Saturday, May 30, 2009

Times takes semi-skeptical look at Brooklyn arena plans, doesn't question professed 2011 opening

Well, the New York Times didn't cover the hearing yesterday, but in a long article in tomorrow's Sports section, sports business reporter Richard Sandomir asks, Will the Nets ever play basketball in Brooklyn? and concludes: maybe.

For one thing, the Nets have some $500 million--albeit over 20 years--in sponsorship commitments for the arena, notably from Barclays Capital, which bought naming rights. 

(Hm--one question no one asked--and I didn't think of: why exactly does the Empire State Development Corporation let Forest City Ratner sell naming rights to an arena that is nominally publicly-owned? The fig leaf of public ownership is necessary for tax-exempt arena bonds; FCR gets to keep the revenues.)

The cost of the arena was approved at $637.2 million in 2006, ballooned to $950 million, and now may be cut by $200 million. The Times reports that Forest City Ratner hopes to have $600 million in tax-exempt bonds sold, which would imply some portion of taxable bonds.

The Times reports that Develop Don't Destroy Brooklyn is committed to lawsuits that could continue to delay the project, though it's not clear they can stop the crucial exercise of eminent domain and thus stop the sale of bonds.

Arena, 2011?

The Times, however, doesn't look skeptically at the claims that the arena will open in 2011:
“It’s done, inevitable, it’s imminent, it’s going to happen this year,” said Brett Yormark, the Nets’ chief executive. After a number of failed predictions for when the Nets would move into the arena, he said: “We’re on schedule. There’s more certainty than there’s ever been.”

The failed predictions include regular claims from Yormark.

As I pointed out Thursday, arenas designed by Ellerbe Becket, which is apparently in charge of the arena design, must break ground in June or July to open for an NBA season some two years later. (The original Frank Gehry design was to take 32 months.)

That's almost impossible, especially if a new Modified General Project Plan, with an accompanying hearing, is necessary. If construction is to begin at the end of the year, as the Empire State Development Corporation indicated yesterday, there's no way the arena could open in 2011.

Issues of stasis

The Times reports:
No work has been done since the end of last year on land that is a hodgepodge of empty lots and buildings and the Long Island Rail Road’s Vanderbilt Yards. Forest City has neither begun to pay the Metropolitan Transportation Authority the $100 million they agreed to for development rights over the yards — and is, in fact, negotiating the price sharply downward — nor begun to move the tracks to a far end of the site.

However, as we learned yesterday, the developer is planning to resume work, and the MTA is getting ready for a compromise.

Arena bonds

Not only is Forest City confident about lawsuits, the Times notes that the recession is abating, making it easier to sell bonds. Goldman Sachs' Gregory Carey said financing has gotten easier, and the publisher of The Bond Buyer said that a deal like that for bonds for the Yankees’ and the Mets’ stadiums would work.

Forest City has a December 31 deadline for both issuing bonds and for the naming-rights agreement. While the Times doesn't say so, I believe that bonds can be issued even if there's no construction--there's just a layer of additional cost.

Unmentioned: whether and how the assessments for arena land would increase sufficient to generate phantom property taxes used to pay off construction bonds via PILOTs (payments in lieu of taxes). That issue was raised yesterday by George Sweeting of the Independent Budget Office.

FCR vs. DDDB

The Times offers a point-counterpoint:
Forest City is not surrendering and believes only a restraining order can stop the eminent domain process and construction. But Yormark’s confidence is mixed with testiness that Forest City cannot rid itself of Goldstein or the legal aggressiveness displayed by Develop Don’t Destroy.

“I have no admiration for anyone who puts his personal interests before the people’s interests,” Yormark said.

Goldstein said, “ The selfish party is his boss, Bruce Ratner, who wants public land for a song, private property confiscated by eminent domain and the taxpayers to pay hundreds of millions of dollars toward his enrichment.”


It's clear that the arena is a priority. The Times notes the team's relatively low attendance—not pointing out that gate count is far lower--as well as $353 million in pretax losses for the team's dozens of investors. In the past year, Forest City Enterprises took on additional responsibility for losses, not 54%.

What about Gehry?

Will Gehry's name still be on the arena? The Times reports:
Yormark said that the arena would reflect Gehry’s vision but that the savings would come mainly through cutting square footage, particularly in storage areas. “As of now, Frank is still in,” he said.

The Times reported two weeks ago that Bruce Ratner would decide in 60 days whether to keep Gehry's original design. That seems highly unlikely. So the question is whether Gehry would agree to be part of a changed design.

Would he? The Times asked:
Gehry, who declined to comment through a spokesman, recently cast doubt on the Atlantic Yards, for which he is the master architect, ever coming to fruition. He quickly retracted his statement. But if the shape and look of the arena changes enough to meet economic needs, it may not meet Gehry’s standards.


Well, if Gehry won't talk to the Times, he can't be very enthusiastically involved in the project.

1 comment:

  1. There are two non-independent commentators in the article. here is what they said in the article:

    ...“We’re in tough times, but it’s looking good,” said Gregory Carey of Goldman Sachs. “They should have no trouble getting it done,” added Mike Stanton of Bond Buyer. "Still, if there’s a legal surprise, things could be delayed again…and there remain key December deadlines."...

    One guy whose firm has an absolute stake in the bond market and this particular bond deal is upselling the viability of the bond. The other guy who has an absolute stake in the bond market, is upselling the bond market. "We're in tough times, but it's looking good," is a meaningless non-sequitur. The Bond Buyer refers to a legal surprise, meanwhile there are two pending lawsuits and more to come, according to the article. so there won't be any legal surprises, there are legal certainties that will keep the project in court through 2009 at minimum.

    finally, these guys are commenting on the ability to sell a bond for the arena on this market. And they may be right, it may be possible. But they do not and are not commenting on the ability of Ratner to actually GET to market. They do not comment on the obstacles that remain, which are many, before he can float the bond. And that deadline is looming. You know, the one Brett and Bruce have "never talked about missing."

    Which, by the way, is not believable. A publicly-traded company and their leadership has no contingency plans because they've been so right all along? Must make shareholders sleep comfortably.

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