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50% profit for Ratner? Not so fast (updated/clarified)

In an article headlined Yassky: Stop Ratner gravy train, the Brooklyn Paper reports unskeptically:
Bruce Ratner will reap a whopping 50-percent profit on his Atlantic Yards investment, a prominent Brooklyn lawmaker charged this week as he called for an end to the massive taxpayer subsidy of the mega-development.
“Ratner is telling New York City that they anticipate to make a $650-million return on a $1.35-billion investment and that in itself shows that there is absolutely no reason for taxpayers to fund this project,” said Councilman David Yassky (D–Brooklyn Heights).


Closer look

[Updated/clarified]
Not exactly. Assemblyman Jim Brennan, in a press release, said investors would put in $1.35 billion and earn $2 billion if the team and arena were sold, though the developer said that was not planned.

The press release states:
The data provide values for different elements of the project as if the team, the arena and the rental housing would be sold either in 2012 or 2015. It is not known if Forest City Ratner actually intends to sell these properties, but the data measure the projects on that basis. The Nets team and the arena are given a resale value around 2012, and the rental housing, including the affordable housing, is given a resale value around 2015. The condo units are sold as they are completed, between 2010 and 2014. The investors will put in about $1.35 billion, and would realize $2 billion through the revenues and projected market values of the project, for a net profit of about $650 million.

But a return of $650 million doesn't mean a 50% profit over ten years (or over one year), because the money would come from different sources and be invested over a period of several years. A 50% return over ten years is only about 4% a year; for the team and the arena, according to documents Brennan acquired, the Internal Rate of Return (IRR) would be 7.7%; for the mixed-use project as a whole, the IRR would be 9.6%.

(I initially wrote this morning about the ten-year assumption, though Brennan in an earlier press release and the New York Times, which first wrote about the documents, used the IRR figures.)

IRR can be a proxy for profit, but it's not necessarily profit.

FCR's profit?

Actually, we still don't know how much profit Forest City Ratner would make because the developer hasn't revealed how much money it will put up. We do know, according to the New York Times, that Forest City expects a 5 percent development fee on the value of the entire $4 billion project, which would mean a $200 million return.

So maybe Forest City would make 50 percent--or not. More details, and public analysis, would be helpful.

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