Monday, April 14, 2014

Look beyond that green arena roof. A bigger issue for Atlantic Yards is the cost of capital.

Keep your eye on the ball, people.

Sure, that green roof on the Barclays Center sounds interesting, though most news outlets downplayed the effort to limit noise escaping from the arena, disregarded the history of promises regarding the roof (it was once supposed to be park-like space open to the public), and ignored how the plans for construction evade any environmental review.

The much bigger story involves saving money.

As Forest City Enterprises CFO Bob O’Brien told investment analysts in September 2010, “At the end of the day, it’s all about the cost of the capital. And if we can do it at a reasonable, affordable cost, we’ll do so."

Similarly, in an October 2007, then Forest City Ratner president Joanne Minieri told the Wall Street Journal, "Value creation is impacted tremendously when you have to pay more for financing proceeds."

Lowering the cost of capital

So Forest City, like other developers, has figured out a way to lower the cost of capital.

They're about to raise $249 million in cheap capital thanks to the federal government's loosely regulated EB-5 program, in which developers and entrepreneurs get to trade green cards in exchange for low-cost capital and purportedly job-creating investments.

New York-based attorney Yi Song reported 4/7/14 on the LexisNexis Venture Capital blog that the pending deal with the Greenland Group helped "the 498-investor EB-5 project, Atlantic Yards II in New York City [become] fully subscribed in under three months." Apparently the deceptive promotion worked well.

In other words, even though the deal with the Chinese government-owned holding company to buy 70% of the project going forward has not been fully approved, the big Chinese investor apparently helped give individual millionaires the confidence to park their money in "Atlantic Yards II" in exchange for green cards.

How much will the partners save? We don't know the fees, or the interest rates, but it's safe to say the number is in the tens of millions of dollars, or more than $100 million.

So the question arises: what's next? In what other ways are they figuring to save?

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