still on the table, notwithstanding that the latest arena design would be too small for the NHL: "The New York Islanders could potentially become a tenant of the proposed arena as well... If built as planned, the arena would need to be retrofitted to accommodate the ice-making abilities the NHL requires for its franchises." In other words, more money to add to the arena's already $1.1 billion price tag.
Meanwhile, Ratner got more bad news yesterday, albeit in an oblique form: A New York state court yesterday ruled that the state can't use eminent domain to take property for an expansion of Columbia University, stating the declaration that the land was blighted was unconstitutional because the state had "failed to adopt, retain or promulgate any regulation or written standard for the finding of blight." While it's unlikely this will be enough to overturn last month's eminent domain approval for Atlantic Yards, it certainly casts some uncertainty on the project right when Ratner and friends are trying to obtain bond insurance, set interest rates, and sell bonds, all processes that shudder at uncertainty. You know that's what Matthew Brinkerhoff, lawyer for the Atlantic Yards opponents, was thinking when he declared yesterday, "If I was involved in the bond sale, I would be looking at this decision and it would concern me, in a way that is very unexpected." Was that the sound of a few extra basis points I just heard?
December 01, 2009
Nets arena bonds squeak through
Another shoe drops for the Atlantic Yards arena project: Bond rating agency Moody's has given an investment-grade rating to the bonds for the Nets' planned Brooklyn arena. It looks like Nets owner Bruce Ratner paid a high price for the rating, though, cutting the amount of tax-free bonds from $600 million to $500 million, and accepting a rating of Baa3, Moody's lowest level above junk bonds.
The next question is what this means for the bonds' interest rate, and the team's bottom line — each added percentage point of new interest will cost the Nets owners $5 million a year — something that could be answered when the Empire State Development Corporation makes its initial bond offering, as soon as tomorrow. The lowered amount of bonds also means a growing funding gap that must be filled by Ratner and his soon-to-be partner Mikhail Prokhorov: already at $100 million or so, it's now looking closer to $300 million. Prokhorov is a pretty rich guy, and clearly he stands to get lots of intangible publicity benefits from entering the NBA owner's club, but you still have to wonder how much cash he (or Ratner) will be willing to throw at this deal before the investment starts to look like a money pit.
If nothing else, this could get interesting once the inevitable cost overruns show up. The ESDC has said it has "no expectation" of issuing additional public bonds for the project, but admitted it's possible. Paging Richard Brodsky!
November 25, 2009
State says Nets bond offering due next week (for real, they swear)
More news is filtering out about how the Atlantic Yards eminent domain ruling is likely to affect the long-stalled project, and the verdict — okay, my verdict, on the Village Voice website — is that the most important fallout is that bond rating agencies sound more likely to look favorably on arena bonds now that the most prominent lawsuit is out of the way. A bond offering could be issued as soon as next Wednesday, though Empire State Development Corporation spokesperson Warner Johnston couldn't give details of what interest rate the bonds would carry.
Arena opponents, meanwhile, are planning to keep up their court battle, but given that this was the only lawsuit remaining with the power to prevent the state from taking land for the project, it looks like an uphill battle to prevent a groundbreaking in the first few months of 2010. Barring such a crazy-high interest rate that developer Bruce Ratner gets sticker shock, it seems increasingly likely that Atlantic Yards will become a reality &mdash or at least that a Brooklyn Nets arena will, given that the associated housing towers have already been put on a schedule of "maybe someday, if ever."
November 24, 2009
Nets arena clears one lawsuit; media declares "cloud lifted"
Bruce Ratner's Atlantic Yards project has been cleared to seize private property by eminent domain, after New York state's highest court ruled that the state had the right to declare the area "blighted."
So what does this mean for the Nets arena project? The New York Times' Charles Bagli declared that "there was no question that the cloud of uncertainty that has been hanging over Atlantic Yards for more than a year had been lifted," while Bloomberg News announced that "Bruce Ratner's $5 billion Atlantic Yards project in Brooklyn will move ahead." There are still plenty of other lawsuits pending against the project, and the lawyer for local landowners says he plans to challenge the eminent domain takings one by one, so it's not like this court case was the one big thing holding up the project.
No, that would be the bond rating problem — so the ultimate impact of today's ruling is going to depend on whether it makes the bond raters and insurers happier to okay the arena bonds before the December 31 deadline. In that case, the news articles may be even more important than the ruling itself — nothing calms the nerves of investors like the New York Times saying "the cloud of uncertainty has been lifted," whether it's true or not.
November 20, 2009
Nets arena lawsuits are the new black
The Village Voice headline says it all: Yet Another Atlantic Yards Lawsuit! This one, filed by a group of local elected officials and community groups, charges that the Brooklyn Nets arena deal wasn't adequately evaluated by the state — which is different, mind you, from the lawsuit a similar group filed last month charging that the sale of state-owned rail yards wasn't adequately evaluated. Add in the pending eminent domain appeal and the other recent lawsuit against the state, and the number of suits in play against the project is now up to four. This can't be making the bond insurers happy.
November 13, 2009
Waiting for Nets bonds: Would you believe, December?
Looks like those Nets arena bonds won't be put on sale next week after all: The Empire State Development Corporation now says they won't be sold until mid-December. That's getting dangerously close to the December 31 deadline that the IRS has set for allowing the bonds to be tax-exempt (which would otherwise be illegal), after which the whole project would pretty much go kablooey.
The problem, presumably, remains that little bond rating issue that the Nets are reportedly having: The New York Observer observes that this is the third time in the last two months that the bond issuance date has been pushed back. Goldman Sachs managing director Gregory Carey, who's negotiating with the bond rating agencies on the Nets' behalf, said he hopes to have the issue resolved before Thanksgiving, but didn't exactly sound super-confident: "Nothing's done until it's done, but there's nothing in the discussions I've had that would lead me to believe that we're not going to get to where we need to get to. We have no other choice."
October 30, 2009
NY to sell Nets arena bonds in three weeks, maybe
Reuters reports that New York's state-run Empire State Development Corporation has set the week of November 16 for selling $700 million of construction bonds for a Nets arena in Brooklyn. Read the fine print, though, and it's less certain than that:
"The expectation is that they will be issued," [ESDC CFO Frances Walton] said. This would not be first time that bonds have been issued despite "legal challenges," Walton said.
"We have begun discussions with ratings agencies," she said.
In other words, things are still where they were two weeks ago, with the state and Nets owner Bruce Ratner trying to convince bond rating agencies and insurers that these bonds are safe despite the growing number of lawsuits against it. And as bond expert Michael D.D. White points out on his Noticing New York blog, there's a long list of loose ends that should give pause to bond agencies, and bond buyers.
Meanwhile, Norman Oder at Atlantic Yards Report notes that today is the planned opening day for the Atlantic Yards arena, according to the construction schedule issued in December 2006. Missed it by that much...
October 23, 2009
Meadowlands to swap Nets to Newark for concerts?
The question of why the New Jersey Sports and Exposition Authority would let the New Jersey Nets out of their $8 million penalty clause for moving out of the Izod Center early may have just been answered: The Bergen Record reports that the state is in discussions with the owners of the New Jersey Devils on a deal that would, in effect, trade the Nets to Newark in exchange for more concerts for the Meadowlands.
"I think this deal works for the Devils in terms of getting another tenant, if it comes to pass," state economic czar Jerry Zaro told the Record. "It works for the Nets, and it works for Izod, because it's incontestable how well they stage family events and concerts."
This could actually make sense for both sides, especially if concentrating all the sports at one site and most of the concerts at the other reduces the ill effects of arena glut. And the Nets would get to stop offering fans free M&Ms to get them to come to games.
October 22, 2009
Nets considering Newark move (temporarily)
New Jersey Nets officials have told the Newark Star-Ledger the team is considering a move to Newark as early as next year — but only a temporary one, until a new arena in Brooklyn can be completed. The deal, say the Star-Ledger's unnamed team sources, would be contingent on getting out of an $8 million penalty that the Nets have to pay to their current landlords at the Meadowlands if they move anywhere but Brooklyn before 2013.
Of course, a more permanent Nets move to Newark has long been bandied about, and it's certainly possible to spin a conspiracy theory that this is the Nets trying to figure a way to get their state landlords to let them out of the penalty clause by pretending that Newark is just a waypoint on the road to Brooklyn (or, more plausibly, as a fallback in case the Brooklyn deal falls through). Why the New Jersey Sports and Exposition Authority would agree to let them out of the payment, I have no clue, but I guess you can't blame an unnamed source for trying.
October 19, 2009
Another lawsuit for Atlantic Yards
Opponents of the Atlantic Yards arena project in Brooklyn have filed another lawsuit against it — yes, different from the one filed last Tuesday, and also different from the one that had an appeals court hearing last Wednesday. The latest suit is against the state-run Empire State Development Corporation, charging that in revising its agreement with developer and New Jersey Nets owner Bruce Ratner it's breached its own project agreement in several ways: no longer clearing up "blight" (since the last of developer Bruce Ratner's rent payments on the arena land wouldn't be paid until 2030), making affordable housing contingent on public subsidies, and changing plans without conducting a new appraisal.
Whether any of this will hold up in court is anyone's guess, but it can't be making the bond insurers happy.
October 16, 2009
WSJ: Atlantic Yards bond sale a "toss-up"
The Wall Street Journal's Serena Ng and Matthew Futterman have weighed in on the question of whether New Jersey Nets owner Bruce Ratner will be able to sell bonds for his planned Brooklyn arena what with two lawsuits pending, and their verdict is: It "looks like a toss-up." The key, they write, is whether Ratner will be able to buy bond insurance, which would cover bond buyers in case the lawsuits are successful and the whole project has to be canceled:
Goldman Sachs Group and Barclays bankers have spent weeks in discussions with three credit-rating services and bond insurer Assured Guaranty Ltd. over ratings and terms on the bonds. The developers are hoping for an investment-grade credit rating on the bonds and to issue them at annual interest rates of roughly 6.5%. Whether the debt will be insured -- which could be key to selling the bonds -- remains uncertain, as debates continue about the arena's revenue-earning potential.
Assured, they note, is effectively the only bond insurer left in town after the financial meltdown, and cite a source as saying that the arena bankers "balked" at some of the demands Assured made in order to guarantee the bonds. It's unclear whether Ratner would be able to sell his planned $700 million worth of arena bonds — the largest sports venue bond sale since the economic crash — without insurance. "It would certainly be harder to sell the bonds if they don't have insurance," bond analyst Matt Fabian told the Journal, but added that the market has rebounded somewhat for junk-rated municipal debt.
Ratner could normally wait out Assured, as well as the turbulent bond market, but remember, he has a deadline: If the bonds aren't sold by December 31, his tax-exempt bond approval turns into a pumpkin, and the bonds really become unsellable. Assured, then, has Ratner over a barrel and surely knows it — that must be one fun negotiating table right about now.
October 13, 2009
New lawsuit targets Ratner's Atlantic Yards land buy
With just one day to go before New York state's top court holds its hearing on the final eminent domain case against Bruce Ratner's Atlantic Yards project, another court challenge has emerged: Four local elected officials, the New York Public Interest Research Group, and the ubiquitous Develop Don't Destroy Brooklyn are suing the Metropolitan Transportation Authority over its agreement this summer to sell land to Ratner for a cut-rate price. (An even more cut-rate price than the MTA originally agreed to, that is.) By reducing Ratner's payments without seeking an independent appraisal or competitive bidding, the suit charges, the authority violated the state Public Authorities Accountability Act of 2005, which wasn't in place when the original sale to Ratner occurred, but was when the deal was rejiggered this June.
The suit is seeking to "annul" the land sale, which would, obviously, threaten to kill the entire project, which includes an arena for the Nets and a bunch of housing and office towers, though it remains unclear when or if Ratner would ever be getting around to building the other stuff. The real question now is whether another lawsuit will make it too expensive for Ratner to get bond insurance so he can start selling arena bonds this month as planned.
More on this as it develops. In the meantime, the lesson here may be: If you're going to try a legally questionable move to gain public (and private) land for your arena project, you might not want to choose a site right in the middle of one of the city's highest concentrations of lawyers.
October 05, 2009
Day of reckoning nearing for Atlantic Yards?
New Jersey Nets owner Bruce Ratner told the New York Observer last week that he plans to start selling $700 million in bonds for his Atlantic Yards arena in Brooklyn in "about two weeks." (Another $200 million, you'll recall, is slated to be funded by Russian billionaire Mikhail Prokhorov, the guy he's selling the Nets to.)
While usually selling bonds is the final step in the arena-building process, in this case Ratner is intentionally jumping the gun a bit: He has to have bonds in place by the end of the year to qualify them for tax-exempt status before the IRS authorization turns into a pumpkin. To cover the fact that he's still engaged in at least one lawsuit over the arena project — an appeals court hearing is set for October 14 — Ratner is reportedly getting bond insurance that will reimburse bondholders in case the whole project falls apart. (Prokhorov has a get-out-of-purchase-free card in his deal for if that happens.)
There's one other wild card here, which is that the New York City Independent Budget Office has projected that even under the expiring IRS rules, the arena project wouldn't generate enough property tax value to justify $700 million in tax-free bonds. (If you really want to know what property tax valuations have to do with tax-free bonds, start here.) It'll be interesting to see if Ratner has to take out bond insurance for the possibility of the IRS rejecting some of his tax-exempt bonds as well — and if at some point he needs to find another Russian billionaire to pay for it.
September 24, 2009
Prokhorov Nets deal: Who's getting paid?
More details are trickling out on Mikhail Prokhorov's deal to buy into the New Jersey Nets. The New York Times' Charles Bagli reports that "the deal is conditional on [current Nets owner Bruce] Ratner's obtaining financing for the [Brooklyn] arena project and control of all the land required for it by the end of this year." That means that if the lawsuits over seizing land for the project by eminent domain drag on too long — the state's top court is scheduled to hear arguments next month, and more lawsuits are reportedly waiting in the wings — the Prokhorov offer could evaporate along with the rest of Ratner's tax-exempt bond financing.
Still somewhat a mystery, though, is exactly what Prokhorov would be getting in the deal, and what Ratner would be giving up. We know that Prokhorov would be getting 80% of the Nets and 45% of the as-yet-unbuilt arena (he'd also get the right to buy into the larger development, but presumably at market value); Ratner would be getting $200 million, plus handing off unspecified Nets debts to his new Russian partner. Norman Oder writes that given Ratner paid $300 million for the team in 2004, "If 80% of the team goes for $200 million, that's a $40 million loss. Then the arena's a gift." But we don't know what the Nets balance sheet looks like: If the team has borrowed heavily since 2004, then 80% of it could be no longer worth anything close to $200 million.
The big question, though, remains not who's getting the team or the arena, but who's getting the team and arena revenues. As has been noted previously, the only way anyone would want to buy into the whole project would be if they could get a cut of any resulting boodle — if you're going to own the Nets, you want them to keep any revenues they make at the arena, while if you're going to own the arena, you want the Nets to either hand over revenues to you or pay a high rent. For Prokhorov, who'd own a larger stake in the team than the building, you'd think he'd want to ensure a low rent so that he doesn't end up owning 80% of a Huizengaesque boondoggle. But no details have been released about any lease agreement between Ratner and Prokhorov, which makes you wonder if there's more that hasn't been reported, or if the two are just throwing up their hands and figuring they'll work that out later.
Look at it this way: Regardless of who owns the team or the arena, at the end of the day, there needs to be enough cash rolling in to pay back the investments of the folks who are building it. Though Prokhorov's offer has been described as a "cash infusion," it doesn't really change the financial calculus here: It's just that you have two guys now trying to figure out how to divvy up the revenues to make a $900 million arena pay, instead of just one. Unless Prokhorov is happy to take some losses in exchange for the publicity boost of now being known for something other than nickel mining and prostitutes, that nut remains uncracked.
Of course, it's always possible that this whole deal is more p.r. than reality, giving both Ratner and Prokhorov some much-desired positive media attention. Keep in mind that the last "tentative deal" reported by Bagli (for a land sale and redevelopment plan in Coney Island) still hasn't materialized two months later.
September 23, 2009
Prokhorov signs "tentative" deal to buy Nets
So apparently the crazy Russian was partly serious after all: New Jersey Nets owner Bruce Ratner has announced what the New York Times calls a "tentative" deal to sell 80% of the team and 45% of his as-yet-unbuilt Brooklyn arena to nickel magnate Mikhail Prokhorov — though for only $200 million, not the $700 million that had previously been rumored.
As Norman Oder notes, this is just enough to provide the bridge financing Ratner needs to complete the $900 million arena. It remains to be seen, however, how he'd pay off the other $700 million in loans he's expecting to take out, especially now that he's looking at having Prokhorov as a tenant. No details have emerged as to the lease the Nets would sign or how much arena revenue they'd share with Ratner's development company, which would remain majority owner of the building itself.
And, of course, the NBA still has to sign off on allowing Prokhorov to become the first non-North American into its owners club — though I'm sure not the first to be accused of running a prostitution ring. Way more on this as details emerge, I'm sure.
September 22, 2009
Prokhorov: I want share of Nets, and Alaska back
The Mikhail Prokhorov New Jersey Nets rumors got even crazier today when Russia's richest man posted to his LiveJournal page a "counterproposal" for investing in the team's Brooklyn arena project. (See the Google translation here.)
Though the media seem to be taking it seriously, much of it seems tongue-in-cheek, including demands for controlling interest in the Nets in return for a "symbolic price," as well as "an equal place in the elite world of basketball" for Russia and placement of Russian coaches in the NBA. Prokhorov also implies that he first learned of his supposed interest in the Nets by reading about it in the newspaper, though that could be just the bad translation.
Of course, maybe all this is the kind of thing that passes for common business practice in Russia — like negotiating business deals via LiveJournal, for that matter. It seems equally likely, though, that Prokhorov is just issuing a nutso bid as a way to up his international profile as a sports mogul. I'll be eagerly watching Bruce Ratner's Facebook page for further details.
September 18, 2009
NY state approves downgrading Nets arena from platinum-plated to gold-plated
New York state's Empire State Development Corporation signed off on Bruce Ratner's revised Brooklyn Nets arena plan yesterday, something that's been a foregone conclusion for at least two months now. It is noteworthy, though, for prompting this Reuters headline:
NY agency OKs modest basketball arena plan for Nets
This is no doubt the first time in human history that a basketball arena costing between $800 and $900 million — which would still easily break the record as the most expensive ever — has been described as "modest."
September 17, 2009
Russian rescue for Ratner's Nets arena?
New Jersey Nets owner Bruce Ratner's $200 million financing gap might be resolved soon, if Reuters is to be believed:
Russia's richest man Mikhail Prokhorov is preparing an offer to help the New Jersey Nets build a new arena and sources close to him say he could own a large stake in the NBA club as part of the $700 million deal.
This would, needless to say, solve Ratner's biggest problem, which is how to raise enough money to get his $900 million arena built, when he's only eligible for $700 million in tax-exempt bonds (or maybe not even that). The big question is: What would Prokhorov be getting in exchange for his $700 million? The entire Nets franchise is worth less than $300 million, so even a "large stake" wouldn't get him his investment back. (While a move to Brooklyn would increase the team value somewhat, even the Knicks aren't worth $700 million.) If the $700 million is mostly a loan, Prokhorov would get annual payments as well — but then we're back to asking where Ratner would get the money to pay off the annual cost, regardless of where he borrowed it.
And then there's this:
Prokhorov is considering issuing a bond worth $700 million through Onexim to help fund the project, one source close to the deal said.
The source said the bond must be issued before the end of 2009 so it is exempt from government taxes, adding: "This is a pure business story. The value potential of the club and arena are very high."
Exempt from U.S. government taxes? Private financiers don't have the ability to issue tax-exempt bonds, so that doesn't make sense — in fact, it sounds as if Reuters mangled the facts about Ratner's planned $700 million in bonds to be issued by the state Empire State Development Corporation.
Of course, it's also entirely possible that the entire story has been concocted to make the Nets project seem more viable, as ESPN.com notes has been the case in other instances where teams have dropped Prokhorov's name. Though Prokhorov and Ratner would seem to have one bond between them: They're both losing money hand over fist.
September 11, 2009
Can Ratner come up with Nets arena funds?
Brooklyn blogger Gumby Fresh has weighed in on what the new Brooklyn Nets arena design looks like ("the funny helmets the rebels used in the third Star Wars movie"), as well as noting that owner Bruce Ratner is looking to get a private investor to kick in up to $200 million toward arena financing, which could make things dicey for Ratner:
They'll only do it, though, I imagine, if the Nets sign a long and expensive lease on the arena, which would doom his chances of trying to sell the team for a while. Of course, Ratner says that FCE could meet this $200 million from its own resources, but I think a commitment that large would put its return on capital so far in the toilet it might as well go back to building strip malls in Cleveland.
Then there's this issue of issuing the bonds to finance the stadium and then holding them in escrow until the litigation can be resolved. Ratner has told Brown that he can do this. I'm still not sure how that will work. I'm fairly certain the tax consequences for investors of being made whole (paid back early) on these bonds would be horrible. But it might be possible, and FCE, in one final throw of the dice, might be able to put up the premium to prepay the bonds itself. Certainly it would be easier to find that kind of money than $200 million in equity.
And that's assuming that Ratner is allowed to sell $700-million-plus in tax-exempt bonds for the rest of the cost, which the city Independent Budget Office seems to think would be illegal. Like I said, the man's not having a good week.
September 10, 2009
Nets arena subsidies worth almost as much as Nets arena
The New York City Independent Budget Office has issued an update of its 2005 study of the proposed Atlantic Yards arena to bring the New Jersey Nets to Brooklyn, and as Norman Oder notes, has come up with "far more pessimistic results." The highlights:
- Counting both direct public spending and tax breaks, New York City is spending $350 million on the project, the state and Metropolitan Transportation Authority $142 million, and the federal government $194 million (via tax-exempt bonds), all in present-value dollars.
- Nets owners Forest City Ratner, meanwhile, would save $726 million thanks to public subsidies. That's almost as much as the $772 million that the arena is now projected to cost to build — though, since some of the Ratner savings have merely kept that figure from being higher, it wouldn't be quite right to say that the public is paying the full arena cost.
- The IBO estimates that the city and state would each bring in $130 million worth of new tax revenues (and the MTA $6 million) as the result of the arena — most of it, notes the report, thanks to the Nets themselves paying New York income taxes instead of New Jersey. That would mean the city would lose $40 million even just counting direct cash outlays; counting tax breaks puts the city at a $180 million loss. For the state/MTA, tax breaks would turn a $31 million gain into a $7 million loss. And the federal treasury, needless to say, would get nothing in return for its contribution.
- The IBO report
doesn't includeincludes a pro-rated portion of the cost of below-market land provided for the project (between $50 million and $114 million, depending on how you define "market"),nor does itbut doesn't attempt to estimate how much tax revenue the site could generate if something else where built there, as some other studies have tried to do. - Projected property tax valuations for the site aren't expected to generate enough payments in lieu of taxes (PILOTs) to pay off the arena bonds, meaning they'd be illegal without the kind of fancy footwork the city is alleged to have engaged in for the Yankees.
Way, way more at Atlantic Yards Report, as always, if you're interested.
September 09, 2009
New Atlantic Yards arena designs! Collect 'em all!
The latest redesign of the New Jersey Nets' proposed Atlantic Yards arena in Brooklyn is out, and it looks like... a Claes Oldenburg handbag? A giant eyeball, as arena opponent and last man standing Daniel Goldstein insists? The previous design, only wrapped in one of those metal-grille facades that are all the rage these days?
Post your suggestions below. In the meantime, I'm mostly interested that the surrounding condo and office towers still appear to be made of some sort of translucent plastic — either the developers realized they didn't look so hot filled in, or it's an oblique admission that they're really vaportecture.
September 03, 2009
Ratner seeking to be Huizenga of the north?
NetsDaily has posted a long FAQ on the future of the New Jersey Nets, whose owner, Bruce Ratner, has them up for sale at the same time as he's trying to move them to a new arena in Brooklyn. Ratner is reportedly looking for both a "premium" sale price and for the new owners to pay a "large annual lease" to play in his new Barclays Center, which he hopes to have open any decade now. Since Ratner would get to keep revenues from all non-NBA events at the arena while also double-dipping from new owners, prospective buyers aren't likely to go for it unless they're severely stupid: One "team insider" said, according to NetsDaily, "In that scenario, Ratner sells the team, you get control of the team and the right to lose $20-$35 million a year on the team. Key to the franchise success is the arena, not the team."
If all this sounds familiar, by the way, it's because it's exactly what Wayne Huizenga did with the Florida Marlins in 1998, sticking new owner John Henry with a terrible lease and an even more terrible team. The difference there is that Huizenga snookered Henry into believing he'd be able to get a new stadium built in south Florida soon (it only ended up taking 14 years), whereas a new Nets owner would be settling into a new home with an awful lease.
The FAQ concludes that if "it doesn't work" (without specifying whether "it" is the arena, the sale, or both):
"The team will be sold to whoever can pay for it," said an insider. "They could wind up in Seattle or St. Louis." A sports marketing expert agreed, suggesting that Brooklyn gets less and less likely every day.
That's a lot of unnamed sources, so take this with whatever grains of salt you have handy. In any case, though, it doesn't sound like Ratner has much of a coherent exit strategy for his grand gamble.
August 11, 2009
The New Jersey Nets revealed a few weeks ago that they'll be dropping "New Jersey" from their road uniforms this season, as part of their never-ending plans to move to Brooklyn one of these years. And apparently New Jersey state senator Kevin O'Toole just noticed, because he's hopping mad:
"New Jersey's professional sports teams, the Nets, Jets and Giants, have no problem feeding at the taxpayer funded trough, yet seem to forget who their benefactors are when they order the teams' uniforms," O'Toole said. "The taxpayers of this state have poured hundreds of millions of dollars into infrastructure upgrades in the Meadowlands where all the teams play their home games. Is it too much to ask that professional sports teams that benefit from the support of the New Jersey taxpayer recognize the state on their uniforms?"
Actually, given the going rate for uniform advertising, you could argue that for "hundreds of millions of dollars" the Nets should have the outline of the state shaved into their hair, too.
Meanwhile, in Cincinnati, Hamilton County Auditor Dusty Rhodes is calling on the county to sell its luxury suites that it got as part of the deal to build the Reds' and Bengals' new stadiums, or at least get "something else of value" in exchange for giving them back to the teams: "At a time when county employees are losing their jobs ... it is simply irresponsible and wrong to be giving away for free these assets."
In the county's defense, at least the suites are available to non-profit groups and by lottery to county residents, which is a public benefit of some kind, albeit only to a lucky few members of the public. That's better than some other deals I could name.
July 27, 2009
Latest Nets arena forum: The recaps
Playing catchup a bit here, but if you're interested in how last Wednesday night's public meeting on the New Jersey Nets' proposed Brooklyn Atlantic Yards project went, there's a long recap on the New York Times' Fort Greene blog, and an even longer recap at Atlantic Yards report (includes verbatim heckling transcripts!). Among the highlights, from the Times:
Many audience members wanted to know: Could this mean Atlantic Yards might join the ghostly construction graveyard in Brooklyn of partly completed residential buildings that lost financing when the market's bottom dropped out?
"What guarantees Phase II will be built at all?" read Mr. Hammerman on behalf of a questioner.
"There's one plan," said Mr. Matlin, the development corporation's senior counsel. "For Forest City to receive a return on its investment, the only way they can do that is to build out the project plan. They've made a huge investment on this project and the only way they can get a return on that investment is to build."
It was the start of the firestorm. "So profit is the only guarantee?" shouted an audience member. A yelling match erupted in the seats.
And from AYR:
Representatives of Forest City Ratner (FCR) and the Empire State Development Corporation (ESDC) got thrown some hard questions—about the total amount of subsidies, the details of a cost-benefit analysis, and the absence of any site plan or arena renderings--and managed to evade or deflect many of them. In essence, they said the project--now $4.9 billion, previously $4 billion--could be approved by the ESDC board in September without such information being made subject to public scrutiny or comment.
There are more public hearings set for this Wednesday and Thursday, so expect lots more heckling.
July 01, 2009
Ratner and Brooklyn: Eminent domain and tax-exempt status
New Jersey Nets owner Bruce Ratner's quest to build a vanilla, big-box style arena in Brooklyn just got a bit more complicated, with New York's top court allowing a challenge of his desired use of eminent domain for this project to move forward.
For those in the Brooklyn neighborhood, The Empire State Development Corporation plans public hearings at the New York City College of Technology on July 29 and July 30.
The clock is ticking on Ratner, as he needs to get all his financial ducks in a row and get a ceremonial shovel in the ground by December 31 to be eligible for tax-exempt status.
With estimated arena costs at $772 million and capital tough to come by as the economy lurches along, not achieving tax-exempt status could torpedo the project. To hold opponents at bay, perhaps he could threaten local opponents with a decision to bring back the quirky architecture of Frank Gehry if they refuse to back down.
June 25, 2009
Nets arena gets land bailout, still needs bond backing
New Jersey Nets owner Bruce Ratner got his sweetheart land deal for a Brooklyn arena yesterday, as the Metropolitan Transportation Authority board approved a plan that would let him defer payments and spend $100 million less on replacing a rail yard on the proposed arena site. In a last-minute twist, arena opponents Develop Don't Destroy tried placing their own competing bid for the land, saying they had just as good a shot at getting financing for their Unity development plan as Ratner did for his arena, but the MTA refused to consider the offer.
And about that arena financing: The New York Times' Charles Bagli reports that it could present Ratner's "most daunting challenge," as he needs to secure $586 million in bonds by the year's end or lose the bonds' tax-exempt status, which would likely raise borrowing costs enough to kill the arena outright. The bonds would be backed by arena revenues like suite and advertising sales, and those aren't exactly selling briskly right now: Sports marketer Matt Yonan tells Bagli, "Finding sponsors at the level they need for the long haul is a difficult proposition."
For much more on this, including warnings from elected officials that it was illegal for the MTA to accept the revised deal without an independent appraisal, and video of the proceedings, see Atlantic Yards Report's long, long report on the day's events.
June 23, 2009
Revised Nets deal includes reduced payments, subway naming rights
As threatened, New Jersey Nets owner Bruce Ratner and the New York Metropolitan Transportation Authority proposed a revised payment plan yesterday for the land under Ratner's planned Brooklyn arena, one that will allow him to defer some payments until the year 2031. My quick back-of-the-Excel calculation estimates that this would save Ratner between $12 million and $24 million off his $100 million land payment in present value, though it'd be less of a deal for him if you assume the economy is going to continue to tank and interest rates will stay low.
A bigger break for the developer — and one not mentioned by many news outlets, including the New York Times — is that Ratner would also spend $100 million less on replacing the MTA's train yard than he'd previously promised.
Finally, Ratner is offering to pay $200,000 a year to rename the Atlantic Avenue subway station next to his arena after Barclays, the bank that has promised to buy naming rights to the arena. This would presumably mean naming the station "Atlantic Avenue–Barclays Center," along the lines of the "Willets Point/Citi Field" that the Mets balked at paying for earlier this year.
The last-second proposal — the MTA board first heard details at their meeting yesterday, and are expected to vote tomorrow — didn't sit well with some board members, with one, Doreen Frasca, objecting: "It's one month shy of four years since the board accepted the Forest City Ratner proposal, and this committee and this board is being given less than 48 hours to understand the complexities and vote intelligently... I think that's pretty outrageous."
June 11, 2009
Gothamist notes today in an article on how the New Jersey Nets' Brooklyn Atlantic Yards project is still up in air:
Flashback to the February 2, 2004 issue of the New Yorker, where in a Talk of the Town piece by Ben McGrath, FieldofSchemes.com's Neil deMause predicted, "I'd guess it's probably fifty-fifty the arena gets built entirely...I wouldn't be shocked if five years from now we're still arguing the logistics."
If you want to play the home game version of this, just repeat after me: When someone announces a new sports stadium or arena, it's only the beginning of what's typically a five- to ten-year debate. Corollary: How much it will end up costing, who'll end up paying for it, and what it will ultimately look like will bear almost no resemblance to the original plans.
In other words, pay no attention to the funny shapes.
June 04, 2009
Nets ditch Gehry for cheaper option; can this save Atlantic Yards?
In a development that surprised exactly one guy who was living under a rock, the New York Times revealed today that New Jersey Nets owner Bruce Ratner has ditched Frank Gehry's design for a Brooklyn basketball arena, and will instead attempt to move ahead with a cheaper design by Ellerbe Becket, architect of several other NBA arenas. The revelation comes six months after Gehry quit the project, and a week after Sports Business Journal predicted that Ellerbe Becket would be taking over.
So what does this mean, other than that future Nets arena renderings will look more like a basketball arena and less like a game of Jenga? The Ellerbe design is expected to come in at $800 million as opposed to Gehry's final price tag of $1 billion, which is indeed cheaper, but still crazy expensive in the post-bubble sports economy. Just yesterday, Forbes gave the arena only a 50-50 chance of getting done, citing specifically the changed economic and credit climate: "I don't know of a single venue that has been financed since last summer," says sports law expert Gary Roberts told the magazine. "In normal times, I'd see it as very likely to get done, but there are enough variables that you can't bet the ranch."
June 01, 2009
Nets crystal ball says: Reply cloudy, ask again in December
The New York Times' Richard Sandomir took a look yesterday at whether the New Jersey Nets' move to Brooklyn will ever happen, and concluded: "The question is impossible to answer nearly six years since Bruce C. Ratner hatched the idea." The biggest uncertainty: Can Ratner clear up the remaining lawsuits and figure out what he's building and how to pay for it by December 31, the deadline to get in under the IRS' tax-exempt bond loophole?
The New York state senate held a hearing on Ratner's Atlantic Yards project on Friday, but that didn't shed much light on things, unless you had a burning desire to find out what it sounds like for a roomful of construction workers to blow whistles at the same time. The most interesting piece of testimony: Independent Budget Office deputy director George Sweeting testified that the city's projected costs for the project have risen by more than $100 million, which would "eclipse the $25 million net positive benefit to the city that we previously estimated for the arena." That somehow didn't make it into Sandomir's article.
May 16, 2009
Nets project moves ahead, but toward what?
Stop me if you've heard this before: New Jersey Nets owner Bruce Ratner has won another court ruling over his proposed Atlantic Yards project in Brooklyn, as the New York state appellate court ruled it wasn't illegal to use eminent domain to seize property for the project.
Of course, this state lawsuit was only a last-ditch move by project opponents after their federal lawsuit failed. (Not to mention previous court setbacks.) Now their really final last ditch is an appeal to the state's highest court, which is expected any day now.
While there's always a chance this court will be unlike all other courts, the bigger question now appears to be: If all the lawsuits are cleared away, then what will Ratner do? Or, more to the point, what can he do? We've already noted that the economic crash has essentially doomed Ratner's proposed office tower, that the apartment buildings might not happen for years, if ever, and that the original arena design has been abandoned as way too expensive; that leaves, um, an on-the-cheap arena surrounded by vacant lots?
The state senate is scheduled to hold its first-ever hearing on Atlantic Yards (only six-and-a-half years after it was first proposed) on May 29, and Norman Oder of Atlantic Yards Report has a list of proposed questions that should be asked:
- Is it guaranteed that Atlantic Yards will still include affordable housing, or can Ratner put off that portion of the project indefinitely without penalty?
- When will the state Metropolitan Transportation Authority get the $100 million Ratner promised to pay for development rights to its rail yards — money it could kind of use.
- Is Frank Gehry still working on this thing or what?
I'll add one more question: Given that the entire economic landscape has changed since this plan was first proposed back in 2003, and that the design will apparently bear little resemblance to what was originally approved by the state back then, might it make sense for the state to just go back to square one and issue a new request for proposals for the site?
April 05, 2009
Nets arena plans keep getting vaguer
Norman Oder of Atlantic Yards Report, the only blogger we know who goes to the trouble of digging through 10-K forms, reports that New Jersey Nets owner Bruce Ratner's Forest City Enterprises changed its description of its planned Brooklyn arena project from "an 850,000 square foot sports and entertainment arena" to "a state of the art sports and entertainment arena." That would certainly jibe with previous reports that Ratner was desperately trying to "value engineer" the project to keep it alive; original architect Frank Gehry has already said of the arena, "I don't think it's going to happen," though he could easily have meant his design, not any arena at that site.
February 13, 2009
Nets hire D'Amato to lobby for stimulus funds
And the first "shovel-ready" has been thrown out for a sports facility! Brooklyn Borough President Marty "Those tears of joy are swelling up in me!" Markowitz this week declared of the New Jersey Nets' Atlantic Yards arena project in Brooklyn: "This project is shovel-ready, and the jobs it would create are needed now."
And Nets owner Bruce Ratner, it appears, is already hot on the trail of stimulus funds to bail out his stalled arena project. New York magazine reports that Forest City Ratner officials "have been pushing the idea with Governor David Paterson's office, trying to elbow to the front of the line before any of the roughly $17 billion in federal aid arrives"; the New York Observer, meanwhile, observes that former Senator Al D'Amato's lobbying firm filed federal disclosure papers last month showing they'd been hired by Ratner's development company to lobby for, among other things, "stimulus spending."
Could it happen? During a conference call with reporters yesterday, both Gov. Paterson and Sen. Charles Schumer denied knowing whether Atlantic Yards would be eligible for stimulus funds. A Brooklyn resident asked the state's Atlantic Yards ombudsman - yes, this project has its own obmudsman - on Wednesday whether any stimulus money would go to defray Ratner's costs or the state's; his reply: "We're not there yet."
As for whether Paterson and the others would throw money Ratner's way even if it's legal, the Observer's Eliot Brown sums it up well:
Should the project turn out to be eligible to get money, it would require a major political step by Mr. Paterson to allocate the relatively scarce stimulus money. The project has always been a political hornet's nest, and to date, neither Mr. Paterson nor his predecessor Eliot Spitzer have had to take any overt, highly public steps in support of it. Given that there are far more projects than there is stimulus funding, it's safe to say that money to Atlantic Yards would come at the expense of some other project in the area. If eligible, the question then becomes whether or not Bruce Ratner, Al D'Amato, supportive politicians and groups could push Atlantic Yards toward the top of the stack at the same time that other politicans are fighting for projects of their own favor.
Nets hire D'Amato to lobby for stimulus funds
And the first "shovel-ready" has been thrown out for a sports facility! Brooklyn Borough President Marty "Those tears of joy are swelling up in me!" Markowitz this week declared of the New Jersey Nets' Atlantic Yards arena project in Brooklyn: "This project is shovel-ready, and the jobs it would create are needed now."
And Nets owner Bruce Ratner, it appears, is already hot on the trail of stimulus funds to bail out his stalled arena project. New York magazine reports that Forest City Ratner officials "have been pushing the idea with Governor David Paterson's office, trying to elbow to the front of the line before any of the roughly $17 billion in federal aid arrives"; the New York Observer, meanwhile, observes that former Senator Al D'Amato's lobbying firm filed federal disclosure papers last month showing they'd been hired by Ratner's development company to lobby for, among other things, "stimulus spending."
Could it happen? During a conference call with reporters yesterday, both Gov. Paterson and Sen. Charles Schumer denied knowing whether Atlantic Yards would be eligible for stimulus funds. A Brooklyn resident asked the state's Atlantic Yards ombudsman - yes, this project has its own obmudsman - on Wednesday whether any stimulus money would go to defray Ratner's costs or the state's; his reply: "We're not there yet."
As for whether Paterson and the others would throw money Ratner's way even if it's legal, the Observer's Eliot Brown sums it up well:
Should the project turn out to be eligible to get money, it would require a major political step by Mr. Paterson to allocate the relatively scarce stimulus money. The project has always been a political hornet's nest, and to date, neither Mr. Paterson nor his predecessor Eliot Spitzer have had to take any overt, highly public steps in support of it. Given that there are far more projects than there is stimulus funding, it's safe to say that money to Atlantic Yards would come at the expense of some other project in the area. If eligible, the question then becomes whether or not Bruce Ratner, Al D'Amato, supportive politicians and groups could push Atlantic Yards toward the top of the stack at the same time that other politicans are fighting for projects of their own favor.
February 12, 2009
KC official: My niece knows a guy who knows a guy who knows the Islanders
The alt-weekly Pitch in Kansas City has video of city manager Wayne Cauthen being asked about when KC's almost-two-year-old Sprint Center might get an NBA or NHL team to play in it. Cauthen, after first quipping that he "niece works for the New Jersey Nets" (at least, the audience laughs like it's a quip), says that "there is some discussion going on with the Islanders - they have a little situation with their facility. I don't see any city building new arenas right now." Cue the 72-point type!
Also featured in the Pitch article: a bunch of quotes from yours truly, including, "You don't leave New York for Kansas City"; discussion of the fact that AEG, which controls the arena rights, won't be eager to give a team a sweetheart lease deal the same way a city might; and speculation that the New Orleans Hornets are one team for which a move to Kansas City might actually represent an upgrade: "You can say, OK, we have an arena and you'd have to pay us some rent but at least you wouldn't be in a city that's lost half of its population." I only hope I didn't give anybody any ideas...
February 03, 2009
"Death knell" for Atlantic Yards?
The New York Daily News reports that the cost of bulletproof glass to protect against terrorist attacks "could be the death knell" for the Nets' proposed Atlantic Yards arena in Brooklyn. Citing "a source familiar with the designs," the News says an anti-ballistic glaze would cost $625 a square foot - the paper doesn't attempt to estimate what this would total for the whole building, but suffice to say it'd be a lot.
Divining who anonymous sources are and their motivation for leaks is half the trick to understanding newspaper reports; my initial guess was that this was an attempt by Nets owner Bruce Ratner to explain why he's throwing architect Frank Gehry's glass-enclosed design under the bus. Reading further, though, I'm not so sure:
"Security is one component of the cost of the arena, but by no means the most significant," said the source. "There are a whole host of reasons why the current design is expensive, including the size, the signature look and the materials. It would be very difficult to fund this arena in this economic environment."
That sounds more like someone trying to say the project is dead, which, given that Ratner insists it's moving forward, wouldn't be someone on the builder's team. Unless they expect that people are going to parse "this arena" very carefully ("we can't build this arena, but we could build a cheaper one"), which clearly isn't the lesson that the News took from this.
(Actually, come to think of it, it's probably the same anonymous source as the News cited last time saying the project isn't likely to happen. Brooklynites, feel free to chime in with guesses as to the identity of the Deep Throat of Atlantic Avenue.)
January 29, 2009
Rethinking Nets arena, watching Mets and Yanks demolition
Busy news day, so all the New York stadium/arena news today needs to share an item:
- George Sweeting of the New York City Independent Budget Office told a Brooklyn Chamber of Commerce meeting this week that the city should "take another look" at its subsidies of the Nets' proposed Atlantic Yards project, noting: "If amenities are scaled back and the overall scale of the project is reduced, it's reasonable to stop and look at whether the city's contributions and the MTA land deal still show a positive in the cost-benefit calculation. ... A lot has changed since 2005, when we found that the arena was basically a break-even proposition." Yeah, no kidding.
- While everyone's been focused on how much it's costing to tear down Yankee Stadium, Shea Stadium is almost gone already. Though for anyone who grew up a Met fan, this is a lot more heart-wrenching.
- Speaking of the escalating Yanks costs, the New York Times ran an article yesterday on the previously reported cost overruns and delays for replacement parks, which was accurate as far as it went. Only one problem: The photo that ran with it was captioned, "The new Macombs Dam Park, atop a parking garage, will have more than seven acres for sports, strolling and other recreation." Unfortunately, the photo isn't of the new Macombs Dam Park, but rather of the smaller, temporary one that's been in place since 2007. The new one actually looks like this right now - which is precisely what Bronx residents are complaining about.
Rethinking Nets arena, watching Mets and Yanks demolition
Busy news day, so all the New York stadium/arena news today needs to share an item:
- George Sweeting of the New York City Independent Budget Office told a Brooklyn Chamber of Commerce meeting this week that the city should "take another look" at its subsidies of the Nets' proposed Atlantic Yards project, noting: "If amenities are scaled back and the overall scale of the project is reduced, it's reasonable to stop and look at whether the city's contributions and the MTA land deal still show a positive in the cost-benefit calculation. ... A lot has changed since 2005, when we found that the arena was basically a break-even proposition." Yeah, no kidding.
- While everyone's been focused on how much it's costing to tear down Yankee Stadium, Shea Stadium is almost gone already. Though for anyone who grew up a Met fan, this is a lot more heart-wrenching.
- Speaking of the escalating Yanks costs, the New York Times ran an article yesterday on the previously reported cost overruns and delays for replacement parks, which was accurate as far as it went. Only one problem: The photo that ran with it was captioned, "The new Macombs Dam Park, atop a parking garage, will have more than seven acres for sports, strolling and other recreation." Unfortunately, the photo isn't of the new Macombs Dam Park, but rather of the smaller, temporary one that's been in place since 2007. The new one actually looks like this right now - which is precisely what Bronx residents are complaining about.
January 09, 2009
Brooklyn arena: Get cheaper, or get lost
New Jersey Nets owner Bruce Ratner has hired consultants to do "value engineering" on his Brooklyn arena plan, according to the New York Daily News, in a last-ditch effort to save the stalled project. "[Ratner] has to go out and get $1 billion in funding [for the arena]," the News quotes "a source" (that's all it says) as saying. "That's probably not going to happen. It can't be built if that's the price tag."
Ratner actually has a couple of things in his favor in getting the price down: Labor's going to get cheaper in this economy (though less so in a union town like New York), and so will raw materials, as there isn't likely to be a lot of competition for structural steel anytime soon. On the other hand, he's going to have a hard time finding a bank to lend him even half a billion dollars without putting up a kidney or two as collateral. So while the battle of Brooklyn that began five years ago is by no means over, Freddy's can probably allow itself to breathe a little easier tonight.