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|A model shown to potential immigrant investors in China in 2014,|
though not shown publicly in Brooklyn.
This watchdog blog, by journalist Norman Oder, offers analysis, commentary, and reportage about the $4.9 billion project to build the Barclays Center arena and 16 high-rise buildings at a crucial site in Brooklyn. Dubbed Atlantic Yards by developer Forest City Ratner in 2003, it was rebranded Pacific Park in 2014 after the Chinese government-owned Greenland Group bought a 70% stake in 15 towers. New York State still calls it Atlantic Yards. Contact: AtlanticYardsReport[at]hotmail.com
|A model shown to potential immigrant investors in China in 2014,|
though not shown publicly in Brooklyn.
President Obama’s most recent budget proposal takes aim at a tax exemption that has helped drive an explosion in publicly-financed sports facilities across the United States, a move that would end federal taxpayers’ role in subsidizing the construction of stadiums and arenas that often provide little economic benefit to their cities and states.
As it stands now, cities and states can help pay for stadiums by accessing tax-free government bonds that have below-market interest rates subsidized by the federal government. The budget Obama released Monday, however, repeals the tax-exemption from the bonds that finance sports facilities if more than 10 percent of the arena or stadium is dedicated to private business use.
Because almost all professional sports stadiums and arenas would fail that test, the Obama proposal would virtually eliminate a tax exemption that provides millions of dollars in federal subsidies each year to sports facilities. States and cities would instead have to finance stadiums with bonds that are not tax-exempt, raising the cost of an already pricey endeavor in a way that could affect the way lawmakers and local taxpayers view the deals.
“Perfect. You couldn’t do it any better if you believe like I do that we should not finance these things with tax-exempt debt,” said Dennis Zimmerman, a retired economist who worked for the Congressional Research Service and Congressional Budget Office and now serves as the director of projects for the American Tax Policy Institute. In a 1996 paper for CRS and in other publications, Zimmerman examined the tax exemption on government bonds used for sports facilities and recommended eliminating it.
|NYC Independent Budget Office|
Since stadiums and arenas are almost by definition used for private events more than 10% of the time, sports team owners immediately made sure that they wouldn’t get caught in this trap by focusing on the other test, and ensuring that at least 90% of bond costs would be paid off by generally applicable taxes. This required jumping through some fancy hoops at times — sometimes dividing up bond issuances into one publicly paid tax-exempt set and one privately paid taxable set, sometimes pretending that private rent payments are really tax payments and convincing the IRS to go along with it — but has consistently worked out over the years, so far costing taxpayers $4 billion in foregone tax revenue.The Washington Post's Wonkblog, 2/5/15, It’s time to stop letting sports team owners blackmail taxpayers for new stadiums:
"It's a silly tax break," said Matt Gardner, director of the Institute on Taxation and Economic Policy [a non-partisan research organization]. "It's ludicrous that the federal government would be subsidizing state and local borrowing to give investors tax breaks to make it easier for them to build sports stadiums."The hearkens back to a 9/5/12 article from Bloomberg, In Stadium Building Spree, U.S. Taxpayers Lose $4 Billion:
...Dennis Zimmerman, the director of projects at the American Tax Policy Institute, made a similar suggestion in a report 19 years ago. ["Tax-Exempt Bonds and the Economics of Professional Sports Stadiums," Congressional Research Service, May 1996] "I'm pleased," he said. "And I don't think it stands a snowball's chance in hell."
Tax exemptions on interest paid by muni bonds that were issued for sports structures cost the U.S. Treasury $146 million a year, based on data compiled by Bloomberg on 2,700 securities. Over the life of the $17 billion of exempt debt issued to build stadiums since 1986, the last of which matures in 2047, taxpayer subsidies to bondholders will total $4 billion, the data show.That article reflects on the attempt at reform:
Those estimates are based on what the Treasury could have collected on interest from the same amount of taxable bonds sold at the same time to investors in the 25 percent income-tax bracket, the rate many government agencies assume. In fact, more than half the owners of tax-exempt bonds pay top rates of at least 30 percent, according to the Congressional Budget Office. So they save even more on their income taxes, a system that U.S. lawmakers of both parties and President Barack Obama have described as inefficient and unfair.
...The new generation of publicly owned stadiums was designed to increase revenue from high-priced seating as well as concessions and retailing. The venues have helped double the value of sports franchises since 2000, according to W.R. Hambrecht & Co., a financial services firm.
Almost 20 years earlier, U.S. lawmakers from both parties set out to block muni bonds for municipally financed stadiums as part of an attack on public borrowing for private businesses, according to former Senator Bob Packwood, the Oregon Republican who was chairman of the Senate Finance Committee.The AY angle
“We wanted to limit it,” Packwood said in an interview. “It was one of the most egregious uses of the part of the tax code that allowed for industrial development bonds. It was clearly not what the tax code had in mind when tax-exempt bonds were authorized.”
...The wording of the law encourages cities and states to offer more-favorable terms to pro teams wanting financial assistance while preventing the borrowers from using stadium revenue to pay off the bonds, he wrote. The measure functions as “an open-ended matching grant” for stadiums, he said. Cities and states borrowed more money backed by tax revenue, not less, to make sure that no more than 10 percent of a stadium’s debt payments came from a private business, Zimmerman said.
...Not all of the subsidy goes to the city, based on a 2009 report from the Congressional Budget Office and the Joint Committee on Taxation. Researchers found that just 80 percent of the amount the Treasury gives up because of the exemption serves to reduce a municipality’s borrowing costs. The remaining 20 percent amounts to “a federal transfer to bondholders in the higher tax brackets,” according to the report...That’s because people paying the top marginal rate get a disproportionate benefit from the exemption.
While one may legitimately question the costs and benefits to a particular metropolitan area of attracting a professional sports team, there appears to be no rationale whatsoever for the federal government to subsidize the financial tug-of-war among the cities to host ball clubs. If there is a global welfare gain from the relocation of a team from city A to city B (because city B may be larger or wealthier or have more avid sports fans), then city B ought to able to pay for that gain without a subvention from Washington, D.C.
We Are Subject to the Risks of Owning and Operating an Arena
Barclays Center is the home venue for the Nets basketball team and future home of the New York Islanders professional hockey team which will relocate to Barclays Center for the 2015-2016 hockey season. In addition, the mix of events at the Barclays Center include a variety of concerts, family shows, and other sporting events. As we approach stabilized operations, which is taking longer to achieve than originally anticipated, our investment in the Barclays Center is dependent on a number of factors, that could adversely affect us, including:
• Pricing and sales pace for suites and sponsorships, including new sales and renewals of existing agreements;
• Performance of the third party asset manager to operate the Arena efficiently and effectively;
• Attendance at games and events, which drives on-site spending for concessions and merchandise;
• General economic conditions that affect corporate and individual spending on entertainment and leisure activities;
• Ability to secure event bookings through relationships with promoters, artists and other clients;
• Popularity of live entertainment events as a whole and individual acts;
• Popularity of the Nets and New York Islanders, their performance, and fan base;
• Competition from other event venues in our marketplace;
• Competition from other leisure-time activities, such as television, radio, and the internet;
• Organized labor matters; and
• Actions of the NBA, NHL, the Nets and the New York Islanders.
For the three months ended December 31, 2014, the company had net earnings attributable to common shareholders of $69.2 million, or .31 per share, compared with a net loss of $207.7 million, or $1.05 per share, for the fourth quarter of 2013. For the full year of 2014, the company had a net loss attributable to common shareholders of $7.6 million, or .04 per share, compared with net loss of $20.5 million, or .10 per share, for the full year ended December 31, 2013. Per-share amounts are on a fully diluted basis.The B2 hit
Based on the recent events, including the temporary ceasing of construction and litigation related to the construction of B2 BKLYN, we investigated and evaluated alternatives to restart and complete the construction. During the three months ended December 31, 2014, we completed our evaluation of various scenarios to complete B2 BKLYN and in November 2014, purchased the Construction Manager’s entire 50% ownership interest in the factory used to construct the modular units. In December 2014, we engaged a new construction manager to oversee the construction of B2 BKLYN and began preparations to recommence construction of modular units. Based on current information available, including the Company’s decision to complete B2 BKLYN using modular units and to purchase the modular factory, the Company updated its impairment calculation. As a result, the Company’s estimated undiscounted cash flows no longer exceed the carrying value of the asset, requiring the Company to adjust the carrying value to its estimated fair value as of December 31, 2014. As such, the Company recorded an impairment charge of $146,300,000 during the three months ended December 31, 2014. Based on the latest information available, we estimate the construction will be completed in the third quarter of 2016.Additional warnings from the annual report
At December 31, 2014, we have $40,538,000 capitalized on the Consolidated Balance Sheet related to B2 BKLYN. Based on the most current information available, total project costs are estimated to approximate $162,100,000, after giving effect to the impairment discussed above. Significant estimates were used to develop the estimated remaining project costs and may change in the future. We continue to vigorously pursue legal action against Skanska USA for damages related to their default of the CM Contract. However, we cannot assure we will be successful in recovering these damages.
Subsequent to the construction stoppage, we received a notice of default on the nonrecourse mortgage secured by B2 BKLYN. We have since entered into a forbearance agreement with our lender which expires on April 8, 2015. In the event we are unable to complete the negotiation of a longer term agreement, or cure the default, we may be required to repay the current outstanding balance of $45,000,000 currently secured by, amongst other things, $37,500,000 of restricted bond proceeds included in restricted cash, $10,000,000 of cash in escrow and an equity letter of credit of $9,300,000. In addition, we may be required to fund the completion of B2 BKLYN with equity until the uncertainties regarding its construction are resolved.
We Are Exposed to Additional Development Risk in Connection with Using a New Construction Methodology on B2 BKLYN, Modular Construction, Litigation Risks, and Owning a Factory to Produce the Modular Units
B2 BKLYN is an apartment building under construction in Brooklyn, New York adjacent to the Barclays Center at the Pacific Park Brooklyn project. We decided to use modular construction to build this 32 story, 363 unit apartment building. During 2014, our former partner in the modular factory and the B2 BKLYN construction manager ceased operations at and closed the factory for the fabrication of apartment modular units which were being used in the construction of B2 BKLYN. As a result, in November 2014, we purchased our former partner’s ownership interest in the modular factory and in December 2014, we engaged a new construction manager to oversee the construction of B2 BKLYN and began preparations to recommence construction of modular units.
We are engaged in litigation with our former partner in the modular factory and the former B2 BKLYLN construction manager relating primarily to the project’s delays and associated additional completion costs. We are seeking to recover all costs associated to complete the building, including those incurred by the modular factory. With the re-opening of the modular factory and the re-activation of the B2 BKLYN project site, we do not anticipate further delays resulting directly from the litigation, as the natural conclusion (or settlement) of the pending litigations will be limited to the payment of monetary damages from one party to the other. We may not be able to successfully recover all or any of the costs we are seeking to recover.
In addition to risks inherent in construction projects generally, such as unanticipated site conditions, environmental, and force majeure issues, the following additional risks exist with constructing B2 BKLYN:
• High rise modular construction has not previously been done at the heights of B2 BKLYN. As a result, the project has encountered, and may continue to encounter, delays and increased costs in the fabrication and assembly of the modular units. Based on the latest information available, we estimate the construction will be completed in the third quarter of 2016. If the project continues to experience such delays, we may fail to satisfy completion deadlines set forth under the lending arrangements for the project and the lenders may not be willing to extend such deadlines. Failure to meet the completion deadlines could result in a default under such lending arrangements with a resulting acceleration of the debt and foreclosure of the project, as well as reputational damage;
• Third party claims that any element of the design or construction methodology infringes on protected intellectual rights could delay the project and increase construction costs; and
•In 2013, two trade organizations representing New York City-licensed plumbers and mechanical contractors sued the City of New York, challenging a determination by its Department of Buildings (“DOB”) that certain piping work performed in a modular factory need not be performed by licensed plumbers or mechanical contractors if such work was monitored by a licensed professional engineer and otherwise complied with the technical requirements of the New York City Building and Construction Codes. Piping work at our modular factory is being performed by non-licensees monitored by a licensed professional engineer in accordance with DOB’s determination. We intervened in the proceeding, and in December 2013 the Court dismissed the suit. However, these trade organizations appealed the Court’s determination. It is possible that the lower Court could be reversed on appeal. It also remains a possibility that other construction industry organizations could bring similar suits challenging the DOB-authorized fabrication methodology used in our factory. If the DOB’s determination were overturned and licensees were required in the modular factory, it would likely increase the cost of construction and potentially delay the completion of B2 BKLYN.
An ironworker died on Tuesday afternoon when steel beams fell on him as he worked to install Barclays Center’s new green roof, according to a police spokesman.Greenland Forest City Partners issued a statement:
The 52-year-old was an employee of a Massachusetts steel company contracted by Hunt Construction Group... The worker, a member of the Ironworkers Local 361 union, was crushed by four steel beams when they rolled off a truck before they could be attached to a crane, police said. Cops and paramedics responded at 1:33 pm and found the man lying in the loading dock on Dean Street, where he was pronounced dead, according to a report.
The iron worker who was killed was involved in the installation of the green roof on the arena. We are all devastated by what happened. All of us at Greenland Forest City Partners and Barclays Center extend our most heart-felt condolences to the worker's family and friends.While there have been some workplace injuries in construction work at Atlantic Yards/Pacific Park, this is the first death. The worker has not yet been named.
We are currently working with all relevant agencies to determine what caused this terrible tragedy.
Investigators believe the victim may have accidentally hit the emergency release button causing the load to come down on him.A piece of overall context: it may (or may not) be relevant that the cold weather has been blamed for delays in the green roof construction process.
|Projected income/expenses, Official Statement, December 2009|
Of course, it’s not yet stabilized financially. If you were to look at the numbers and research it, you would learn it’s still a work in progress. It takes awhile to get an asset like that to its stabilized, operating income.
|From Official Statement; see debt service coverage ratio|
He estimated the arena will generate annual net income of about $110 million to $120 million, cost $30 million to operate, and require about $45 million to $50 million a year to pay off financing, leaving the company with about $35 million a year in profit...(Emphases added)
|From December 2014 report|
|From The Business of Sports|
Moody’s expects the senior bonds will have a 10-year average debt-service coverage ratio of 2.85 times and stressed that even without being in operation, the existing sponsorship deals and naming rights deal would provide 0.95 times coverage on the bonds.
|From the December 2009 Official Statement for the arena bonds|
When Bruce Ratner took over as chairman of the Museum of Jewish Heritage in June, he and museum officials expressed optimism that a new era was beginning for the 17-year-old institution perched at the tip of lower Manhattan.The article portrays museum director and CEO David Marwell as the obstacle to change, while former chairman Robert Morgenthau, who picked Ratner as his successor, suggests the developer should keep hands off.
Nearly eight months later, there is little disagreement over direction. The museum, which explores Jewish life before, during and after the Holocaust, needs to boost annual attendance, which is far below that of comparable city institutions, despite a respected collection. It must stabilize its balance sheet, which has been in the red five of the last six years. And it needs to undertake significant projects, such as reimagining key sections of its core exhibit.
But a deep divide has emerged between Mr. Ratner, a prominent real-estate developer, and museum officials over the urgency of these problems, the roles of each leader and some of the solutions.
Suri Kasirer, an early supporter of the museum who drifted away but was recently re-engaged by Mr. Ratner as a lobbyist and strategic consultant, said she sees a certain amount of adherence to the status quo. “Sometimes you’ve got to shake things up a little bit and I think that’s what he’s trying to do. Not shake it up for its own sake, but shake it up for a vision.”Kasirer's firm also works for Ratner on Atlantic Yards.
Mr. Ratner nonetheless remains eager to light a fire under the institution. Without new momentum, he said, “I’m not sure what will happen to the museum and that’s what worries me.”