Friday, January 09, 2009

Was value-engineered arena driven by revenue analysis?

GumbyFresh, who notwithstanding the moniker is pretty well-situated to observe the financial markets, thinks the news of the value-engineered arena was driven by a cold hard look at the costs and revenues.

The New York Times's Charles Bagli, who appeared on the Brian Lehrer Show this morning, suggested it was a question of financing--a not dissimilar thing.

GF writes:
The crowd of financial types surrounding the project - ratings agencies, potential bond investors, the underwriter Goldman Sachs, and whatever sheisty "sports consultant" they're using to produce revenue predictions - have produced a number for the cash they think the stadium will throw off, and it isn't the number FCR wants. Because this number is not anywhere close to the required debt service and return on equity for a $1 billion stadium.

He's skeptical that shaving construction costs and "ditching Frank Gehry's Shiny Materials" would drive the cost down significantly, given that the Yankees and Mets stadiums went over budget. And he wonders if, when "the final tab on the new uglier stadium" (er, arena) hits $800 million, it's something that the bond market and politicians can support.

I wonder if it's time for some kind of audit of what exactly Forest City plans.

On Brian Lehrer

On Brian Lehrer, the host briefly brought up Atlantic Yards with Bagli, who specializes in commercial real estate.

BL: What about Atlantic Yards, there’s news today that the Ratner corporation is renegotiating, is simplifying the design for the stadium, for the Nets, maybe even firing Frank Gehry because he tends to do higher-end stuff. How much is actually going to go forward, all these high-rises that the people in the neighborhood don’t want?

(Here's Curbed's roundup.)

CB: Last March, Ratner acknowledged that the economy was becoming a problem for that project. It’s huge, it’s expensive, and it’s sort of a good-times project. He said that he wasn’t going to build the office [tower] until he found a tenant. And it’s unlikely he’s going to find a tenant anytime soon. And he said that residential will come more slowly. That left the arena. And it’s a billion dollar arena, probably twice as expensive as any other arena in the country. It’s unlikely that he could get financing for that, in today’s market, anyway, and I don’t expect that to change for a year, at least.

BL: The hole in the ground in Prospect Heights will remain for some time.

Well, the hole is a long-working railyard. It's more that the newly-created empty lots will remain.

CB: Sure. He’s got a team that he wants to put there that’s losing money. So you’re talking about putting a money-losing team into a money-losing facility.

The idea is to increase the value of the team by putting it into a new facility. And it's possible that a cheaper arena might not lose money. But AY is full of uncertainties today.

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