Skip to main content

Tax-exempt bonds rated just above junk, down to $500 million; arena cost confirmed at more than $1 billion

In another crucial advance for the Brooklyn arena, the tax-exempt bonds for the planned Barclays Center--the cost of which is now estimated at $1.06 billion--have been rated investment-grade, though just above junk.

It should be enough to get the bonds sold to major institutional investors, though, as the Bond Buyer notes, bond insurance--which reassures investors but makes it more expensive for those paying back the bonds--remains in question. (The Times notes that bonds for the new Yankees and Mets stadiums got the same grade.)

Also, the amount has been reduced from $600-$650 million to $500 million, plus another $146 million in riskier "subordinated bonds," according to a report issued by Moody's Investors Service. (Those bonds are "likely to be sold to one of the project company's sponsors," reports Project Finance magazine, which says the split is indicative of the difficulty in getting an investment-grade rating.)

The Moody's report concerned the proposed issuance of $500 million of PILOT [payments in lieu of taxes] Revenue Bonds, Series 2009 (Barclays Center Project) by the Brooklyn Arena Local Development Corporation. The bonds must be sold by the end of the year to qualify for a tax exemption, which would save the developer well over $100 million.

What's next?

Neil deMause writes:
The next question is what this means for the bonds' interest rate, and the team's bottom line — each added percentage point of new interest will cost the Nets owners $5 million a year — something that could be answered when the Empire State Development Corporation makes its initial bond offering, as soon as tomorrow.
The Observer reports that Standard and Poor's also rates the bonds one step above junk.

Bond primer

Moody's primer: Baa Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics...the modifier 3 indicates a ranking in the lower end of that generic rating category.

A key giveaway and a key to the rating

One thing clear from the report: if the state hadn't given away naming rights to developer Forest City Ratner, the arena would not be built.

Also, key to the credit rating is an on-time construction schedule--not the safest bet, given the history of Atlantic Yards

Reasons pro/con


Moody's said there were reasons to be optimistic as well as wary, citing "the security afforded by the PILOT bond structure, the strength of New York City as a media market, the non-relocation agreement, the Operating Support Agreement, the significant amount of existing contracted sponsorship support, the large equity component of the financing structure and the solid coverages that support debt service."

On the other hand, Moody's also cited the team's weak financial condition, construction risks (which it said were largely mitigated by the contract), and "the uncertain demand forecasts for premium seating, sponsorships, ticket sales and other sources of revenue."

Financing: just $500 million plus $146 million

Interestingly, while last week the Brooklyn Arena Local Development Corporation (BALDC) contemplated $600 million to $650 million in tax-exempt bonds, plus $150 million in taxable bonds, now the numbers are $500 million in tax-exempt PILOT bonds and $146 million in taxable subordinated corporate bonds.

Apparently, there's a larger amount of equity: 40% of the project.

Moody's said the project "has a substantial equity component of approximately $424.4 million," including $131 million from New York City--apparently a reference to land purchases and infrastructure support (but I haven't gotten that confirmed)-- as well as $293.4 million from Forest City Enterprises, affiliates, and new team/arena investor Mikhail Prokhorov.

Barclays deal key

Moody's cited the naming rights agreement with Barclays Capital as generating "substantial annual revenues" but didn't specify a number.

It had been reported at $20 million a year for 20 years but may well have been renegotiated after the project was delayed and marquee architect Frank Gehry left the project.

Once construction begins, Moody's said, more sponsors are expected.

Comments

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…

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…

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…

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 …

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…

"There is no alternative": DM Glen on de Blasio's affordable housing strategy

As I've written, Mayor Bill de Blasio sure knows how to steer and spin coverage of his affordable housing initiatives.

Indeed, his latest announcement, claiming significant progress, came with a pre-press release op-ed in the New York Daily News and then a friendly photo-op press conference with an understandably grateful--and very lucky--winner of an affordable housing lottery.

To me, though, the most significant quote came from Deputy Mayor Alicia Glen, who, as the Wall Street Journal reported:
said public housing had been “starved” of federal support for years now, leaving the city with fewer ways of creating affordable housing. “Are we relying too heavily on the private sector?” she said. “There is no alternative.” Though Glen was using what she surely sees as a common-sense phrase, it recalls the slogan of a politician with whom I doubt de Blasio identifies: former British Prime Minister Margaret Thatcher, a Conservative who believed in free markets.

It suggests the limits to …