Wednesday, March 31, 2010

Prokhorov, Round 2: more insight from the Bloomberg TV interview, which barely lays a glove on him

Well, 60 Minutes got to him first, but Russian mogul Mikhail Prokhorov's other TV profile/long interview, with Bloomberg TV (excerpted below) and the print Bloomberg Markets/Bloomberg Business Week, is well worth watching.

Here are some of the takeaways:
  • It's possible to interview Prokhorov without a Steve Kroft grin on your face
  • It's possible to ask Prokhorov semi-tough questions but avoid bigger ones
  • Prokhorov, despite his insider connections, considers himself a "self-made man"
  • He claims not to have political power but is "just a businessman"
  • As with the Barclays naming rights deal, Prokhorov seeks to leverage Brooklyn to gain himself a platform in the United States ("we can create excellent business unit")
  • Prokhorov was well-prepped for the media blitz, calling money just "a side effect" of business and floating the same reference to Sinatra's "New York, New York"
  • Still, he claimed not to remember spending some $19,000 on lunch at Nello in New York
  • When asked about the four days he was jailed in France on suspicion of bringing in prostitutes, he didn't assert (as on 60 Minutes) that it was fun but explained he'd been in the Soviet Army
  • Prokhorov invites footage of his kickboxing workout
  • He installed a basketball court just for the sake of his Bloomberg interview
  • A basketball was strategically placed on the shelf behind him
  • The Internets--not for him; he uses neither a cell phone nor a computer
  • The more impressed by Prokhorov, the taller he is reported to be (6'7" to Bloomberg/BW, 6'8" to 60 Minutes, 6'9" to New York Magazine's Will Leitch)
On video

Below is an excerpt. Bloomberg TV offers a profile as well as a full interview, about a half-hour. (Note that the Bloomberg TV pieces didn't work for me on Firefox.)



The NBA effect


True Hoop blogger Henry Abbott concluded that, however much like a segment of "Lifestyles of the Rich and Famous," the 60 Minutes piece would help Prokhorov attract players to the Nets.

Prokhorov's already provoked a man-crush from fans on the NetsDaily blog. "This Guy is Awesome!" wrote corey447. "How could LeBron [James] say “no” to this guy?" Responded Net Income, the lead writer for the site (and unflagging advocate of the Brooklyn move), "I surely can't."

He also asserted that Prokhorov displayed "the same winning personality he did with 60 Minutes," a partial echo of the Rev. Herbert Daughtry's Brooklyn Standard endorsement of Bruce Ratner's customary "humble, winsome" manner.

Yahoo's Adrian Wojnarowski gave fans even more of a buzz, writing that "sources say they expect his private plane to land with him and minority owner Jay-Z at Akron-Canton Airport at midnight July 1 on the start of free agency" to try to recruit Cleveland Cavaliers star James.

Yeah, there's a lot of momentum.

I also agree with Abbott's observation that NBA Commissioner David Stern was hardly convincing in claiming that the league's investigation found no dirt on Prokhorov, given that the NBA wasn't even able to find "the degenerate gambler on their referee staff."

On the merits?

But I part ways with Abbott when he concludes that watching Prokhorov is "the best evidence there could be that he's above board. Watching him speak, it's easy to understand how a guy like this would have become a billionaire on his own merits."

Really?

Prokhorov is obviously very sharp, and full of backed-by-bucks self=confidence, but Russia was and in many ways remains the Wild West when it comes to business.

Despite its generally softball nature, the 60 Minutes piece at least noted that a key source of Prokhorov's wealth, Norilsk Nickel, came via an "insider's opportunity," a process "probably not even legal under Western standards."

The Bloomberg profile glides over that complication.

Criticism from Helmer

John Helmer, the controversial independent reporter and critic of oligarchs, bypassed the easy-to-dissect 60 Minutes piece and posed critical questions for the Bloomberg print reporters in a Dances With Bears post headlined THE CAT’S PAW AWARD No. 4 – BLOOMBERG PLAYS MIKHAIL PROKHOROV’S BALL, IS SLAM-DUNKED.

Helmer's graphic directly connected Prokhorov and the billionaire owner of the Bloomberg media properties, who just happens to be New York City's mayor. While it's hardly likely that Mayor Mike Bloomberg interferes directly with his publications, it's not out of the question that Bloomberg editors, ushering in the owner of a team and project Bloomberg has welcomed, would only go so far.

After all, the profile portrays Prokhorov as an enormously successful businessman, while Helmer suggests there are some missing elements to the story.

Among Helmer's questions:
--in your report of the January 2007 Courchevel arrest and the subsequent imprisonment of Mr Prokhorov in Lyon, and the investigation that followed for two further years, you appear to have ignored the evidence of obstruction of justice and blocking of efforts of the French investigating magistrates to question witnesses and pursue evidence? Are you unaware of the documented French evidence, published in the French press, suggesting that Mr Prokhorov used influence with Russian officials to prevent the French investigation from being undertaken and completed?

– in your report of the founding and operation of Mr Prokhorov’s Uneximbank, you report: “Doing business in Russia in the 1990s came down to survival of the fittest”. You also report that “the Soviet banking system began collapsing with the fall of communism”. Is there a reason you omit to report that Uneximbank collapsed in 1998, defaulting on an estimated $1 billion in liabilities? To whom should the responsibility, fault or credit for that bank failure go? Why do you withhold from your readers the evidence that such a milestone venture in Mr Prokhorov’s career went bankrupt?

– you report that “Prokhorov and Potanin profited from the crisis by exploiting the dollar-ruble exchange rate”. Why have you omitted to report that Mr Prokhorov’s wager on the rouble-dollar exchange rate in 1997-98 helped push Uneximbank into bankruptcy?

– there are two other omissions of the record of Mr Prokhorov, which your article reveals. Have you omitted recent statements by high-ranking Russian and US officials, casting negative light on Mr Prokhorov’s character and business practices, because you were intending to do, or had agreed with Mr Prokhorov, to do a promotion? Or because you were unaware of the officials and their criticisms? . The first of the criticisms of Mr Prokhorov came from the Prime Minister of Russia, Vladimir Putin, who criticized him for his management of the utility company TGK-4 for what might — in another country or in another medium than Bloomberg Markets — be called investment contract violations or cash stripping. Mr Putin made his statement on February 24. Also, according to Admiral Dennis Blair, the US Government’s Director of National Intelligence, Mr Prokhorov’s line of business in precious metals makes him susceptible to, or a witting party to, the “growing nexus in Russian and Eurasian states among government, organized crime, intelligence services, and big business figures. An increasing risk from Russian organized crime is that criminals and criminally linked oligarchs will enhance the ability of state or state-allied actors to undermine competition in gas, oil, aluminum, and precious metals markets.” Admiral Blair made this and related statements in testimony to the US Senate Select Committee on Intelligence on February 2. Did you miss it?
Note that Blair's testimony did not specifically mention Prokhorov. But Putin's comments did, and were reported by Bloomberg.

(Business Insider also linked to Helmer's critique.)

More from the profile

The profile involves reporter Ryan Chilcote (who also sat down for the one-on-one interview) following Prokhorov around to (natch) his home, his gold mine (via Prokhorov's private jet), and an exclusive nightclub in which the mogul's VIP area is populated by attractive young women.

Chilcote at least knows that he might be used. "Russian billionaires don't tend to share much with journalists," he says in his narration, "but Prokhorov believes it's time for some glasnost. Buying the Nets is the first step to building his profile in the U.S."

"As far as I know, all the NBA owners, they are very important people in their cities," Prokhorov tells him. "And I don't want to be different. And maybe in my case, I need to be much more open."

Chilcote, after experiencing the "parallel universe" of the billionaire's world--a convoy to clear traffic in Siberia--follows Prokhorov back to some madeleines: the now-abandoned factory where he profited by stonewashing blue jeans and the two-room apartment that he left only five years ago.

"It's kind of a miracle," Prokhorov says, recalling his traveling father bringing back tokens of the West, including "Brooklyn chewing gum." Unmentioned: it comes from Italy.

"Have you ever given a bribe?" Chilcote asks.

"It was like, 15 years ago, last time," Prokhorov responds, his syntax indicating it wasn't a first.

Near the end of the piece, Prokhorov gets his money line: "Do you remember the song, Frank Sinatra, 'New York, New York.'? If I make it there, I'll make it anywhere."

And Chilcote/Bloomberg stick with the story line: "The NBA is about to welcome its first Russian billionaire to the league. Prokhorov is about to get his shot."

More from the interview

Prokhorov is nothing if not diplomatic. Chilcote attempts to point out mysterious deaths of important people in prison: "That doesn't happen everywhere, lawyers just die in jail."

"It is true, for the time being, we have awful conditions in jail," says Prokhorov, essentially changing the subject.

"How much cash do you have?" Chilcote asks.

"If I told you, I'll have to kill you," Prokhorov responds, displaying the insouciant attitude that permeated the 60 Minutes piece.

Chilcote points to conditions at the mines, with "hard-working very poor people… Do you feel like you're giving enough back to them?"

"In Norilsk… my staff… they receive the biggest salary in Russia, ever," Prokhorov responds. "You saw the quality of the food, it's free of charge."

The Bloomberg article reports it more ambiguously:
Prokhorov took the helm in 2001 and radically restructured the company. The number of workers shrank to 58,000 in 2007 from 125,000 in 2001, as miners and pensioners were taken off the payroll and resettled in different parts of Russia, says Olga Golodets, who ran human resources at Norilsk under Prokhorov.

He also removed from his books social enterprises like nurseries and hospitals, which were part of every big company under the Soviet system.
The Nello exchange

While Chilcote doesn't push too hard on Prokhorov's business issues, he does press regarding the notorious lunch.

Did Prokhorov spend $19,000?

"I don't remember," says Prokhorov. (Check his body language.)

Was there a $5000 bottle of wine?

I don't know," Prokhorov says, grinning. "I need to check."

What about $825 for three orders of truffle taglioni?

"Maybe," allows Prokhorov.

Oligarchs and business

"Are you an oligarch?" Chilcote asks.

"No. For sure not," responds Prokhorov.

"Why not?"

"Oligarch is a person--he's rich and he has a political power," responds Prokhorov.

"You don't have any political power?"

"No," responds Prokhorov, with a shrug. "I'm just a businessman."

"But you have a relationship with the Kremlin," Chilcote follows up. "You know the president."

"Every businessman has a relation with government," Prokhorov responds.

He goes on to acknowledge that "sometimes you need the help of government" in setting up meetings and sometimes lobbyist-type people must be deployed "to make some amendments to the law."

In other words, non-oligarchs have political power.

The shady side

Chilcote recalls seeing "countless so-called 'contract killings.'... You yourself said this was a country of cowboys and there was no sheriff. Did you have to deal with gangsters?"

"No," declares Prokhorov, shaking his head solemnly.

"You lived in a vacuum somewhere," Chilcote responds skeptically.

"My career was a little bit very specific," Prokhorov says, noting his work with a bank.

Chilcote cites an encounter Prokhorov once had with the mafia.

"I explained my view and there was nothing after," Prokhorov responds.

"Russia's one of the most corrupt countries in the world, as you know," Chilcote notes. "Were you able to completely sidestep that?"

Prokhorov pauses. "Do you know the difference between a rat and a hamster?" he asks, pausing for a smile. "A hamster has better p.r.… Maybe we are suffering from lack of explanation."

In other words, he dodged the question.

"Do you think Russia has an unfairly bad reputation in the West?" Chilcote asks.

"I hope not, but if you ask, maybe we have some problems," Prokhorov responds.

The Nets and Brooklyn

"Give me your five-year plan for the Nets," Chilcote asks.

"We checked thoroughly, what is the potential income for the club, and for the arena," he says, displaying a train of thought that might not have been on-message for the "Brooklyn" groundbreaking he missed March 11. "Maybe we add some other ideas to this business plan, in the future. But this plan showed to us that we can receive profit, compared with so-called "charity support" business in Russia and Europe. I like to win NBA cup, and at the same time create not only great team, but a great business."

Someone surely will tell him it's a team, not a "club," and a championship, not a "cup."

Chilcote says a fellow Russian billionaire says the team's a toy. Prokhorov says no, it's not a toy.

Chilcote says Prokhorov will go a half a billion dollars in debt. Prokhorov says no, it'll be less than $200 million.

(Prokhorov is putting up $200 million to buy 80% of the team and 45% of the arena, and absorbing current and future losses, as well as putting in equity--perhaps $500 million, even more, but most if not all borrowed.)

The Chilcote throws a softball question, pointing out the team's current losses, and losing streak, and "here's how you can make a lot of money."

"As soon as team moves to Brooklyn, it will be absolutely another business model," Prokhorov says, with an excellent grasp of the team's prospects and marketing opportunities. "As soon as arena has been built, and I'm confident… we can create excellent business unit."

"What is it about Brooklyn, that it adds so much?"

"It's New York City," Prokhorov responds.

Chilcote brings up the Knicks.

"New York City suffers from the lack of great competition between two teams," Prokhorov responds. "I am absolutely confident that, as soon as we create a real championship contender, using our competitive advantage, excellent draft picks over the next two years, and 14 excellent top players that are free agent, and we have the lowest salary cap in the league."

"How much money are you prepared to spend building your dream team?" Chilcote asks.

"Dream team is not only a question of money," Prokhorov responds. "It's also management and team spirit. All these three facts together--it's a great team."

And, perhaps, the political advantage that Prokhorov has left to his American partners in Brooklyn.

Prokhorov goes on to talk about wanting to bring NBA training to Russia and to help globalize the game.

The last question involves, natch, business. Will Prokhorov sell stock in the Nets and list the team on a stock exchange?

Prokhorov says maybe.

"If you list it, you cash out."

I hope I would have 80%," Prokhorov responds. "Maybe 51 is enough."

"Are you buying the Nets forever or is this a short-term business deal and in five years you're going to flip the company?" Chilcote asks.

"For me, it's a strategic investment," Prokhorov says.

"Bridge your way into America," Chilcote adds.

"If you buy a business forever, that means it's not a business. It's a hobby," says Prokhorov with a smile. "And if your business reaches the peak, you sell. But it's not high time to speak about that."

Tuesday, March 30, 2010

Forest City reports increased earnings, lower net loss; cites major milestones for Atlantic Yards but acknowledges risks, including need for equity

Forest City Enterprises, parent of Forest City Ratner, announced today some relatively good financial news, citing a 37.5 percent increase in annual earnings for the year ending 1/31/09 and a lower net loss--$30.7 million, or $0.22 per share, compared with a net loss of $113.2 million, or $1.10 per share, in 2008.

After cutting costs and seeing the economy recover, FCE even gained positive fourth quarter net earnings of $0.04 per share, compared with a net loss of $0.44 in the fourth quarter of 2008.

The Nets and Atlantic Yards

Still, the Nets lost a bit more in 2009 than they did in the previous year and Forest City absorbed an even greater percentage (updated and clarified):
Our equity investment in The Nets incurred a pre-tax loss of $43,489,000, $40,989,000 and $20,878,000 for the years ended January 31, 2010, 2009 and 2008, respectively, representing an increase in allocated losses of $2,500,000 and $20,111,000 compared to the respective prior year. For the years ended January 31, 2010, 2009 and 2008, we recognized approximately 68%, 54% and 25% of the net loss, respectively, because profits and losses are allocated to each member based on an analysis of the respective member’s claim on the net book equity assuming a liquidation at book value at the end of the accounting period without regard to unrealized appreciation (if any) in the fair value of The Nets.
Hence the importance to FCE that Atlantic Yards, as detailed below, was seen as reaching significant milestones.

Still, vacant possession of the project site--likely to be concluded by summer via eminent domain--is necessary for FCE to finish the transaction with Russian billionaire Mikhail Prokhorov to sell 80% of the New Jersey Nets and 45% of the arena.

Also, among the development risks--required boilerplate, maybe more--is the need to "meet required equity contributions," which suggests that, however Forest City Ratner and Prokhorov have pledged to fill an equity gap, it hasn't been consummated.

Note that the press release refers to "a refinancing from Gramercy Capital on a key $161.9 million land loan for the project," but doesn't explain, as Bruce Ratner suggested at the groundbreaking, that Gramercy progressed from "our land lender" to "our partner." There's no mention of any cash flow difficulties at FCR.

Conference call

Forest City also will hold a conference call with investment analysts on Thursday at 11 am; it will be available for webcast replay.

Dilution and growth

On a per-share basis, full-year 2009 earnings actually represented 2.4 percent decrease from the previous year, which reflect the dilutive effect of new Class A common shares as well as two convertible debt transactions.

"These accomplishments were made possible by continued adherence to the five strategies we implemented in the third quarter of 2008 to address financial and economic turmoil in the market and the real estate industry," said FCE CEO Chuck Ratner in the press release. "Since then, virtually every major action taken by our Company has been driven by these strategies: curtailing development and focusing on our portfolio; driving costs out of the business; generating liquidity from our portfolio and in the capital markets; proactively managing debt maturities; and selectively taking advantage of opportunities created by market dislocations."

"We certainly recognize the impact of this dilution on our shareholders," he said of the issuance of new stock, "but we believe the steps taken during 2009 were vital to the Company's future growth and success, and to the long-term interests of shareholders."

The stock has more than doubled since it was issued, though, even at $14, it is more than 80% off its high of more than $70 in 2007.

From the press release
Under Construction and 2010 openings

In late 2009, construction activity began on the Barclays Center arena at the Company's Atlantic Yards mixed-use project in Brooklyn. It was a watershed year for Atlantic Yards in 2009. Early in the year, the Company secured a refinancing from Gramercy Capital on a key $161.9 million land loan for the project. Throughout the year, a series of lawsuits and appeals filed by project opponents were decided in favor of the project and the Company. The most important of these was a favorable ruling in the final lawsuit challenging the State of New York's use of eminent domain to acquire property within the project footprint. This victory allowed three pivotal events to move forward before yearend: an agreement to sell interests in the NETS team and the Barclays Center arena to affiliates of Onexim Group, completion of the $511 million tax-exempt bond offering to finance a portion of construction for the arena, and execution of the Master Closing for the project.

As a result of these accomplishments, on March 11, 2010, Bruce Ratner, chairman and chief executive officer of Forest City Ratner Companies, the Company's New York-based subsidiary, and other Forest City executives, were joined by New York Governor David Paterson, New York City Mayor Michael Bloomberg, Brooklyn Borough President Marty Markowitz, Barclays PLC President Robert E. Diamond, Jr., NETS President and CEO Brett Yormark, NETS investor and cultural icon Shawn "Jay-Z" Carter and many other community leaders and supporters for a ceremonial groundbreaking at the project site.
Note the terms "construction activity" and "ceremonial groundbreaking." The groundbreaking didn't mark the "next phase of construction of the arena," despite statements in the official press release.

From the Form 10-K report

The Nets
On August 16, 2004 the Company purchased an ownership interest in The Nets, a member of the National Basketball Association (“NBA”). The Company accounts for its investment on the equity method of accounting. Although the Company has a legal ownership interest of approximately 23% in The Nets, the Company recognized approximately 68%, 54% and 25% of the net loss for the years ended January 31, 2010, 2009 and 2008, respectively, because profits and losses are allocated to each member based on an analysis of the respective member’s claim on the net book equity assuming a liquidation at book value at the end of the accounting period without regard to unrealized appreciation (if any) in the fair value of The Nets.

The purchase of the interest in The Nets was the first step in the Company’s efforts to pursue development projects, which include a new entertainment arena complex and adjacent urban developments combining housing, offices, shops and public open space. The Nets segment is primarily comprised of and reports on the sports operations of the basketball team.

On December 15, 2009, the Company entered into a purchase agreement with an affiliate of Onexim Group, an international private investment fund, to create a strategic partnership. Pursuant to the terms of the agreement, entities to be formed by Onexim Group will invest $200,000,000 and make certain contingent funding commitments to acquire 80% of The Nets, 45% of the Arena project and the right to purchase up to 20% of the Atlantic Yards Development Company. The Company will retain a noncontrolling ownership interest in The Nets under the agreement. The closing of the strategic partnership requires certain consents and is subject to the satisfaction of various conditions. While the parties are proceeding in good faith to obtain the consents and satisfy the conditions, the Company cannot assure you that it will be successful.
Development risks
Examples of projects that face these and other development risks include the following:

Brooklyn Atlantic Yards. We are in the process of developing Brooklyn Atlantic Yards, which will cost approximately $4.9 billion over the anticipated construction and development period. This long-term mixed-use project in downtown Brooklyn is expected to feature a state of the art sports and entertainment arena for The Nets basketball team, a member of the NBA. The acquisition and development of Brooklyn Atlantic Yards has been formally approved by the required state governmental authorities and final documentation of the transactions was executed on December 23, 2009. Tax exempt financing for the arena also closed on December 23, 2009, the proceeds of which will become available upon the satisfaction of certain conditions, including vacant possession of the project site. In the event these conditions are not satisfied by December 17, 2010, the bonds that were issued for the arena financing will be subject to mandatory redemption. Construction activities have commenced for (i) the potential removal, remediation or other activities to address environmental contamination at, on, under or emanating to or from the land, (ii) demolition of existing structures on the developments site, and (iii) infrastructure and other work necessary for the development of the arena and other elements of the greater Atlantic Yards development project. As a result of prior litigation, this project has experienced delays and may continue to experience further delays.

There is also the potential for increased costs and further delays to the project as a result of (i) increasing construction costs, (ii) scarcity of labor and supplies, (iii) a delay in satisfying the conditions of the tax-exempt financing and the potential mandatory redemption of the bonds issued for the arena financing, or the availability of additional needed financing, (iv) our or our partners’ inability or failure to meet required equity contributions, (v) increasing rates for financing, (vi) loss of arena sponsorships and related revenues, (vii) our inability to meet certain agreed upon deadlines for the development of the project and (viii) other potential litigation seeking to enjoin or prevent the project or litigation for which there may not be insurance coverage. The development of Brooklyn Atlantic Yards is being done in connection with the proposed move of The Nets to the planned arena. The arena itself (and its plans) along with any movement of the team is subject to approval by the NBA, which we may not receive. In addition, as applicable contractual and other deadlines and decision points approach, we could have less time and flexibility to plan and implement our responses to these or other risks to the extent that any of them may actually arise.

If any of the foregoing risks were to occur we may: (i) not be able to develop Brooklyn Atlantic Yards to the extent intended or at all resulting in a potential write-off of our investment, (ii) be required to repay the City and/or State of New York amounts previously advanced under public subsidies, plus penalties if applicable, and (iii) be in default of our non-recourse mortgages on the project. Together, costs associated with the risks outlined in (i) through (iii) in this paragraph, are approximately $590 million and could have a significant, material adverse effect on our business, cash flows and results of operations. Even if we were able to continue with the development, or a portion thereof, we would likely not be able to do so as quickly as originally planned, would be likely to incur additional costs and may need to write-off a portion of the development.
The Prokhorov deal
The Proposed Transaction With an Affiliate of Onexim Group to Create a Strategic Partnership for our Brooklyn Atlantic Yards Project May Not Close, Which Could Subject Us to Liquidity Risks.

The purchase agreement that we executed with an affiliate of Onexim Group requires certain consents and is subject to the satisfaction of various conditions. Both parties continue to negotiate reasonably and in good faith to obtain the consents, including consent from the NBA, and satisfy the conditions. However, the proposed transaction may not close and the strategic partnership for the Brooklyn Atlantic Yards project may not be realized. If the strategic partnership is not formed and the $200 million investment is not received, we could have heightened exposure to the development risks associated with the Brooklyn Atlantic Yards project. See “We Are Subject to Real Estate Development Risks” above for a more thorough discussion of the risks associated with the Brooklyn Atlantic Yards project and the impact those risks may pose to us.

In addition, if the proposed transaction does not close, we could also have heightened exposure to the risks associated with our investment in the Nets. See “The Investment in a Professional Sports Franchise Involves Certain Risks and Future Losses Are Expected for The Nets” below for a more thorough discussion of the risks associated with that investment and the impact those risks may pose to us.
Risks of Nets ownership
The Investment in a Professional Sports Franchise Involves Certain Risks and Future Losses Are Expected for The Nets

On August 16, 2004, we purchased a legal ownership interest in The Nets. This interest is reported on the equity method of accounting and as a separate segment. The purchase of the interest in The Nets was the first step in our efforts to pursue development projects at Brooklyn Atlantic Yards. For a more thorough discussion of the risks associated with the Brooklyn Atlantic Yards project see “We Are Subject to Real Estate Developments Risks.”

The Nets are currently operating at a loss and are projected to continue to operate at a loss at least as long as they remain in New Jersey. Such operating losses will need to be funded by the contribution of equity. Even if we are able to relocate The Nets to Brooklyn, there can be no assurance that The Nets will be profitable in the future. Losses are currently allocated to each member of the limited liability company that owns The Nets based on an analysis of the respective member’s claim on the net book equity assuming a liquidation at book value at the end of each accounting period without regard to unrealized appreciation (if any) in the fair value of The Nets. Therefore, losses allocated to us have exceeded our legal ownership interest and may become significant. While the allocation of losses would be reduced in future periods if our proposed transaction with an affiliate of Onexim Group closes, we cannot assure you that the proposed transaction will occur. See “The Proposed Transaction With an Affiliate of Onexim Group to Create a Strategic Partnership for Our Brooklyn Atlantic Yards Project May Not Close, Which Could Subject Us to Liquidity Risks.”

Our investment in The Nets is subject to a number of operational risks, including risks associated with operating conditions, competitive factors, economic conditions and industry conditions. If The Nets are not able to successfully manage the following operational risks, The Nets may incur additional operating losses:

• Competition with other major league sports, college athletics and other sports-related and non sports-related entertainment;

• Dependence on competitive success of The Nets;

• Fluctuations in the amount of revenues from advertising, sponsorships, concessions, merchandise, parking and season and other ticket sales, which are tied to the popularity and success of The Nets and general economic conditions;

• Uncertainties of increases in players’ salaries;

• Dependence on talented players;

• Risk of injuries to key players;

• Uncertainties relating to labor relations in professional sports, including the expiration of the NBA’s current collective bargaining agreement, or a player or management initiated stoppage after such expiration; and

• Dependence on television and cable network, radio and other media contracts.
Milestones
Significant milestones occurring during 2009 included:

• The formal approval of the acquisition and development of our Brooklyn Atlantic Yards project (“Atlantic Yards”), a 22-acre residential and commercial real estate project in Brooklyn, New York, by the required state governmental authorities with final documentation of the transactions being executed on December 23, 2009. The closing clears the way for additional work to proceed on the project, beginning with construction of the Barclays Center arena (“Arena”), the planned future home of The Nets. In conjunction, The Brooklyn Arena Local Development Corporation, an entity formed by the State of New York, issued $511,000,000 of tax-exempt bonds to finance a portion of the construction of the Arena at Atlantic Yards, the proceeds of which will become available upon the satisfaction of certain conditions including vacant possession of the project site. The interest rate on the bonds was 6.48%;

• Entering into a purchase agreement in December 2009 with an affiliate of Onexim Group, an international private investment fund, to create a strategic partnership for the development of Atlantic Yards and the Arena. Pursuant to these agreements, entities to be formed by Onexim Group will invest $200,000,000 and make certain contingent funding commitments to acquire 45% of the Arena project and 80% of The Nets, and the right to purchase up to 20% of the Atlantic Yards Development Company, which will develop the non-arena real estate. We will retain a noncontrolling ownership stake in The Nets, and will be managing partner of the Arena and majority owner of the balance of the Atlantic Yards real estate. As a 45% owner of the Arena and an 80% owner of the team, Onexim will be responsible for those respective percentages of the debt of each asset.

Sales of Oro condos reach 50 percent; KPMG report for the ESDC had the total at 75 percent last August

There's even more evidence that the report (dated August 31, posted below) that KPMG delivered to the Empire State Development Corporation on the housing market in Brooklyn contains lies.

KPMG claimed that the Oro Condos in Downtown Brooklyn were 75% sold. That didn't ring right.


The evidence mounted. In September, Crain's reported that prices at Oro had been slashed 25%. On 1/31/10, the New York Times reported that the building was 44 percent sold.

By March, 50%

And yesterday it hit the halfway mark. A press release dated March 29, headlined Oro Condominium in Downtown Brooklyn Hits 50% Sold Mark, stated:
Downtown Brooklyn's Oro condominium, the 303-unit luxury building at 306 Gold Street, has reached the 50-percent-sold milestone with more than 152 units sold. Sales have soared at the 40-story property with 61 deals made since September 2009.

Much of the recent sales success can be attributed to Oro's new marketing strategy developed by Rose Associates when they were designated as the sales and marketing agent for the building last fall. Prices have been reduced to adapt to market conditions, and units were individually re-priced with adjustments from 6 to 25 percent. In addition, a new advertising campaign was launched late last year, the model apartments were redesigned, and the Web site was re-tooled. As a result, sales surged to an average of 10 deals per month.
If 61 deals were made since September, that means that only 91 of 303 units had been sold by the time the KPMG report was finished.

That's 30%. Not 75%. Not even close.

In the MGPP case

In her 3/10/10 decision (bottom) rejecting a challenge to the Atlantic Yards 2009 Modified General Project Plan (MGPP), state Supreme Court Justice Marcy Friedman wrote, on p. 9:
KPMG concluded that FCRC's residential absorption rate estimates were supported by current market data for condominiums...
But they weren't supported by current market data, because the market data was a lie, not just about Oro but about Richard Meier's One Prospect Park.

As I wrote in a preview to the oral arguments in January, the petitioners challenging the MGPP missed an opportunity to point out that KPMG's figures were extremely unreliable.

Most of the Oro data wasn't out by then, but other information had emerged.

The KPMG report claimed that Richard Meier's On Prospect Park is 75% sold; however, the New York Times quoted the developers as saying half the units have been sold and that StreetEasy.com documented only 25% the units as sales.

KPMG and rationality

There was no rebuttal of KPMG's figures on current condo sales; an affidavit from consultant Joshua Kahr did question the prices and timing of the projected Atlantic Yards condos.

Friedman took that as a duel of experts, and deferred to the ESDC. But had she been convinced--and she should have been--that the KPMG report was simply untrustworthy, she might not have deferred to the ESDC's acceptance of it:
ESDC grounds the rationality of its [10 year build-out] determination in the opinion of its consultant that the market can abosrb the planned units over a 10 year build-out; its intent to obtain a commitment from FCRC to use commercially reasonable effors to complete the Project in 10 years; and FCRC's financial incentive to do so--all factors that were articluated and relied on by ESDC in the documents discussed above.

Under the limited standard for SEQRA review, the court is constrained to hold that ESDC's elaboration of its reasons for using the 10 year build-out and for not requiring an SEIS was not irrational as a matter of law. ESDC's continuing use of the 10 year build-out was supported--albeit, in this court's opinion, only minimally--by the factors articulated by ESDC.
KPMG Atlantic Yards Market Study Aug. 31, 2009

Friedman Ruling on MGPP

Klores, whose firm works on Atlantic Yards, tells NPR that Nets move is "gonna be great" (but maybe not the traffic)

Yesterday, in a segment titled Winning Time, WNYC Radio's Leonard Lopate Show hosted documentarian (an p.r. guy) Dan Klores to talk about his film Winning Time: Reggie Miller vs. The New York Knicks, which is playing on ESPN.

Klores, founder and chairman of the DKC public relations and marketing company that works on Atlantic Yards, told guest host Mike Pesca he'd sold the company to the employees and waxed optimistically about the future of the New York Knicks, run by General Manager Donnie Walsh.

And then, at about 27 minutes in, Pesca brought up the Nets.



A good thing for the city?

"What about the Nets moving to Brooklyn if and when it happens," asked Pesca. "Will that be a good thing for the city?"

"Yeah," responded the Brooklyn-born Klores enthusiastically. "It's a great thing for the city. Y'know, you gotta give those guys credit. I mean, whether you're for it or against it, boy, they stood with it.

Who's they? The developer, the DKC client Klores found no opportunity to mention, that consistently extracted more government subsidies and concessions?

Bigger than basketball

"Obviously, it's a play that much bigger than basketball," Klores said. "It's gonna be great for the city. I'm from Brooklyn. If Donnie stays, I'm a Knick fan. If not, then I'll be a Net fan."

"And they'll build a team--they'll build a team," he added, mindful of the meme that the Nets are well-positioned, with draft choices and cap space, to acquire better players. "I think it's gonna be great. I don't know what it's gonna do for traffic--but it's going to be great."

Yes, even Klores admits that adding more rush hour traffic to the area around Flatbush and Atlantic avenues might not be a good idea.

Pesca asked of "the idea of the Brooklyn Nets" would be popular nationally.

"I think the one thing that people care about, right, is that you have a product on the floor that's entertaining, that's going to provide you with hope, that's ultimately going to win," Klores said. "You do that, fans will come."

The FCR case study

According to the case study posted on the DKC site:
objectives

DKC was retained by Forest City Ratner Companies, one of the country’s leading developers, to prepare the groundwork for a Frank Gehry-designed development in the Atlantic Yards near downtown Brooklyn.

strategy

The cornerstone of DKC’s strategy was a community and media awareness program consisting of outreach to local advocates and activists around affordable housing, public space development, sustainable development and other community and design benefits.

DKC handled all messaging for the development over the next four plus years, including media materials, local, national and international, along with all media events, including everything from individual reporter walking tours to international press conferences with Frank Gehry and the landscape architect Lauri Olin.

result highlights

In addition to dealing with all levels of media, DKC arranged for numerous editorial board and opinion meetings, ultimately winning support for the project from the New York Times, Daily News, New York Post, Newsday and Crains. DKC also secured coverage of the project throughout the United States and in outlets in the UK, France, Italy, Germany, and Japan, among many others.
(Emphasis added)

Exactly how much of "affordable housing, public space development, sustainable development and other community and design benefits" was evident at the March 11 groundbreaking?

The man in charge: Joe DePlasco

The web site offers this profile of Managing Director Joe DePlasco:
Joe DePlasco joined DKC following several stints in government and politics. He currently oversees much of DKC’s public policy and corporate work, along with crisis communications and business development. Some of his past and present clients include: PBS, Forest City Ratner, General Motors, Ken Burns, Grand Central Terminal, Parsons Brinckerhoff, and HBO.

He has applied his public affairs and campaign experience to a broad array of categories, including entertainment and hospitality, and also works to develop strategic partnerships for a wide range of clients.

Prior to joining DKC, Joe was the communications director for New York City Public Advocate Mark Green. (He also took a leave from DKC to help run Green’s 2001 Mayoral race.) He has held senior positions on congressional, city and statewide campaigns, and has extensive media contacts throughout the city, state and nation. He holds two graduate degrees in American History from Columbia University.

In addition to speech writing for government officials and politicians, his articles and op-eds (under his name and for others) have appeared in the New York Post, the New York Daily News, Newsday and various public policy magazines.
Nearly four-and-a-half years ago, I offered a little more context on DePlasco's strategy.

Monday, March 29, 2010

A Very Brooklyn Passover Haggadah and the world of Internet content

Remember, the New York Times sent a reporter to the Atlantic Yards groundbreaking who had never covered AY before, as if this were some spot news story that any warm (journalism degreed) body could have handled.

So it's small beans, relatively speaking, to watch the semi-snarky blogosphere froth up some content about their discovery of the Atlantic Yards Passover haggadah.

Flashback to 2006

This is how it happened.

NoLandGrab earlier today posted A Very Brooklyn Passover Haggadah for an Atlantic Yardseder (PDF).

No date is given, but those of us who've been around for a bit remember it popping up in April 2006 and even playing a cameo in a Times article that month headlined A Blogfest Over a Project in Brooklyn.

(That Times article, by the way, claimed that "[a]bout a dozen blogs follow Atlantic Yards closely," which was and is way off.)

So later today the "news" was picked up by Curbed, which asserted that, "While everyone else has been busy trying to eat as much bread as possible before sundown, one Atlantic Yards obsessive decided to create an Atlantic Yards-themed Passover haggadah."

And Gothamist, confusing a project and a place, suggested, "Forget being cast out of Egypt; this year Jews all over Brooklyn can sympathize with the families being evicted from the Atlantic Yards and have a topical Seder with this Atlantic Yards themed haggadah!"

We shouldn't blame the bloggers; they were still in college in 2006. However, like the rest of the project, the Haggadah needs an update from four years ago. Below, a few suggestions.

Updating the Four Questions

Question 3:
Why is it that in all other projects, the developer dips only into his own budget, but in the Atlantic Yards project the developer dips twice - $100 million from the state's budget and $100 million from the city's budget?

AYR update: You'd have to add another $105 million from the city budget now.

Question 4:
Why is it that in all other projects, the buildings stand straight, but in Frank Gehry's designs for the Atlantic Yards project, the buildings recline to one side?

AYR update: Gehry's gone. The fourth question would have to relate to "vaportecture."

City Hall News article accepts claim of ACORN Housing's successor that it's unaffiliated with ACORN; AY housing murky but Lewis says role continues

City Hall News reports, in an article headlined ACORN Housing Arm, Battered by Federal Funding Ban, Lives On that, yes, Mutual Housing New York will continue to work on the Atlantic Yards affordable housing deal.

However, the article credulously accepts the explanation that ACORN Housing Corporation was always separate from ACORN and fails to mention crucial elements in the Atlantic Yards deal, such as ACORN's pledge to publicly support the project and Forest City Ratner's $1.5 million loan/grant to national ACORN.

Not an affiliate?

The article begins:
The nationwide community organizing group ACORN may be shutting down, but its non-profit housing developer, ACORN Housing Corporation, lives on.

The organization, which manages and develops affordable housing units in New York, has gone through a re-branding of its own, changing its name to Mutual Housing NY. Ismene Speliotis, the group’s executive director, said that was ACORN Housing Corporation’s original name when it was founded in 1986.

Speliotis said the group is neither an affiliate nor a subsidiary of ACORN, but that it has nonetheless been hurt by Congress’s decision last year to ban federal funding for ACORN or any of its “allies,” a term Speliotis said is overly broad. A court has since deemed Congress’s decision unconstitutional, though the Obama administration is appealing.

“We’ve tried to make it clear to the government that MHANY is a separate entity, that it’s always been a separate entity,” Speliotis said. “If the law says ‘don’t fund ACORN,’ and then we say, ‘we’re not ACORN,’ and then somebody decides that we are ACORN even though we’re not ACORN, then it’s a bit of a problem.”
Not an affiliate? See page 20 of the 7/23/09 report (below) by the Republicans on the House Oversight and Government Reform Committee. (Whatever the politics behind the report, the documents cited speak for themselves.)

Steven Kest, Executive Director of ACORN, explains to a funder that Mike Shea: Executive Director, ACORN Housing Corporation, is among “the following people... working for affiliated organizations."

(Emphasis added)

Transactions with CCI and ACORN

Also cited in the report, the Washington Examiner reported 5/19/09:
Association of Community Organizers for Reform leaders deny having ties to legions of affiliated state and local organizations, but federal tax documents examined by The Examiner show concrete financial links between four such groups and the national ACORN office.

Project Vote, ACORN Institute, ACORN Housing Corporation and the ACORN American Institute for Social Justice included financial transactions with Citizens Consulting Incorporated [CCI] on their tax documents.

Current and former ACORN officers and members who are unhappy with what they describe as a lack of transparency and accountability in the group’s national leadership say those leaders use a New Orleans-based non-profit, Citizens Consulting Inc., to maintain centralized financial controls over affiliates.
Arm's length?

Also, the House report, on p. 63, cites a 1995 report from the Office of the Inspector General of the Corporation for National and Community Service, in which a federal audit of the ACORN Housing Corporation’s (AHC) activities:
We determined that AHC and ACORN are separate corporate entities, but that they do not always operate at ‘arms length.’
The report then cites a 1997 House Committee report, which stated:
Most notable in this regard is . . . the apparent cross-over funding between ACORN, a political advocacy group and ACORN Housing Corp. (AHC), a non profit, AmeriCorps grantee . . . . [I]t was learned that AHC and ACORN shared office space and equipment and failed to assure that activities and funds were wholly separate . . . . [I]t was revealed that AmeriCorps members of AHC raised funds for ACORN, performed voter registration activities, and gave partisan speeches.
Cross-transactions

Also see p. 18 of the Feb. 18, 2010 report (bottom) from House Republicans, which indicates numerous transactions between ACORN Housing and ACORN and between ACORN Housing and CCI. The report states:
The financial data within these audits shows that ACORN received large amounts of money from its nonprofit affiliates while giving significantly less back in return, suggesting wide-spread subversive accounting practices.
The Atlantic Yards deal

The article states:
MHANY will also be charged with leasing and marketing the roughly 2,250 units of affordable housing built at the controversial Atlantic Yards site in Prospect Heights. Advocates say ACORN’s shuttering has thrown the Atlantic Yards plan—which has already changed several times—into disarray.

“One of the big issues of course is that nobody has any idea when this affordable housing might be built,” said Jo Anne Simon, a lawyer and activist with the Brooklyn Speaks coalition, which is lobbying for accountability at the Atlantic Yards site. “And of course ACORN was there to ensure not just that it was built, they were going to be managing that property.”

Bertha Lewis, the CEO of ACORN, said in an interview that she was unsure how the Community Benefits Agreement the group signed with Forest City Ratner would have to be amended to reflect the change in organizations. But she insisted that ACORN would continue to live on in some way in order to enforce the housing provisions in the agreement.

“I don’t know what we would have to technically do,” she said, adding, “ACORN still exists, and Bertha Lewis still exists.”
ACORN's not doing much enforcing, given that the Development Agreement requires only 300 units in 12 years.

And ACORN, not merely required by the Affordable Housing Memorandum of Understanding to publicly support the project, gained $1.5 million from the developer to limp along, bailed out temporarily, and folding only after the groundbreaking for the Atlantic Yards arena.


Acorn Report House of Representatives July 23, 2009 Acorn Report House of Representatives February 18, 2010

Sunday, March 28, 2010

In "The Russian Is Coming," 60 Minutes' Kroft pitches softball questions to insouciant billionaire Mikhail Prokhorov

The CBS newsmagazine show 60 Minutes is surely capable of tough investigation; in 2003, it ran a tough piece on eminent domain abuse around the country, even mentioning an episode in which the New York Times "teamed up with a major real estate developer" to get New York State to use eminent domain for a new Times headquarters.

That very same "major real estate developer," Forest City Ratner, has achieved similar success in getting the state to declare the Atlantic Yards site blighted, but that's not the story 60 Minutes wanted this time.

It sought a "get"--an exclusive interview with expected Nets owner Mikhail Prokhorov and, in the segment broadcast tonight, The Russian Is Coming, correspondent Steve Kroft lobbed softball questions at the billionaire, partied with him (as in screenshot at right), and generally couldn't suppress a grin from his face.

Prokhorov maintained his own lighthearted mien, playfully parrying questions, and even claiming that spending time in detention in France was "fun for me." However, as Dave D'Alessandro of the Star-Ledger noted, "there was very little substance about where he came from."



Nothing about Atlantic Yards controversy

Though Kroft obligatorily reported on the questionable--but, domestically, legal--source of Prokhorov's wealth, not a word was mentioned of any controversy involving Atlantic Yards, much less the questionable use of significant subsidies, tax breaks, and the extraordinary power of eminent domain to benefit Russia's richest man.

And CBS came up with this insightful description:
If everything goes according to plan, two years from now he plans to move the Nets to a brand-new arena in Brooklyn, home to the largest Russian-American community in the United States.
The screen flashed from a rendering of the (unnamed) Barclays Center to a street scene in Brighton Beach, some eight miles away, as if there's any connection. And, of course, Prokhorov wouldn't be moving the Nets on his own; there's a tremendous amount of government help.

A gift to Ratner

As Eric McClure of NoLandGrab commented:
Glasses of Chateau Lafite '95 drunk by Steve Kroft at Mikhail Prokhorov's dinner table?

Several.

Sexy Russian models partied with by Steve Kroft in Mikhail Prokhorov's favorite night club?

Twenty.

Tough questions asked by Steve Kroft of Mikhail Prokhorov during their 60 Minutes inteview?

Zero.

Value to Bruce Ratner of the absence of any questions about Atlantic Yards?

Priceless.
In Nets' Likely Owner Faces a Nation, New York Times sports business reporter Richard Sandomir took note of the interview and an article in Bloomberg Markets magazine, which goes into far more depth regarding Prokhorov.

Does the Times article explain why Prokhorov wasn't at the Barclays Center groundbreaking or disclose the newspaper's business relationship with Forest City Ratner? Nah.

Prokhorov tells the Times:
“I view this investment as a business opportunity. I expect this asset to be worth around a billion dollars after the new arena is built and the team gets to the top of the N.B.A.”
Then why did the state give away arena naming rights and not try to keep any piece of the upside?

NBA Commissioner Stern ducks a tough question

Sandomir continues:
Adam Silver, the N.B.A.’s deputy commissioner, said in an e-mail message on Sunday that “I can say that he was forthcoming about his early days as an entrepreneur in Russia.”

In December, David Stern, the N.B.A. commissioner, said, “There were multiple investigations of him by interested parties, and there was nothing that was disclosed that would cause us not to move forward with his application.”
But Sandomir missed one moment of tension in the 60 Minutes piece.

"Do you think he's a man of character?" Kroft asks Stern.

"I think he's a man who's passed a very tight security check," Stern replies deliberately, "and nobody has come up with any reason why he shouldn't be an NBA owner."

That's not exactly a ringing endorsement, but it is an acknowledgment that Prokhorov has the cash the league desperately needs--and why the Nets, as in screenshot at left, are enthusiastically promoting the interview.

Or, as D'Alessandro put it:
So when it comes to NBA ownership, it’s all about stacks of money – and a willingness to flaunt them – so that is what the CBS program made the emphasis of its 14-minute segment.
Starting off

The piece begins with Kroft referring to a sports team as "the ultimate vanity investment... now, the most exclusive club in America is about to get a Russian."

But the only reason it's an exclusive club is the cartel system that limits the number of major league sports teams and leads cities and states to try to poach such teams.

"It's not that often you get to sit down and talk to a rich Russian, and we couldn't pass up the opportunity," Kroft declares, setting a low bar.

"For me, life, and business in particular, is a big game," says Prokhorov in his Russian-accented English. We see him with his JetSki and kickboxing with the coach of the Russian national team.

"Do you like danger?" Kroft asks.

"I like to control risk," Prokhorov responds.

"I am addicted to sport," Prokhorov adds. "Without sport I feel bad."

"How much time do you spend working out every day?" Kroft probes.

"Two hours."

"For someone who likes sports, stress, and challenges, there is probably no better buy than the New Jersey Nets," says Kroft in his narration. "For a few hundred million dollars, Prokhorov is just a few formalities away from acquiring 80 percent of the worst team in the National Basketball Association."

Stern enters to say it's a sign of the sport's globalization. Kroft notes that it also has something to do with the recession

Around Russia

"He flew us to Siberia to check out Russia's richest gold mining company," Kroft says. (I'm assuming that 60 Minutes didn't take a freebie.)

We learn of Prokhorov's business empire, including aluminum company, a media company, banks, an insurance company, and real estate. His house has a built-in swimming pool and, of course, a fitness center. He's got a model of his 200-foot yacht."

Kroft drinks wine with Prokhorov, who confides, ""Frankly speaking, I like women. In my heart, I am still teenager."

Kroft joins Prohorov at Moscow's exclusive SoHo club, surrounded by 20 beautiful women.

The business background

"I am lucky to have enough money to be really independent, but it doesn't drive me just to count money," Prokhorov declares. "It's only a side effect of what I am doing in business."

"Like most Russian billionaires," Kroft says in his narration, "Prokhorov's fortune was melded from the ashes of the former Soviet Union, with a little bit of luck and the help of a powerful political connection."

That connection was named Vladimir Potanin, who brought the market-educated Prokhorov into a banking partnership, making him a multimillionaire.

Then, as Kroft says in his narration, "In 1995, Kremlin leaders gave them what amounted to an insider's opportunity to buy one of the state's most valuable assets, the huge mining and metals operation called Norilsk Nickel, which is among the world's largest producers of nickel, copper, and platinum. They acquired it from the Kremlin in a so-called auction for the measly sum of a few hundred million dollars, in a process that even Prokhorov's business partner admitted wasn't perfect, and probably not even legal under Western standards. But it was legal in Russia."

For context, Yulia Latynina, one of Russia's top business journalists, tells 60 Minutes "it was rigged. But it cannot be explained in normal economic terms."

"This is just the way things work," says Kroft.

"You had robber barons. We had oligarchs," responds Latynina.

And Prokhorov transformed the company, taking it public and selling it at the perfect time, just before the market crashed, thanks to the "Courchevel incident" involving some young women imported by Prokhorov who French officials thought might be prostitutes.

"It's a part of any business to be lucky," Prokhorov says.

"And you sold at just the right time," Kroft says.

"Miracle happens," responds Prokhorov.

To the NBA

"It's safe to say there aren't any NBA owners with stories like that one," Kroft says in his narration. "Prokhorov's life, and the opaque nature of Russian business, presented a unique challenge for the National Basketball Association, which is charged with investigating the personal and business background of prospective NBA owners. But Commissioner David Stern says Prokhorov passed all the tests."

That leads to the exchange over "a man of character" and Kroft's finding of Prokhorov to "be a bit unorthodox" as a businessman: he doesn't use a computer.

"We have too much information," Prokhorov responds, "and it's really impossible to filter it."

Kroft then turns into an HR counselor, noting that Prokhorov believes his biggest strengths are organization and leadng people. "Any abilities you wish you had that you don't have?" Kroft asks.

Prokhorov pauses. "Sometimes, maybe, to be less tall."

They both share a chuckle.

Kroft notes that "you're about to enter a world of very tall people, with the NBA."

"Compared with the common people I am tall enough, trust me," Prokhorov responds.

"The deal to buy the Nets is expected to be concluded in the next few months," narrates Kroft, as an image of the Barclays Center, with questionable rooftop advertising fills the screen.

"In the meantime, Prokhorov has been brushing up on his English and his jump shot." Kroft continues. "If everything goes according to plan, two years from now he will move the Nets to a brand-new arena in Brooklyn, home to the largest Russian-American community in the United States. Who knows, he may even find that perfect woman he's been looking for."

"I am real excited, to take the worst team of the league and to turn it to be the best," says Prokhorov, as 60 Minutes makes no effort to explain why the current owners, in an effort to save money and position the Nets for a move, might have run the team into the ground.

"You think you can do that?" Kroft asks.

"I am confident," responds Prokhorov. "Do you remember Frank Sinatra song, 'New York, New York'? If I can make it there, I can make it anywhere."

Prokhorov grins. The trademark 60 Minutes clock ticks in closing.

Prokhorov's wealth

This hard-hitting web extra is titled Extra: Is He Worth 17 Billion Dollars?

Here's the description, complete with exclamation point:
Russian billionaire Mikhail Prokhorov claims he doesn't know how much money he has!


Prokhorov talks about his height

This hard-hitting web extra, complete with exclamation point, is headlined Extra: His Childhood Nickname Was Giraffe!



Prokhorov at home

This hard-hitting web extra is titled Extra: Inside a Billionaire's Home. Watch Kroft handle Prokhorov's special Kalashnikov! Watch Prokhorov work out! Watch Kroft ask Prokhorov about his best Jet Ski trick!

Lupica: DDDB's Goldstein is "another guy who went up against the machine in this city and lost"

Two weeks ago, Daily News columnist Mike Lupica called Atlantic Yards "a hustle in broad daylight by Caring Bruce Ratner from the start."

Today he writes:
Daniel Goldstein of Develop Don't Destroy Brooklyn was the hero of the whole Atlantic Yards story from the start.

It just turned out he was another guy who went up against the machine in this city and lost.

And when you had some of the biggest politicians around, starting with our imperial mayor, obsessed with not looking bad, it was like trying to stop the ocean.

The worst of it?

They didn't just throw in with a hustler like Bruce Ratner, they rolled over for Ratner and did tricks.

Go back and look at what Ratner promised once they trampled eminent domain laws for him and basically handed him that land.

And look at what he delivered.

And then try to tell yourself ground-breaking was a great day for the borough of Brooklyn and for New York.
Well, Goldstein actually wasn't there at the start (hint: Patti Hagan) and he's had a good deal of help.

But the gist of Lupica's observation was encapsulated by New York Magazine's Chris Smith, writing in August 2006:
Every time I begin to buy into the lyrical people-have-the-power rhetoric of the opposition, to fantasize that Goldstein’s impending eminent-domain lawsuit has a prayer of succeeding, or to get revved up about the density trivia, someone smacks me back into reality. Most recently, it was a prominent Democrat. "In some cases, an army of Davids could take down Goliath," he said. "But not this one. It’s a fait accompli."
Well, it's certainly lasted longer than most.

Blight patrol: new eateries thrive on Vanderbilt and Sixth avenues

From the New York Post: Vanderbilt Avenue: Prospect Heights' destination for foodies and booze hounds:
Indeed, at least eight new bars and restaurants have popped up on the Brooklyn boulevard in the last two years alone.
(NY Post map adapted by No Land Grab)

Obviously the "blight" on the AY site above Dean Street west of Vanderbilt is not deterring development.

And on Sixth Avenue

From the Brooklyn Paper:
In a town full of mediocre burgers, the discovery of a new favorite is somewhat akin to waiting less than an eternity for the G train — a rare occasion. Enter the Agoulou, the West Indian-style burger at three-week-old French-Guadeloupian eatery Kaz An Nou in Prospect Heights and a very possible new favorite.
The restaurant is at 53 Sixth Avenue, just below Dean Street, the border of the Atlantic Yards footprint.

Again, the "blight" doesn't seem to be much of a deterrent.

Saturday, March 27, 2010

What the columnists missed: Jay-Z; the MTA salute; the BHS bought; lies about jobs & lawsuits; the Ridge Hill mystery; and the marketing of Brooklyn

For the past two weeks I tried to compensate slightly for the failure of any metro columnists to show up and glean insights from the rich spectacle of the Barclays Center groundbreaking March 11.

Meanwhile, this week the New York Times ran minor slice-of-life articles about a newsstand vendor who gets spelled by a local for bathroom breaks and a City Room blog post (later appearing in print) about two doormen who meet in the middle of the street during their downtime.

March 15: Atlantic Yards a "job creation" engine? Only if you believe the myths propounded by Bloomberg, Paterson, and Ratner

March 16: Deep bench at the groundbreaking? There were only enough Brooklyn elected officials to play three-on-three

March 17: Did Brooklyn "do it again" or just get played? The endless marketing and unbearable banality of borough iconography

March 18: The Darryl Greene asterisk on minority contracting (not that Paterson noticed), the Bloomberg asterisk on the CBA, and now the City Bar's CBA critique

March 19: Legal payoffs, dubious payments, FCR's corporate ethics, and the continuing mystery of Ridge Hill

March 22: Bruce Ratner's salute to Helena Williams and the MTA, Forest City Ratner's subordinate in a private-public partnership

March 23: Synergy! Thanks to Barclays/Nets money, the Brooklyn Historical Society highlights ex-Net (and arena promoter) Albert King in new sports curriculum

March 24: Ratner's bogus claim of "34 lawsuits," a skewed legal playing field, and video of the ESDC winning ugly (including a dodge regarding belated blight)

March 25: Jay-Z, Markowitz, the cult of celebrity, and the oligarch behind the curtain

March 26: The untrustworthy men of God: how the (paid by Ratner) Revs. Daughtry and Sharpton twisted the truth

On 60 Minutes Sunday, an exclusive interview with Mikhail Prokhorov; no sign it will look closely at Atlantic Yards

So Russian mogul Mikhail Prokhorov, expected majority owner of the New Jersey Nets, sits down for an exclusive interview with 60 Minutes, to be broadcast Sunday.

From the teaser:
Prokhorov, perhaps Russia's richest man, discusses the Nets, his vast wealth and the surprisingly unusual way he made most of his money in his first American television interview to be broadcast this Sunday, March 28, at 7 p.m. ET/PT.

"I am real excited to take the worst team of the league and turn it to be the best," says Prokhorov. Asked by Kroft if he really thinks he can pull it off, the 6-foot-8-inch billionaire responds, "I am confident. Do you remember in the Frank Sinatra song, 'New York, New York?' If I can make it there, I can make it anywhere," he tells Kroft with a laugh.
Given the indication that the interview will focus on Prokhorov's celebrity and likely look closely only at his fortune, my comment:
So, 60 Minutes has a "get," an exclusive interview.

Here's what 60 Minutes (apparently) doesn't get: Prokhorov, as team and arena owner, would be the beneficiary of hundreds of millions of dollars in direct subsidies; city, state, and federal tax breaks (and tax-exempt bonds); and the extraordinary power of eminent domain.

Do you think New York legislators and officials would've have slobbered quite the same way for a sports team and arena--one that the NYC Independent Budget pegs as a money-loser for the city--if they knew they were helping out Russia's richest man?

More here:

http://atlanticyardsreport.blogspot.com/2009/09/thought-experiment-what-if-prokohorov.html

http://atlanticyardsreport.blogspot.com/2009/09/net-gain-to-ratner-loss-to-public-ibo.html

http://atlanticyardsreport.blogspot.com/2010/03/jay-z-markowitz-cult-of-celebrity-and.html

Friday, March 26, 2010

The untrustworthy men of God: how the (paid by Ratner) Revs. Daughtry and Sharpton twisted the truth

Last week and this one I'll try to compensate slightly for the failure of any metro columnists to show up and glean insights from the rich spectacle of the Barclays Center groundbreaking March 11.

It always goes down easier when it comes from a man of the cloth, right?

Even more than politicians, they can walk up to a podium and speak with brio, no matter the facts. And the Reverends Herbert Daughtry and Al Sharpton, however slender their understanding of the Atlantic Yards, know whose side they're on.

And while they may in their hearts genuinely believe in AY, the financial contributions they've received from Forest City Ratner surely make it less likely they'd do any real research.

The invocation

He's a legend, right, the man who gave the invocation? Had any of the journalists covering the groundbreaking been to the May 2009 state Senate oversight hearing at the Pratt Institute, they would've remembered how Daughtry heckled throughout.

Or they might have remembered that Daughtry refused to say how much money Forest City Ratner contributed to his fledging Downtown Brooklyn Neighborhood Alliance (DBNA). Or that, in the promotional Brooklyn Standard of 2005, Daughtry called Bruce Ratner's customary manner "humble, winsome."


Talking to God, as Daughtry put it, he deceptively described the Atlantic Yards site as being transformed from a "long-neglected, rodent-infested, garbage-strewn strip of geography into a modern oasis of splendid residential and commercial dwellings."

Only Dave D'Alessandro of the Star-Ledger noticed, commenting, "There wasn’t much chance of anyone walking it back from there."

(Photos copyright James Leynse)

Daughtry closed with words from "Lift Ev'ry Voice and Sing," the black national anthem.

What about the Russian national anthem?

This arena, this groundbreaking, may have some trickle-down benefits for black Brooklyn, even substantial ones, but not as a percentage of the project and the public subsidies.

(By the way, Daughtry testified at the 8/23/06 hearing on the Draft Environmental Impact Statement that he lived “not far from the project” but “also happen to live in New Jersey and I happen to live in Augusta, Georgia.” That’s obfuscatory; his book No Monopoly on Suffering: Blacks and Jews in Crown Heights (and Elsewhere) explains that he and his wife raised their children at their home in Teaneck, NJ.)

Daughtry: hope and reality

The Amsterdam News reported this week:
He’s particularly pleased with the state-of-the-art health facility that will be built, aimed at improving health disparities in the community, especially in Fort Greene, which has a high infant mortality rate.

“I’ve been in this neighborhood for 40 years, and no other developer have ever come to me,” he said. “Ratner came to meet me in the community and he said he’s prepared to put his money into the community’s foundation.”

Daughtry told the AmNews that his organization negotiated getting a luxury suite at the Barclays Center to use as an incentive for a program that encourages students to improve their grades in school. He also said that he would receive 50 to 100 tickets to all events to give to community members who would usually not have access.
Well, the health facility he mentions is not even in the Empire State Development Corporation's Memo of Environmental Commitments.

It's supposed to be in Phase 1 of the project, which could take 12 years. Here's the description in Chapter 1, Project Description, of the Final Environmental Impact Statement:
The proposed project would also include a 20,000-sf health care facility that would provide a broad range of health care services to the community. Services at this proposed facility (program being developed) could include primary care and preventative services, specialty care, diagnostic testing and ancillary services and related support services to improve the management of prevalent chronic diseases. This health center would occupy a portion of the residential space and would be constructed during Phase I.
And who's going to pay for it? The Community Benefits Agreement says:
While it is understood that the Project Developer will continue to work with and assist DBNA in the implementation of the health care center initiative, except as otherwise provided in this Agreement or the Project Implementation Plan, the Project Developer shall have no obligation to provide on-going operational funding to the health care center.
No other developer has ever come to Daughtry? Is it really that little--the gesture of inclusion and some tens of thousands of dollars--that justifies it all in his mind?

As for Daughtry's claims of a suite, maybe they're talking about an unsold suite, but here's what the CBA says:
The Arena Developer will designate one (1) box and four (4) seats within the lower bowl, and fifty (50) seats in the upper bowl, for community use with priority given to seniors and youths for all events throughout the year.
It doesn't explicitly say that those tickets would go through Daughtry, but that seems to be his impression of the deal.

The upper bowl tickets would have a face value of $15. Let's put aside the possibility that, as with this year, the tickets might have no value. At $15 each, 50 tickets represent a face value of $750. Over 41 home games and three pre-season games, the total would be $33,000 a year.

Meanwhile, Forest City Ratner last year got a $31 million boost in subsidies from the city. It can afford some relative crumbs, especially when channeled through such a voluble advocate.

Sharpton's speech: a distraction from ACORN

Sharpton, a recipient of Forest City Ratner largesse, can be very useful to the developer. In 2005, he attacked mayoral candidate Freddy Ferrer when the latter belatedly came out against Atlantic Yards.

(Sharpton officially moved his residence from New Jersey to Brooklyn in 1996 so he could run for mayor. Newcomer?)

At the groundbreaking, Sharpton seemed to be a substitute for ACORN's Bertha Lewis, historically a prominent presence at AY-related events--heck, she MC'd the press event/rally before the August 2006 hearing on the Draft Environmental Impact Statement--but now head of a group with some very distracting baggage.

No need to tangle Forest City Ratner in ACORN's problems--beyond, of course, that $1.5 million bailout. (The bailout, interestingly enough, didn't save ACORN from dissolution, but it helped keep ACORN on its feet through the groundbreaking. Money well spent.)

There was little talk about the affordable housing plan--the term 50/50 did not escape anyone's lips--but a lot about minority empowerment.

Empowering Jay-Z

A minority of one, that one being a multi-millionaire named Jay-Z, a minority owner of the Nets.



"This project has gone through many hurdles, and there are those that continue to take different views," Sharpton declared, sounding statesmanlike without actually understanding the project. "But I want to say that what this project represents, in terms of jobs and contracts and inclusion, is something that weighs heavily on the need of a national mentality for a model on how we do these types of programs."

Actually, Mayor Bloomberg calls CBAs "extortion."

After making further vague references to the CBA, Sharpton moved on to everyone's favorite trope: The Brooklyn Dodgers. "Let me say this, also: the symbolism of what this team will mean," said the New Jersey resident. "When I was growing up in Brooklyn, my mother used to tell me about how it made her feel, that she could go to Ebbets Field before I was born, and see Jackie Robinson play. Jackie Robinson was the first black to own--to be able to play in major league baseball. He played his first games right here in Brooklyn and broke the color line in terms of major league baseball players. I'm glad I lived to see the color line in ownership broken in Brooklyn, where we've gone from Jackie to Jay-Z, where we can not only play the game but we can own a piece of the game. So my mother saw Jackie and my daughters will see Jay-Z--we have come a long way."

Members of the public should root for an owner, one who owns a tiny piece of the team?

Sharpton somehow neglected to point out that in June 2006, the majority owner of the Charlotte Bobcats, Robert L. Johnson, founder of Black Entertainment Television, announced that Brooklyn-born Michael Jordan would become the second-largest investor--two black men running a basketball team.

"But we have a long way to go," Sharpton continued. "And I think that progress takes tension, it takes discomfort--you can't have a baby without labor pains. But let the baby be born. Let us go forth. The pain is over in terms of the negotiations."

Negotiations? He probably didn't mean arm's length negotiations dubiously claimed by the ESDC. He probably did mean the CBA "negotiations" that involved only groups favorable to the project and neglected, for example, the three local community boards.

"Let's break ground on a new day, where in Brooklyn all of us will build together, work together, and share together," he said, unmindful of the fact that so few Brooklyn officials--and no local reps--were on the dais. "Let those of us that are concerned about the affordable housing keep on advocating, but let us also know that... people like Jay-Z out of the Marcy Projects can now sit back in the owner's box and say that we have a piece of the rock, too. That's why I came to Brooklyn."

Who, Rev. Sharpton, is "we"?