Monday, March 24, 2008

Suite deal: despite skyrocketing costs, arena would be paid for mostly by luxury suites

The Daily News breaks the news that, despite the Atlantic Yards stall and an unspecified date for the arena to open--up to six years after the close of litigation, as I report today--Forest City Ratner is putting on sale "130 Frank Gehry designed suites [that] will average $300,000 and top out at $540,000," or $39 million a year.

(The New York Post has a longer story that gushes about the suites and calculates $30-$35 million a year. Here's a PDF of renderings. Note the Barclays logo.)

That average is higher than that I assumed in February 2007 after reading the KPMG report. And it means that, despite the skyrocketing cost of the arena, up to $950 million, suites and sponsorships would go a long way to paying for it.

Suite deal

Let's try the math. At a 5% interest rate, over 30 years, bond payments would be $61.2 million a year. (That's a somewhat arbitrary interest rate and an online calculator, so my math could be off.)

Barclays would pay $400 million, or $20 million a year, over 20 years. Add $39 million in suites and the $59 million total nearly reaches $61.2 million.

Add a couple of million dollars in other sponsorships--"14 totally integrated partners" are expected--and the arena bond is paid for, at least for the first 20 years. Remember, FCR would pay no taxes, but instead the bond payments would act as payments in lieu of taxes.

It's a suite deal. No wonder they're moving ahead.

1 comment:

  1. Interesting back-of-envelope thinking. Your 5% number may be right (the yield on the Yankees bonds was 4.5%, which is not quite the same as the interest payments), though one would need to also include the possible payment of premiums to bond insurers, some of which would be payable over the life of the bonds rather than upfront, and you'd need to take into account the impact of higher spreads, as well as the fact that the ArenaCo would likely have to repay some principal on the debt. I'd also caution about accepting the Yormark revenue figures in the News article at face value - this is, after all, essentially a sales pitch. We'd also have to get an idea about how far ahead thse boxes would be sold (multi-year is common, though I doubt many would be sold ahead for the entire term of the bonds). Still, with revenue from seat licenses and concession revenues, Ratner will probably get by, as you rightly point out. But would this be enough to eliminate the losses he's running on the Nets? I don't know enough about the current composition of the team revenues to say whether he'd be in a better position post-move.

    ReplyDelete