Quietly, state board last month approved expanding how required annual payments can support Barclays Center operations & maintenance
Yesterday, I wrote about how the sale of the Brooklyn Nets to Joe Tsai had essentially rescued the Barclays Center finances, because it created a new reserve fund.
There's more to the story, though we don't have all the details. On 4/10/18, the little-known Brooklyn Arena Local Development Corporation (BALDC), the state entity set up to issue tax-exempt bonds for the arena, held a little-noticed meeting.
The parent Empire State Development (ESD) posted a media advisory but not board materials. (I've asked for them, but got no response. Transparency!)
At 12:16 of the video, though, there's an interesting passage in which the BALDC board approved allowing a broader range of operating and maintenance spending to come from an account funded by the required annual payments in lieu of taxes, or PILOTs.
That in turn lowers the burden on the arena operator, a company owned by Mikhail Prokhorov, to otherwise to contribute to operating and maintenance. But the contours of the deal are unclear, and a state official at the meeting said this was merely bringing the arena in line with other sports facilities.
From the video
The speaker is Jonathan Beyer, an ESD official who apparently also serves on the BALDC Board of Directors, or as a staffer. (There's no public listing of staff and board, so we can't be sure.)
"The board of the Brooklyn Arena Local Development Corporation is being asked to approve a second amendment to the arena lease to expand the types of operating and capital expenditures may be paid from landlord's operating and maintenance account, known as the O&M funds," Beyer leads off.
Note that the annual amount of payments in lieu of taxes (PILOTs) paid by the arena operator, a company owned by Mikhail Prokhorov, is fixed, but the amount within it-- including both repayment of construction bonds and contributions to the O&M fund--has been reconfigured.
The 2016 refinancing of the bonds lowered the amount needed to pay off the bonds, and left more money for the O&M fund, thus saving Prokhorov what Bloomberg estimated as $90 million over the course of the bonds.
"The tenant Brooklyn Events Center LLC, or ArenaCo, operates the arena," Beyer said. "The tenant has requested that the corporation as landlord approve the [amendment] providing for the payment of additional categories of lease expenditures."
"In October 2017, Mikhail Prokhorov, the 100% owner of the Nets team and ArenaCo, announced his intention to sell a minority stake in the Nets... As part of the sale process, the National Basketball Association, or NBA, has required that the Arena and Nets amend the Nets license agreement to reallocate a larger portion of revenue from the arena to the team."
In other words, as previously reported, the arena will now collect just 30 percent of food and beverage sales from NBA games, down from the prior 100 percent. That wasn't an issue when Prokhorov owned both the majority of the team and the majority of the arena operating company. But it leaves less revenue for the arena.
So how make it up? "The proposed amendment to the lease will facilitate this revenue reallocation," Beyer said. However, the actual content of that revenue was not specified, hence my request for board materials.
The background
"The PILOT bonds for the project were issued by the corporation in 2009 and partially refunded in 2016," Beyer stated, referring to the refinancing. "The PILOT payments, used to fund the repayment of the bonds, remained the same, despite the savings from the refunding."
In other words, there was more money left for operations and maintenance.
"The PILOTs are applied first to pay debt service on the bonds and then, if there is money remaining, fund the O&M fund to pay for certain landlord O&M costs under the arena lease," Beyer continued.
"The arena lease was a triple net lease except for these certain O&M costs."
Note that the BALDC, as the nominal landlord, doesn't have a self-generated budget for O&M costs. It just reallocates funds from the PILOTs back to the arena operator. A triple net lease, according to Investopedia, involves "the building's property taxes, building insurance and the cost of any maintenance or repairs."
Beyer continued: "With the extra savings from the refunding, there will be additional funds available to pay additional landlord O&M costs, and the additional costs can be used for operating expenses, which will accommodate the NBA requirement to reallocate more revenue from the arena to the team."
"The inclusion of these additional landlord O&M costs is consistent with other leases for other sports facilities financed in the same manner," he said. "This will allow the tenant to use the additional funds available in the O&M fund for more types of operating costs than those contemplated and set forth in the arena lease."
"The landlord’s obligation to pay landlord O&M costs shall continued to be limited to the amount available for disbursement from the O&M funds. And ArenaCo will be responsible for all O&M costs to the extent they are not covered by the O&M fund."
"As described above, PILOTS are applied first to pay debt service... therefore, there will be no interruption or diminution in funds available to pay such debt service, as a result of the proposed amendment. Additionally, the landlord’s obligations to pay such additional operating expenses under the agreement continue to be expressly limited to the amount on deposit in the O&M funds."
"Therefore BALCO [BALDC] will only be obligated to pay for any operating expenses up to the balance of funds available in the O&M fund, which represents PILOTs in excess of debt service."
There's more to the story, though we don't have all the details. On 4/10/18, the little-known Brooklyn Arena Local Development Corporation (BALDC), the state entity set up to issue tax-exempt bonds for the arena, held a little-noticed meeting.
The parent Empire State Development (ESD) posted a media advisory but not board materials. (I've asked for them, but got no response. Transparency!)
At 12:16 of the video, though, there's an interesting passage in which the BALDC board approved allowing a broader range of operating and maintenance spending to come from an account funded by the required annual payments in lieu of taxes, or PILOTs.
That in turn lowers the burden on the arena operator, a company owned by Mikhail Prokhorov, to otherwise to contribute to operating and maintenance. But the contours of the deal are unclear, and a state official at the meeting said this was merely bringing the arena in line with other sports facilities.
From the video
The speaker is Jonathan Beyer, an ESD official who apparently also serves on the BALDC Board of Directors, or as a staffer. (There's no public listing of staff and board, so we can't be sure.)
Note that the annual amount of payments in lieu of taxes (PILOTs) paid by the arena operator, a company owned by Mikhail Prokhorov, is fixed, but the amount within it-- including both repayment of construction bonds and contributions to the O&M fund--has been reconfigured.
The 2016 refinancing of the bonds lowered the amount needed to pay off the bonds, and left more money for the O&M fund, thus saving Prokhorov what Bloomberg estimated as $90 million over the course of the bonds.
"The tenant Brooklyn Events Center LLC, or ArenaCo, operates the arena," Beyer said. "The tenant has requested that the corporation as landlord approve the [amendment] providing for the payment of additional categories of lease expenditures."
"In October 2017, Mikhail Prokhorov, the 100% owner of the Nets team and ArenaCo, announced his intention to sell a minority stake in the Nets... As part of the sale process, the National Basketball Association, or NBA, has required that the Arena and Nets amend the Nets license agreement to reallocate a larger portion of revenue from the arena to the team."
In other words, as previously reported, the arena will now collect just 30 percent of food and beverage sales from NBA games, down from the prior 100 percent. That wasn't an issue when Prokhorov owned both the majority of the team and the majority of the arena operating company. But it leaves less revenue for the arena.
So how make it up? "The proposed amendment to the lease will facilitate this revenue reallocation," Beyer said. However, the actual content of that revenue was not specified, hence my request for board materials.
The background
"The PILOT bonds for the project were issued by the corporation in 2009 and partially refunded in 2016," Beyer stated, referring to the refinancing. "The PILOT payments, used to fund the repayment of the bonds, remained the same, despite the savings from the refunding."
In other words, there was more money left for operations and maintenance.
"The PILOTs are applied first to pay debt service on the bonds and then, if there is money remaining, fund the O&M fund to pay for certain landlord O&M costs under the arena lease," Beyer continued.
"The arena lease was a triple net lease except for these certain O&M costs."
Note that the BALDC, as the nominal landlord, doesn't have a self-generated budget for O&M costs. It just reallocates funds from the PILOTs back to the arena operator. A triple net lease, according to Investopedia, involves "the building's property taxes, building insurance and the cost of any maintenance or repairs."
Beyer continued: "With the extra savings from the refunding, there will be additional funds available to pay additional landlord O&M costs, and the additional costs can be used for operating expenses, which will accommodate the NBA requirement to reallocate more revenue from the arena to the team."
"The inclusion of these additional landlord O&M costs is consistent with other leases for other sports facilities financed in the same manner," he said. "This will allow the tenant to use the additional funds available in the O&M fund for more types of operating costs than those contemplated and set forth in the arena lease."
"The landlord’s obligation to pay landlord O&M costs shall continued to be limited to the amount available for disbursement from the O&M funds. And ArenaCo will be responsible for all O&M costs to the extent they are not covered by the O&M fund."
"As described above, PILOTS are applied first to pay debt service... therefore, there will be no interruption or diminution in funds available to pay such debt service, as a result of the proposed amendment. Additionally, the landlord’s obligations to pay such additional operating expenses under the agreement continue to be expressly limited to the amount on deposit in the O&M funds."
"Therefore BALCO [BALDC] will only be obligated to pay for any operating expenses up to the balance of funds available in the O&M fund, which represents PILOTs in excess of debt service."
The statement "The inclusion of these additional landlord O&M costs is consistent with other leases for other sports facilities financed in the same manner" does not reassure me. PILOTs are usually described as just another word for taxes, and the funds go back to the public.
ReplyDeleteCan you explain this: "Note that the annual amount of payments in lieu of taxes (PILOTs) paid by the arena operator, a company owned by Mikhail Prokhorov, is fixed, but the amount within it-- including both repayment of construction bonds and contributions to the O&M fund--has been reconfigured." So the amount paid is fixed... but who is the recipient? They have a fixed amount that they must pay, but that can go to pay back bonds but it sounds like they are just giving it back to the arena operator to increase their bottom line. And what is that fixed amount?