Friday, January 01, 2010

Official Statement: Forest City Ratner to get 5% development fee, or at least $7 million a year

We've known since a July 2007 New York Times report that Forest City Ratner would get a 5% development fee while also owning a significant part of the Atlantic Yards project.

When Atlantic Yards was projected to cost $4 billion, that 5% fee would have represented $200 million. Now that AY is projected to cost $4.9 billion, that 5% fee would total $245 million.

But it could be a little more.

The Barclays Center Official Statement, prepared by underwriter Goldman Sachs, indicates that the annual reimbursement should not exceed the greater of $7 million or 5% of cumulative total Arena Project costs.

$7 million is 5% of $140 million. So if for some reason annual Arena Project costs are less than $140 million, Forest City Ratner could get a $7 million fee, which would represent somewhat greater than 5%.

Given that the arena is supposed to cost $1 billion and be built in less than three years, that seems not too likely, but you never know with Atlantic Yards.

So when Forest City Ratner says it plans to fully build Atlantic Yards because that's the only way to get a return on its investment, the development fee has to be part of the equation.

From the Official Statement (p. 61)
FCRC entered into an agreement dated as of June 1, 2005 with the Arena Developer to develop the Arena Project. Pursuant to such development agreement, FCRC is currently entitled to an annual reimbursement not to exceed, in the aggregate, the greater of $7 million or five percent (5%) of cumulative total Arena Project costs at such time less all such reimbursement previously made to the Arena Developer, payable in monthly installments. Total Arena Project costs are estimated subject to adjustment from time to time for actual amounts. FCRC is also to be reimbursed for all out-of-pocket costs and expenses incurred by it in connection with the Arena Project, payable not more frequently than monthly. Such agreement provides that it will terminate upon the substantial completion of the Arena (subject to punchlist items), or upon earlier termination by either party due to certain specified defaults.
The Arena Developer is an affiliate of Forest City Ratner, but not the same. Here are the details, including the impending role of Mikhail Prokhorov's company Onexim (E-10):
Subletting and Transfer As of the date of delivery of the Interim Lease into escrow pursuant to the Commencement Agreement, (i) Forest City Enterprises, Inc. owns and controls, through one or more wholly-owned subsidiaries, 23.00% of the membership interests in Nets Sports and Entertainment, LLC, a Delaware limited liability company which is the parent company of Brooklyn Arena, LLC, a Delaware limited liability company and New Jersey Basketball, LLC, a New Jersey limited liability company (“LLC”), (ii) various Persons who are not Affiliates of Tenant or Forest City Enterprises, Inc. own the remaining 77.00% of the membership interests in Nets Sports and Entertainment, LLC (each a “NSE Third Party Owner”), (iii) Nets Sports and Entertainment LLC owns 100% of the membership interests in Tenant, and (iv) none of the NSE Third Party Owners Control Nets Sports and Entertainment, LLC other than through any major decision or similar consent rights such Third Party Owners may have under the Constitutive Documents of Nets Sports and Entertainment, LLC. The paragraph above, notwithstanding, Landlord acknowledges that prior to the Commencement Date, Forest City Enterprises, Inc. expects to consent and approve to Nets Sports and Entertainment, LLC’s consummation of a transaction with Onexim Sports & Entertainment Holdings USA, Inc., a Delaware limited liability company (“Onexim”), following which (i) which Nets Sports and Entertainment, LLC will own and control 55.00% of the membership interests in Tenant, (ii) one or more Affiliates of Onexim will own and control 45.00% of the membership interests in Tenant (the “BALLC Third Party Owners”, together with the NSE Third Party Owners, the “Third Party Owners”), and (iii) none of the Third Party Owners will Control Tenant other than through any major decision or similar consent rights such Third Party Owners may have under the Constitutive Documents of Tenant or Nets Sports and Entertainment LLC, as applicable.

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