Skip to main content

Nets financials point to 11% loan from Prokhorov, 5% (minimum) development fee to Forest City for arena

CNBC's analysis of Nets Sports and Entertainment Consolidated Financial Statements for the years ending June 30, 2010 and 2009 (embedded below) is billed as an "exclusive," but the exclusive, I believe, is the analysis, not the documents, which were made available to the Securities and Exchange Commission.

The upshot of the analysis is that the Nets' losses--even a more conservative version of those losses--could be used to back claims of NBA losses.

I look at that in another post, but first, let's just clarify some numbers that are not widely known.

Prokhorov's 11% loan

The document describes the loan between Brooklyn Arena Holding Company (ArenaHoldCo) and entities controlled by Mikhail Prokhorov (MP Entities) that filled an arena financing gap. The loan was reported back in May 2010, but not, to my knowledge, that it bore a junk-bond level interest rate of 11%:
On May 12, 2010, ArenaHoldCo entered into a loan agreement with an affiliate of the MP Entities in the amount of $75,842,086 (the “Loan”). The Loan bears interest at 11% per annum, compounded monthly and matures on June 12, 2013. Both interest and principal are due at maturity. As of June 30, 2010, accrued interest on the loan of $1,162,947 is recorded as part of the Loan from affiliate and has been capitalized to Land and Arena under construction.
A fee equal to $1,000,000 is due on the date the Loan is paid in full, or a pro-rated portion on the date of any partial repayment of the Loan, which is recorded in Accounts payable — affiliates. In the event the Loan is not paid upon maturity, the Loan converts into an equity position in Brooklyn Arena based on a stipulated formula.
So if ArenaHoldCo, which is controlled by Forest City Enterprises, does not pay Prokhorov back, his share in the arena would be converted to equity (as has been reported).

Ratner gets at least 5%

Since July 2007, when the Times reported it, we've known that Forest City Ratner would get a development fee of 5%. This document suggests the fee could be somewhat more:
Developer Agreement
On June 1, 2005, Brooklyn Arena entered into a Development Agreement with an affiliate (the “Developer”), pursuant to which the Developer will plan, develop and oversee construction of the Arena for a fee not to exceed the lesser of $7,000,000 per year or 5% of the total project cost at completion. Through June 30, 2010, $35,000,000 of development fees have been incurred and capitalized to Land and Arena under construction.
So, as I pointed out four years ago, documents prepared by Forest City Ratner and by KPMG, which indicate an Internal Rate of Return (IRR) of 7.7% on the arena and 9.6% on the rest of the project, refers just to the return on the various flows of money, not the developer's investment.

Forest City likely would earn much more, especially if it can cut costs via modular construction and continue to finagle low-cost financing from immigrant investors. 

Low-cost land loans?

Brooklyn Arena, LLC, parent of the holding company, has a piece of the land loans for the arena site. While I had thought such loans had a very high interest rate--especially the ones from Gramercy Capital--the loans for which Brooklyn Arena is responsible have just a 6% rate.

The document states:
Brooklyn Arena was a party to loan agreements for the land that was acquired in connection with the Arena and the Atlantic Yards Project. During the year ended June 30, 2010, Brooklyn Arena made a required $8,000,000 payment on the loan. Also during the year ended June 30, 2010 and in accordance with the loan agreements, the encumbrance of the Company’s land was removed and the loan from then on only encumbered the Atlantic Yards non-Arena parcels. For the year ended June 30, 2010, the Company’s share of interest, which was capitalized in Land and Arena under construction, was $292,354 and the aggregate weighted average interest rate was 6.02%.
Nets Financials 2009/2010

Comments

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…