Skip to main content

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

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

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

Construction costs decline

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

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

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

Ellerbe Becket vs. Gehry

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

It's a design issue

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

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

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

Comparing arenas

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

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

New York math

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

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

Indirect costs added?

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

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

Comments

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

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

    ReplyDelete

Post a Comment

Popular posts from this blog

Barclays Center/Levy Restaurants hit with suit charging discrimination on disability, race; supervisors said to use vicious slurs, pursue retaliation

The Daily News has an article today, Barclays Center hit with $5M suit claiming discrimination against disabled, while the New York Post headlined its article Barclays Center sued over taunting disabled employees.

While that's part of the lawsuit, more prominent are claims of racial discrimination and retaliation, with black employees claiming repeated abuse by white supervisors, preferential treatment toward Hispanic colleagues, and retaliation in response to complaints.

Two individual supervisors, for example, are charged with  referring to black employees as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”

Two have referred to an employee blind in one eye as “cyclops,” and “the one-eyed guy,” and an employee with a nose disorder as “the nose guy.”

There's been no official response yet though arena spokesman Barry Baum told the Daily News they, but take “allegations of this kind very seriously” and have "a zero tolerance policy for…

Behind the "empty railyards": 40 years of ATURA, Baruch's plan, and the city's diffidence

To supporters of Forest City Ratner's Atlantic Yards project, it's a long-awaited plan for long-overlooked land. "The Atlantic Yards area has been available for any developer in America for over 100 years,” declared Borough President Marty Markowitz at a 5/26/05 City Council hearing.

Charles Gargano, chairman of the Empire State Development Corporation, mused on 11/15/05 to WNYC's Brian Lehrer, “Isn’t it interesting that these railyards have sat for decades and decades and decades, and no one has done a thing about them.” Forest City Ratner spokesman Joe DePlasco, in a 12/19/04 New York Times article ("In a War of Words, One Has the Power to Wound") described the railyards as "an empty scar dividing the community."

But why exactly has the Metropolitan Transportation Authority’s Vanderbilt Yard never been developed? Do public officials have some responsibility?

At a hearing yesterday of the Brooklyn Borough Board Atlantic Yards Committee, Kate Suisma…

No, security guards can't ban photos. Questions remain about visibility of ID/sticker system.

The bi-monthly Atlantic Yards/Pacific Park Community Update meeting June 14, held at 55 Hanson Place, addressed multiple issues, including delays in the project, a new detente with project neighbors,concerns about traffic congestion, upcoming sewer work and demolitions, and an explanation of how high winds caused debris to fly off the under-construction 38 Sixth Avenue building. I'll have more coverage.
Security issues came up several times at the meeting.
Wayne Bailey, a resident who regularly takes photos and videos (that I often use) of construction/operations issues that impact residents, asked representatives of Tishman Construction if the security guard at the sites they're building works for them.
After Tishman Senior VP Eric Reid said yes, Bailey asked why a guard told him not to shoot video of the site, even though he was on a public street.

"I will address it with principals for that security firm," Reid said.
Forest City Ratner executive Ashley Cotton, the …

Barclays Center event June 11 to protest plans to expand Israeli draft; questions about logistics

At right is a photo of a poster spotted in Hasidic Williamsburg right. Clearly there's an event scheduled at the Barclays Center aimed at the Haredi Jewish community (strict Orthodox Jews who reject secular culture), but the lack of English text makes it cryptic.

The website Matzav.com explains, Protest Against Israeli Draft of Bnei Yeshiva Rescheduled for Barclays Center:
A large asifa to protest the drafting of bnei yeshiva in Eretz Yisroel into the Israeli army that had been set to take place this month will instead be held on Sunday, 17 Sivan/June 11, at the Barclays Center in Downtown Brooklyn, NY. So attendees at a big gathering will protest an apparent change of policy that will make it much more difficult for traditional Orthodox Jewish students--both Hasidic (who follow a rebbe) and non-Hasidic (who don't)--to get deferments from the draft. Comments on the Yeshiva World website explain some of the debate.

The logistical questions

What's unclear is how large the ev…

Atlantic Yards/Pacific Park graphic: what's built/what might be coming (post-dated pinned post)

Click on graphic to enlarge. This is post-dated to stay at the top of the blog. It will be updated as announced configurations change and buildings launch. The August 2014 tentative configurations proposed by developer Greenland Forest City Partners will change, and the project is already well behind that tentative timetable.


Not quite the pattern: Greenland selling development sites, not completed condos

Real Estate Weekly, reporting on trends in Chinese investment in New York City, on 11/18/15 quoted Jim Costello, a senior vice president at research firm Real Capital Analytics:
“They’re typically building high-end condos, build it and sell it. Capital return is in a few years. That’s something that is ingrained in the companies that have been coming here because that’s how they’ve grown in the last 35 years. It’s always been a development game for them. So they’re just repeating their business model here,” he said. When I read that last November, I didn't think it necessarily applied to Atlantic Yards/Pacific Park, now 70% owned (outside of the Barclays Center and B2 modular apartment tower), by the Greenland Group, owned significantly by the Shanghai government.
A majority of the buildings will be rentals, some 100% market, some 100% affordable, and several--the last several built--are supposed to be 50% market/50% subsidized. (See tentative timetable below.)

Selling development …

Atlanta's Atlantic Yards moves ahead

First mentioned in April, the Atlantic Yards project in Atlanta is moving ahead--and has the potential to nudge Atlantic Yards in Brooklyn further down in Google searches.

According to a 5/30/17 press release, Hines and Invesco Real Estate Announce T3 West Midtown and Atlantic Yards:
Hines, the international real estate firm, and Invesco Real Estate, a global real estate investment manager, today announced a joint venture on behalf of one of Invesco Real Estate’s institutional clients to develop two progressive office projects in Atlanta totalling 700,000 square feet. T3 West Midtown will be a 200,000-square-foot heavy timber office development and Atlantic Yards will consist of 500,000 square feet of progressive office space in two buildings. Both projects are located on sites within Atlantic Station in the flourishing Midtown submarket.
Hines will work with Hartshorne Plunkard Architecture (HPA) as the design architect for both T3 West Midtown and Atlantic Yards. DLR Group will be t…