Simply waiting for the economy to get better could prove costly to Forest City. It has to move the project along if it is to meet a year-end deadline to take advantage of tax-free bonds that would reduce borrowing costs by at least $100 million. Right now, it is attempting to renegotiate or extend a reported $152 million loan due next month and is scrambling to lower the cost of the arena, which has ballooned 40% in two years, to nearly $1 billion. Also, if construction doesn't begin by the summer, it is unlikely the arena will be ready by Forest City's targeted completion in 2011.
The $100 million-plus savings on bonds with that end-of-year deadline seems crucial, though I wonder if it could be extended.
The 2011 completion date is extremely unlikely, given that construction must begin, according to Bruce Ratner's 30-month schedule, by May 1, and, by the Empire State Development Corporation's 32-month schedule, by March 1.
Neither is tenable. Yes, it's possible that conditions might allow for a speed-up, but everything else construction-related has taken longer than anticipated. We should be talking 2012 as a more likely best-case scenario.
The impact of lawsuits
The article states:
Numerous lawsuits were filed against the project, but by last year, it looked as though all legal challenges had been exhausted. However, last October a New York appellate court refused to dismiss a case that challenged the use of eminent domain. The case is expected to go forward once a trial date is set.
Not quite. It looked like all legal challenges had been filed, with resolution possible. The appeal in the case challenging the environmental review was heard in September; a decision is awaited.
The Goldman Sachs role
Here's a piece of news:
Company executives told local elected officials last month that its bank, Goldman Sachs, suggested it cut the cost of the arena to ease the path to financing. Its current $950 million price tag is nearly double the cost of other arenas built in the United States, according to Sports Business Journal.
It's interesting that Goldman is driving the bus here.
The article concludes:
Atlantic Yards' prospects may appear bleak, but experts note that big, inner-city development projects rarely progress in a smooth, timely manner and that Forest City has the expertise and experience to tackle the difficult circumstances. It took Forest City over 20 years to complete MetroTech Center, its office complex in downtown Brooklyn.
“Forest City is one of the best developers of mixed-use projects in this country,” says Richard Moore, an analyst with RBC Capital. “It will be difficult for them to raise debt, but that's the case for everyone.”
That's what Moore's been saying all along. The difference is that the parent company, Forest City Enterprises, suspended its dividend last month to save $30 million a year, while the losses on the Nets it absorbs represent about $22.4 million a year.
And the short-term prospect for the team, playing in an antiquated arena and with tickets to numerous games distributed free, is hardly positive.
So patience, as exhibited during the MetroTech buildout, might be harder to come by.