Skip to main content

Naming rights could pay half the cost of the subsidized "Barclays Center"

The big news, according to yesterday's New York Post, is that today Forest City Ratner will announce that London-based Barclays Bank will sign a lucrative naming rights agreement for the proposed arena within the Atlantic Yards project.
(Frank Gehry graphic adapted by

And the New York Times reports today that the deal would set a record for indoor sports arenas, with Barclays agreeing to pay nearly $400 million over 20 years.

But the big story behind the planned Barclays Center--forget the "Brooklyn Arena" placeholder, which was long gone from the official site--isn't how much a British firm might spend to get a foothold in the New York media market. And it isn't even the obvious irony that "Brooklyn pride," as New York Magazine's Chris Smith pointed out yesterday, inevitably gets pushed aside when it comes to business.

It's that Forest City would get Barclays to pay for perhaps half of the construction cost of the arena (and others to pay significant chunks.) That would make the most expensive arena in the country, at $637.2 million (p. 7), a lot easier to build.

The Times offers a deadpan quote from an anonymous source who explains that the money would help defray the cost of the arena:
“That money has to come from somewhere,” he said.

Like, um, shareholders?

(Criticizing direct subsidies of $100 million each from the state and city, the Times editorialized 11/27/05:
There is no reason to expect taxpayer money to be used to help fund a profit-making real estate venture like this one; those costs should be absorbed by the builder.)

Looking at the numbers

The developer's costs are further reduced by an array of subsidies and tax breaks. The state will offer Forest City tax-free bonds to construct the arena. At a 5% interest rate, $637.2 million would mean payments of about $41 million a year over 30 years, just about twice the estimated Barclays payment.

(That's a rough estimate, since, the developer wouldn't be paying back the loan directly; rather, there would be unspecified amount of payments-in-lieu-of-taxes, or PILOTs, sufficient to cover debt service on the bonds, including "excess PILOT payments" to defray the cost of operating and maintaining the arena. And we don't know the the relationship between the PILOTs and what the taxes actually would be. Also, the Barclays deal is only for 20 years. And it depends on overcoming an eminent domain lawsuit.)

Add seat licenses and advertising and all the other ways to monetize the arena, and those figures jump. (A KPMG audit suggested the developer estimated $31.2 million a year, while the auditors adjusted that to $26.5 million a year.)

Meanwhile, no public official will delineate the sum of the PILOTs the developer would pay to pay off tax-exempt bonds. And Forest City would pay just one dollar in rent for the "publicly-owned" arena it would help pay for. (See the 2/18/05 Memorandum of Understanding.)

The financing for the arena and project remains murky. "I want to know how much these tax breaks are," said Bettina Damiani of Good Jobs New York, which monitors government subsidies. "That's our bailiwick. How have public officials been able to support a project when they don't know what the costs to taxpayers are going to be, and they don't know what the expenditures for services are going to be? That should be a bipartisan question."

ESDC overview

I asked the Empire State Development Corporation (ESDC) if bonds would be used to pay "rent" on the arena, since one ESDC document mentioned such rent (despite the $1 figure in the MOU). I also asked how much the annual PILOT (payment in lieu of taxes) would be.

Spokeswoman Jessica Copen responded without clarifying the numbers:
The financing plan for the arena is as described in the GPP [General Project Plan]. For the initial term of the bonds on the arena, we would expect that:
1. PILOT payments will be applied to debt service on the tax exempt bonds.
2. There may be additional "rent" payments that are applied to taxable debt.
3. There are no rent payments for the use and occupancy of the arena (other than nominal rent and as described in 1 and 2 above) that will be retained by ESDC.

What the GPP says

The ESDC at times describes the facility as a "publicly-owned" arena, but also stresses that the arena would be operated by a private company and mainly host private events. The GPP doesn't specify numbers, but it explains the not-so-transparent scenario regarding the arena site:
1) ESDC would lease the land for $1 to a Local Development Corporation (LDC), organized at the direction of the ESDC.
2) The LDC would issue tax-exempt bonds to pay for building and fitting-out the arena and ancillary facilities.
3) An FCR affiliate (ArenaCo) would use the bond proceeds to built and fit-out the arena.
4) The LDC would lease the land and arena to ArenaCo, which would agree to maintain, operate, and lease the arena for professional basketball and other events for at least 30 and not more than 40 years.
5) Taxable bonds would pay unspecified "certain costs" of constructing the arena.
6) Because ESDC would retain ownership of the land, and ESDC or the LDC would retain ownership of the arena during the initial term, the land and improvements would be exempt from real estate taxes. ArenaCo would agree to make payments not to exceed the amount that full real estate taxes would be if the land and improvements were not tax exempts.
7) Excess PILOT payments would be used to defray the cost of operating and maintaining the arena.

Old news?

The financing deal might be considered old news. After all, it was in the Memorandum of Understanding the city and state signed with the developer nearly two years ago, on 2/18/05.

However, as Damiani said in response to my query, the questions remain. "Transparency is what it comes to. For those of us who watch these large economic development projects, we know people have these numbers. To do that upfront as early as possible and make that public, that should create an atmosphere where the public would feel confident that this is a good use of our resources."

Criticizing the closed-door process, she suggested that project backers "are much more concerned about being able to sell a large glitzy project to local officials than to the people who are going to support it financially, the taxpayers."

Publicly owned?

The "publicly-owned arena"--in the ESDC's sporadic description--would benefit from public funding and technically be owned by the ESDC, as noted.

The Independent Budget Office (IBO), in a September 2005 report, attempted to quantify some of tax breaks. On an arena costing $555.3 million (the cost at that time; the Times today erroneously used a similar figure and also erroneously described the arena as having a "park" on top, rather than private open space), the IBO suggested the subsidy--a cost borne primarily by federal taxpayers--had a present value of $91 million. Now that sum would be larger.

Beyond that, the IBO pointed out, PILOTs are a better deal than in a more conventional development model, where a developer would have to make both construction financing payments and property tax payments. The IBO calculated savings at $14 million.

Indeed, Damiani queried, "Why should the taxpayer be grateful that large wealthy franchises are going to be paying some of their taxes? People working in the office buildings are going to be taxed on their wages. Small businesses and their employeers are going to have the burden shift to them. It's not fair."

And what's the value of the $1 lease for the arena site? Unclear. The developer will have purchased the private property, and rights from the MTA. But FCR also would get city streets for $1, as well as a city-owned parcel of land. The IBO estimated those two properties' value at about $150,000--at a modest $20/square foot--but surely the value is already significantly higher, given the skyrocketing land value in Brooklyn.

Murkiness continues

There's other murkiness in the IBO report, which doesn't quantify certain subsidies (such as for housing and the value of condemnations, "friendly" and otherwise), even though it concluded that the arena would bring in a modest fiscal gain. (That's in dispute.) Nor has the ESDC fully quantified costs and benefits.

And there's even more in the GPP. For example, look at the passage copied at right (click to enlarge) and try to figure out whether the "Additional Fundings" cited in the final sentence would exceed the announced $200 million in subsidies the state and city have pledged. It certainly seems so. Is this the "extraordinary infrastructure costs" named in the original Memorandum of Understanding?

Damiani pointed out that the New York City Industrial Development Agency (IDA) in September voted to adopt policies that shine new light on the process for allocating taxpayer subsidies. "By no means is it perfect, but there's a glimmer of transparency at the city [level] that is not there at the state [level]," she said.

Maybe the bankers at Barclays can help.


Popular posts from this blog

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…