Skip to main content

Two reasons Ratner's arena switch is fishy: construction costs down and Gehry design impossible; are other costs being off-loaded?

Forest City Ratner, in its announcement that the Frank Gehry arena design has been traded for a more pedestrian design by Ellerbe Becket, claimed that "rising construction costs impacted the budgets of all developers," and the press and public officials have uncritically repeated that.

Ratner would be saving only about 20%--$200 million on an arena reported at $1 billion or $950 million--so that's fishy, since lowered construction costs should already have taken care of much of that gap.

Construction costs decline

Construction costs have already been going down--9% nationally since mid-2008, according to Turner Construction Company, which is also the main Atlantic Yards contractor.

Beyond that, local concessions from unions and the construction industry in New York have lowered costs 8% to 20%, as shown in Forest City Ratner's renegotiation after stopping work at the Beekman Tower.

So that should have taken care of most of the cost difference between the announced arena cost in 2008 and the current announced cost.

Ellerbe Becket vs. Gehry

The new arena (right) would cost much more than several previous iterations of the Gehry design, which began at $435 million, at project approval in December 2006 cost $637.2 million, then ballooned to $950 million last year, and has since been reported--perhaps inaccurately--at $1 billion.

It's a design issue

As I pointed out on Friday, Gehry's design was impossible, given Forest City Ratner's unwillingness to build the four towers surrounding it and the Urban Room at the entrance to Building 1, the flagship office tower.

FCR may blame the office market for the inability to construct Building 1.

However, the delay in the other three towers likely is also owed to the scarcity of tax-exempt housing bonds, and there's no evidence so far--I've filed Freedom of Information Law (FOIL) requests, so far stymied--that that the Empire State Development Corporation (ESDC) assessed the availability of such funding when it approved the project in 2006.

Comparing arenas

The Brooklyn arena would look a lot like the Conseco Fieldhouse in Indianapolis, which a decade ago cost only $183 million.

The new arena in Orlando would cost $480 million. That's a decent benchmark for current arena costs.

New York math

Adjust the Orlando number upward by 40% for additional construction costs in New York (the adjustment factor, according to former Finance Commissioner Martha Stark), and the result is $672 million. That's about 10% below $750 million and 16% below $800 million.

But a 40% adjustment shouldn't be necessary. As noted above, costs in New York City have declined 8% to 20%. So there's likely some slack in the numbers.

Indirect costs added?

So, what about that slack? Is Forest City Ratner attaching indirect project costs to the arena price tag, thus having them paid for via tax-exempt bonds, which are a cheaper way to raise money?

We need some specifics about the costs of the arena. The ESDC which is supposed to oversee the project, should explain.

Comments

  1. Couple of things about this $800m number that Ratner's people waved under Bagli's nose. First, and most important, is that we have no idea what that number includes. Fees associated with the financing? Land acquisition? Contingencies? A Developer's fee? Take the Louisville Arena, a structure of a very similar size, though in a very different market. $250m odd hard cost (which includes labour), nearer $380m when you add everything else on. Given the paucity of the savings, I can't help but think that unionised labour's the reason why Ratner's saddled with a very undistinguished $800m arena. In fact, given recent declines in commodities prices, I'm not sure how much value engineering Ratner's done.

    Second point - FCR will find it very difficult to lard the arena's financing with non-eligible costs. Most arena financings will need to use both taxable and tax-exempt bonds because some costs are always taxable. Be assured the IRS is pretty diligent about checking this. Of course, one might ask where they were during the land value shenanigans, to which I can only say auditing eligible costs is much easier.

    ReplyDelete

Post a Comment

Popular posts from this blog

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…