Market analysis (commissioned by Ratner) suggests arena would have no trouble attracting events, might even host hockey

A Plano, TX-based consultant, Convention, Sports, and Leisure International (CSL International) has concluded that there's a healthy market for the planned Brooklyn Arena, given the large local population, the base of potential sponsors and advertisers, and the enthusiasm of promoters.

Notably, it even suggests that the arena, though downsized to the point it couldn't accommodate professional hockey, could be retrofitted if necessary to house another pro team. It also suggests that there's un-met demand in Brooklyn and nearby boroughs/counties for events that could be held at the arena.

The 180 page Market Analysis, conducted at the behest of arena sponsor Brooklyn Arena LLC (controlled by Forest City Ratner), was included as part of the the Barclays Center Arena Preliminary Official Statement prepared by Goldman Sachs.

CSL acknowledges that "information provided to us by others was not audited or verified, and was assumed to be correct." It also notes that its estimates reflect an improved long-term economic outlook, not a prolonged economic downturn.

Study Highlights (excerpted)

• The Nets currently play in one of the oldest facilities hosting a National Basketball Association franchise.
• The IZOD Center, the Nets’ current home, offers only 28 private suites and no club seats, compared to an NBA average of 94 private suites and approximately 2,100 club seats. The lack of premium seating limits the ability of the Nets to generate revenues.
• The Brooklyn area is part of the most densely populated metropolitan region in the nation with approximately 2.51 million residents.
• With easy access to the tri-state metropolitan marketplace (New York, New Jersey, Connecticut) and the convergence of commercial and retail business, educational institutions and residential neighborhoods, a downtown Brooklyn site is ideal for a new state-of-the-art arena.
• The New York metropolitan area has a high number of professional sports venues and franchises that will present competition to the Barclays Center and the Nets. However, the market has the fourth highest ratio of population per professional sports franchise among the markets analyzed and the Nets are already an existing franchise in the area.
• The corporate markets in both Manhattan and Brooklyn/Queens were surveyed and indicated a high level of support for the Barclays Center in Brooklyn.
• Based on interviews conducted in late 2008 and April 2009 with local and national promoters, the development of a new arena will provide the marketplace with a state of the art facility that will better serve concert and family show promoters. It is expected that the new arena will likely generate incremental events that are not currently being accommodated in the marketplace due to a lack of availability and amenities. It is also likely that the arena will attract a number of events that are currently held at the other area venues. If the IZOD Center ceases to operate after the opening of the Barclays Center, the new arena could accommodate a significant number of those events no longer held at the IZOD Center.
• Moderate and aggressive event estimates have been developed for two different arena scenarios. One scenario assumes that the IZOD Center remains open and is competitive with the new arena, while the other scenario assumes the IZOD Center ceases operations after the Barclays Center opens. It has been estimated that between 184 and 214 events could be held under the scenario with the IZOD Center continuing operation and 204 and 234 assuming the IZOD Center closes.

(Note that ratings agency Moody's suggested that there would be 225 events a year at the arena, while Standard & Poor's thought a total of 220 was aggressive; Forest City Ratner predicts only "over 200" events.)

Naming rights deal in perspective

The report suggests that the Barclays Center naming rights deal maybe didn't deserve all the hype:

The naming rights deal secured for the Barclays Center is considerably larger than any other facility hosting an NBA team. At $200.0 million, the naming rights agreement secured at Barclays Center is greater than the largest naming rights deal secured by an NBA-only facility and comparable to the largest naming rights agreements secured by other NBA/NHL facilities. At a term of 20 years, the Barclays Center naming rights agreement will provide annual revenue to the facility of $10.0 million. Although the naming rights agreement secured at Barclays Center is larger than the amount of the next largest naming rights deal secured by an NBA-only facility, when the amount is analyzed on a per capita value basis, it is below the average of the NBA-only facility naming rights deals... The per capita naming rights value secured at Barclays Center is $0.53, which would rank eleventh among NBA-only facilities and is approximately half of that average for NBA-only facilities..

Sponsors on board

The report suggests that the Barclays Center would have a stronger revenue stream than most arenas:

Pre-selling of naming rights and sponsorships has gotten off to a robust start, adding further credence to financial and operating estimates and projections. To date, the Barclays Center has executed a record naming rights deal with Barclays PLC, as well as contracts representing an additional $10.5 million in annual sponsorship revenues including $1.8 million in the first quarter of 2009. These transactions suggest strong support in the marketplace for the Barclays Center’s ultimate success. The amount of contracted sponsorship revenue is unique among comparable facilities – in fact, the Barclays Center’s revenues are akin to a two-team facility – and gives the arena a strong position while selling remaining sponsorship opportunities. Some of the underlying factors that contributed to the magnitude of the naming rights agreement secured at Barclays Center include the size of the of the New York media market, the number of impressions sports facilities in New York generate annually and the extent to which the surrounding area is a retail and residential destination which serves millions of people annually.

A hockey team?

The report suggests the arena ultimately could accommodate pro hockey:

The New York Islanders could potentially become a tenant of the proposed arena as well, moving from their current home of Nassau Veterans Memorial Coliseum...Current design plans would see the Barclays Center constructed as a facility that is to be used primarily for basketball. If built as planned, the arena would need to be retrofitted to accommodate the ice-making abilities the NHL requires for its franchises. For purposes of this analysis, it has not been assumed that the New York Islanders would relocate to the Barclays Center.

Un-met demand

The report suggests:

When considering only the ten largest U.S. markets, the average ratio of people per seat falls to 146.4, resulting in an unmet demand of 56,313 seats when applied to the New York market population. Even with the large number of new or renovated sports venues and inclusive of the Barclays Center, the NYC CBSA has higher population per seat and higher population per event than other major CBSAs. This data suggests there is demand for additional events in the marketplace.

Is the city kicking in an extra $31 million for property acquisition? It may look like that, but no confirmation is available

Has New York City contributed an additional $31 million subsidy for Atlantic Yards land? While I haven't been able to get an answer from city or state officials, language in bond documents is ambiguous but suggests that conclusion.

According to the Barclays Center Preliminary Official Statement (p. 563) prepared by Goldman Sachs:

City Capital Contribution – The City will make a capital contribution to the project through the appropriation of City funds from the City’s fiscal budget, totaling approximately $131 million, for certain costs incurred and to be incurred in connection with acquisition of the Premises by ESDC [Empire State Development Corporation].

For the acquisition of project land, the city has allocated $100 million, not $131 million. See for example the ESDC's 2009 Modified General Project Plan:

The City is also expected to fund $100 million of Project costs. City funds may be used for infrastructure improvements and for site acquisition costs related to the Project Site (other than for the acquisition of properties owned by the MTA/LIRR).

In other words, while the city has also allocated $105 million for infrastructure, it does not look like that any of that is being used for land acquisition.

More on the $131 million

The Official Statement refers to the New York City Economic Development Corporation (NYCEDC). It also makes a distinction between the initial $100 million, of which $15 million remains to be disbursed, and the additional $31 million. Only the former is subject to the City Funding Agreement.

The City’s capital contribution for the Arena Project, in the aggregate amount of $131 million, will be made available to NYCEDC for transfer to ESDC and disbursement to the Developer upon the satisfaction of certain conditions. As of the date of this Official Statement, NYCEDC has disbursed approximately $85 million of the City Funding Portion, which amount has been disbursed to the Developer by ESDC. The funding and disbursement of the remaining City Funding Portion is subject to the satisfaction of certain requirements which include, without limitation, satisfying eligibility requirements for the types of expenditures requested for reimbursement. ESDC’s obligation to disburse any City Funding Portion is conditioned upon, and subject to, ESDC receiving the amount of such City Funding Portion from NYCEDC pursuant to the City Funding Agreement; accordingly, ESDC will be under no obligation to disburse any part of the City Funding Portion to the Developer except when, and to the extent that, funds for such disbursement have been released and made available to ESDC by NYCEDC. In addition, the funding and disbursement of $15 million of the City Funding Portion is also subject to the satisfaction of certain requirements set forth in the City Funding Agreement, including, without limitation, certification to the effect that at least $100 million of Total Project Costs have been or will be incurred on or prior to the Funding Date during the Third Contribution Period. The funding and disbursement of the remaining $31 million of the City Funding Portion is also subject, without limitation, to the occurrence of the later of the issuance of the Series 2009 PILOT Bonds and the filing of a condemnation petition by ESDC.

(Emphases added)

Just to be clear: Ellerbe Becket is the arena architect; SHoP is merely the façade architect

In September, Forest City Ratner announced "that the award-winning architectural firms Ellerbe Becket and SHoP Architects will collaborate on the design of the Barclays Center."

New York Times architecture critic Nicolai Ourossoff wrote that "Ratner quickly hired Shop Architects, a young New York firm, to spiff up the arena." (SHoP exterior at right.)

A lot of people have casually referred to the arena as a collaborative effort. But the the Barclays Center Arena Preliminary Official Statement (prepared by Goldman Sachs) makes it clear that Ellerbe Becket is the arena architect, while SHoP is merely working on the façade.

In other words, the basic orientation and design of the arena was not changed; the main change concerned the skin. (Original Ellerbe Becket design below.)

From the document

The Architect and the Façade Architect

The Architect, AECOM Ellerbe Becket Architects and Engineers, P.C., is a subsidiary of Ellerbe Becket, Inc., an architecture firm whose experience dates back to 1909 and which has designed over ninety (90) arena and stadium projects in the last twenty (20) years, including six (6) recent arenas for NBA teams: Conseco Fieldhouse in Indianapolis, Indiana, FedEx Forum in Memphis, Tennessee (winner of an AIA design award in 2006), AT&T Center in San Antonio, Texas, Quicken Loans Arena in Cleveland, Ohio, and TD Garden in Boston, Massachusetts. The Architect has also designed sports facilities internationally, including Guangdong Olympic Stadium in China and Saitama Super Arena in Japan. In addition, the Architect, which will contract with the Arena Design/Build Contractor to furnish the design services required for the Arena, has previously collaborated with the Arena Design/Build Contractor on prominent projects such as Conseco Fieldhouse, Time Warner Cable Arena in Charlotte, North Carolina, U.S. Airways Arena in Phoenix, Arizona, AT&T Center, Bank Atlantic Center in Sunrise, Florida, St. Pete Times Forum in Tampa, Florida, the i wireless Center in Moline, Illinois, and the HSBC Center in Buffalo, New York.

The façade of the Arena is being designed by ShoP Architects, P.C., the Façade Architect. The façade consists of an exterior wall system composed of glass and metal panels with horizontal steel bands encircling the building, as further described herein. See “THE ARENA PROJECT—The Arena.” The Façade Architect is a sixty (60) person practice founded by its five (5) principals in 1996 and has been a leader in the transformation of intricate theoretical design into easily understood construction models by rethinking architectural practice. Its current work includes a two- (2-) mile waterfront park along New York’s East River, and projects for the Fashion Institute of Technology and Goldman, Sachs & Co., both in Manhattan, and Google in Mountain View, California. Recently completed projects include Garden Street Lofts in Hoboken, New Jersey, Hangil Book House in Seoul, South Korea, The Porter House in New York City, and SanLiTun in Beijing, China. The Façade Architect’s work has won numerous awards, including the 2009 National Design Award for Architecture Design, awarded by Smithsonian’s Cooper-Hewitt, National Design Museum. The Façade Architect’s work has also been published and exhibited internationally, and is in the permanent collection of the Museum of Modern Art.

If the arena is built as a green building, it'll cost every visitor a buick

From a October 2008 Atlantic Yards brochure from Forest City Ratner:

Every building in Atlantic Yards will achieve LEED certification, with a goal of Silver.

From the Empire State Development Corporation's June 2009 Modified General Project Plan:

the Project aims, through this comprehensive and cohesive plan, to provide for the following public uses and purposes... sustainability and green design through the application of comprehensive sustainable design goals that make efficient use of energy, building materials and water

From the Barclays Center Arena Preliminary Official Statement (prepared by Goldman Sachs) and released this week:

The green building fee is a $1.00 per ticket surcharge added to all tickets to help defray the cost of the Arena’s LEED certification. ArenaCo will receive all green building fees, regardless of whether they are attached to Nets or other event tickets.

Why the arena would cost about $900 million--and why the Carlton Avenue Bridge job hasn't been paid for yet

In the Empire State Development Corporation's 2009 Modified General Project Plan, the Atlantic Yards arena was to cost $772 million, but there was also $717 million for project infrastructure as a whole.

Now, according to the Barclays Center Arena Preliminary Official Statement (prepared by Goldman Sachs) states, the arena would cost $904.3 million, including $807.1 million for site preparation costs, hard costs, soft costs and contingency, plus $97.2 million for Arena Infrastructure. Add to that $195 million in Related Infrastructure needed for the arena to open.

That adds up to just about $1.1 billion.

Arena Project $904.3 million

From the document:

Arena Project costs including site preparation costs, hard costs, soft costs and contingency which total approximately $807.1 million and Arena Infrastructure costs total approximately $97.2 million. Total Arena Project costs will thus equal approximately $904.3 million. Of the approximately $904.3 million of total Arena Project costs, approximately $156.5 million has been contributed as of October 31, 2009, which amount includes $85 million in funds received under the City Funding Agreement. As of November 1, 2009, approximately $747.8 million in costs will be required to complete the Arena Project (approximately $655.8 million are Arena costs and approximately $92.0 million are Arena Infrastructure costs). Of the approximately $655.8 million of remaining Arena costs, approximately $481.3 million are covered by the provisions of the Arena Design/Build Contract (exclusive of approximately $3.3 million which has been paid to the Arena Design/Build Contractor). The approximately $481.3 million covered by the Design/Build Contract includes approximately $19.7 million of contingency. Furthermore, there is an additional Arena Project contingency in the amount of approximately $33.4 million. Contracts have not yet been entered into for the construction of the Arena Infrastructure.

Related Infrastructure $195 million

From the document:

In addition to the construction of the Arena Infrastructure, certain other items of infrastructure (the “Related Infrastructure”) will be required in order to open the Arena. Total Related Infrastructure Improvement Costs are projected to be $195.0 million, approximately $94.5 million of which has been incurred as of October 31, 2009 with $100.5 million of which is remaining to be incurred. The costs of such Related Infrastructure are not covered by the proceeds of the Series 2009 PILOT Bonds.

Such work overlaps with that of the Atlantic Yards Project, some of which is in progress and all of which will be performed by AYDC or its affiliates and funded from other sources, including but mot limited to amounts received from the State under the State Funding Agreement. Funds needed to complete the Related Infrastructure will be deposited by AYDC in a trust account, separate from the funds and accounts established under the PILOT Bonds Indenture for the Series 2009 PILOT Bonds, on or about the date on which ESDC acquires vacant possession of the Arena Premises and certain other parcels within the AY Project Site, as described below under “—Infrastructure Trust Agreement.” However, if such funds are not made available at that time, the Series 2009 PILOT Bonds will be subject to extraordinary mandatory redemption as described herein. See “INTRODUCTION—Commencement Agreement” and “THE SERIES 2009 PILOT BONDS—Redemption—Extraordinary Mandatory Redemption.”

The Related Infrastructure will include the following work necessary for the development, construction, equipment and operation of the Arena: construction of a temporary rail yard in order to move most of LIRR operations off of the Arena Premises; excavation and relocation of sewer pipes and water mains from Fifth Avenue and Pacific Avenue to permit construction of the Arena Project and to service the Arena; demolition of existing improvements; environmental remediation, and the rebuilding of the Carlton Avenue Bridge which links Atlantic Avenue and Pacific Street on the East side of the AY Project Site, between Sixth Avenue and Vanderbilt Avenue. Parking to service Arena patrons on a nonexclusive basis will initially be provided on the eastern side of the AY Project Site, on Block 1129 on the Borough of Brooklyn Tax Map (“Block 1129”), to service the Arena. See “ARENA MANAGEMENT AND OPERATIONS⎯Project Leases and Agreements⎯Parking Easement.”

The Carlton Avenue Bridge

Wonder when the Carlton Avenue Bridge would be reconstructed? (It was supposed to take two years but instead would take at least three years.) Well, the money is supposed to be coming.

From the document:

Infrastructure Trust Agreement. The funds necessary to complete the Related Infrastructure will be held pursuant to the Infrastructure Trust Agreement among AYDC, the City and The Bank of New York Mellon, as Infrastructure Trustee (the “Infrastructure Trust Agreement”). The Infrastructure Trust Agreement requires that, at the time of the delivery of vacant possession the parcels that make up the first taking of land within the AY Project Site, including the Arena Premises, (i) $15.0 million be placed in a Bridge Construction Account to be used for costs of the construction of the Carlton Avenue Bridge, and (ii) such funds as are required by the Construction Monitor to complete other Related Infrastructure improvements be placed in an Infrastructure Improvements Account (such account, together with the Bridge Construction Account, the “Infrastructure Fund”). The Infrastructure Trustee will disburse the funds in accordance with the requisition requests made by the Construction Monitor. Pursuant to the Infrastructure Trust Agreement, no requisition requests to draw funds from the Bridge Construction

The plans for arena transactions and PILOTs; see if they make sense to you

Wondering how the Atlantic Yards arena deal would work? The Barclays Center Arena Preliminary Official Statement (prepared by Goldman Sachs) offers some charts on the deal structure and the payments in lieu of taxes (PILOTs).

Click on graphics to enlarge.

The deal structure



The collection and application of PILOTs

The temporary Vanderbilt Yard is already in operation

The temporary Vanderbilt Yard is already in operation.

From the Barclays Center Arena Preliminary Official Statement (prepared by Goldman Sachs):

As of the date of this Official Statement, LIRR has moved operations into the completed Temporary Yard, has de-energized the existing tracks within the Arena premises, and has signed an agreement with RailCo which allows for the cutting and removal of such track by RailCo. Of the budgeted hard-cost amount of $65.7 million, $55.8 million has been expended as of October 31, 2009, with approximately $9.9 million remaining to be expended, of which amount approximately $8.3 million consists mainly of so-called “dead-heading” costs of LIRR.

FCE has delivered to the MTA and LIRR a completion guaranty for the Temporary Yard Work, together with a letter of credit in the amount of $5.0 million, to secure the completion of the Temporary Yard Work and certain other obligations of RailCo, the Arena Developer and other affiliates of ArenaCo.

Nah, the Nets won't play in Brooklyn in the 2011-12 season

I wrote earlier today that the arena might open in April 2012, giving the Nets just a few games in Brooklyn.

Nah.

A market study attached to the Barclays Center Arena Preliminary Official Statement (prepared by Goldman Sachs) states, "It is assumed that the arena will open in May of 2012. As such, the year ending June 30, 2012 only reflects two months of operations."

And there is no sum under the column "Guaranteed Rental Payments (Nets' Ticket Sales)" for the 2012 fiscal year. (See p. 553 of the PDF.)

At entrance to the arena, "Urban Room" becomes "urban plaza" becomes (interim) "Urban Experience"

Once there was supposed to be a soaring Urban Room serving as entrance to the Atlantic Yards arena. With the absence of Building 1, in which the Urban Room was to be incorporated, Forest City Ratner representatives started talking about an "urban plaza."

No more. Now it's an "Urban Experience," not to be confused--presumably--with an actual urban experience. It's another one for the Atlantic Yards Lexicon.

From the Barclays Center Arena Preliminary Official Statement (prepared by Goldman Sachs):

The Arena Premises “Site Work” will include the design and construction of the sidewalks for the Arena Premises, bollards and street trees. Site Work will also include construction of the “Urban Experience,” which is an interim condition until a so-called “Urban Room” is developed by AYDC or its affiliate or assignee, as required by the Development Agreement between ESDC and the Developer. The Urban Experience will be an outdoor urban plaza designed to be located at the southeast corner of Flatbush Avenue and Atlantic Avenue and will be a significant public amenity complying with the basic use and design principles of the Urban Room, as set forth in the Atlantic Yards Design Guidelines. The plaza will be no less than 10,000 square feet in area and will be generally open to the public twenty-four (24) hours a day, seven (7) days a week. It is anticipated that the plaza will include the following elements: landscaping, retail, seating, the new subway entrance, and space to allow for formal and informal public uses, such as outdoor performances, temporary markets, and art installations. In addition, the plaza may include public art or a prominent sculptural element (such as a canopy or other architectural feature that could be part of the Arena and the Transit Improvements). The design of the Urban Experience is not yet complete, and the Developer has not yet contracted for its construction. The total cost for Site Work is anticipated to be approximately $22.9 million (approximately $1.9 million of which has been contributed and approximately $21.0 million of which is remaining). Turner has estimated the cost of constructing and installing the sidewalks, bollards and street trees (approximately $14.3 million of total Site Work cost) based on ninety percent (90%) construction documents, and the Arena Developer has estimated the anticipated approximately $6.6 million cost of the plaza based on a conceptual design. The concepts and plans for the Site Work have been developed in consultation with the relevant public sector entities, whose final approval is still required.

(Emphasis added)

Appellate Division overturns ESDC's use of eminent domain for Columbia expansion; how different is it from AY?

From the majority opinion in the Appellate Division's 3-2 overturning of the Empire State Development Corporation's (ESDC) planned use of eminent domain for the Columbia University expansion:

It is recognized that Kelo, as described below, did not concern an area characterized as "blighted." However, the blight designation in the instant case is mere sophistry. It was utilized by ESDC years after the scheme was hatched to justify the employment of eminent domain but this project has always primarily concerned a massive capital project for Columbia. Indeed, it is nothing more than economic redevelopment wearing a different face.

So too did the Atlantic Yards petitioners argue that blight was a pretext because it wasn't mentioned as a justification for the project for more than a year after it was announced--an issue ignored by the majority in the Court of Appeals decision last week.

Underutilization

Wrote Justice James Catterson (who also filed a fiery concurrence in the case challenging the AY environmental review):

The most egregious conclusion offered in support of the finding of blight is that of underutilization. AKRF and Earth Tech allege the existence of blight from, inter alia, the degree of utilization, or percentage of maximum permitted floor area ratio ("FAR") to which lots are built. The theoretical justification for using the degree of utilization of development rights as an indicator of blight is the inference that it reflects owners' inability to make profitable use of full development rights due to lack of demand. Lack of demand can only be determined in relation to the FAR when combined with the zoning for the area in question. Manhattanville, for the relevant period, was zoned to allow maximum FAR of two, leaving owners essentially with a choice between a one or two-story structure. No rationale was presented by the respondents for the wholly arbitrary standard of counting any lot built to 60% or less of maximum FAR as constituting a blighted condition.

This is the exact same ratio used in the Atlantic Yards Blight Study.

Here was my coverage of the oral argument, where plaintiffs' attorney Norman Siegel seemed to have gained ground.

All eminent domain cases start in the Appellate Division. The two combined cases are known as In re Parminder Kaur, et al., vs. New York State Urban Development Corporation and In re Tuck-It-Away, Inc., vs. New York State Urban Development Corporation. Tuck-It-Away is owned by Nick Sprayregen.

Appeal coming, ESDC response

The decision, given its divided nature and the Court of Appeals decision last week in the AY case, will be appealed.

The ESDC issued a statement:

ESDC believes the decision of the Appellate Division, First Department in the matter of the Columbia University Manhattanville Campus to be wrong and inconsistent with established law, as consistently articulated by the New York State Court of Appeals, most recently with respect to ESDC's Atlantic Yards project. ESDC intends to appeal this decision.

The dissent

The dissent drew on two cases involving AY, the first involving the environmental review, the second involving the eminent domain case:

Petitioners present merely "a difference of opinion" with the conclusions to be drawn from this evidence, in which event the courts are bound to defer to the agency (Matter of Develop Don't Destroy (Brooklyn) v Urban Dev. Corp.).

As the Court of Appeals recently stated:
"It is quite possible to differ with ESDC's findings that the blocks in question are affected by numerous conditions indicative of blight, but any such difference would not, on this record, in which the bases for the agency findings have been extensively documented photographically and otherwise on a lot-by-lot basis, amount to more than another reasonable view of the matter; such a difference could not, consonant with what we have recognized to be the structural limitations upon our review of what is essentially a legislative prerogative, furnish a ground to afford petitioners relief" (Goldstein v New York State Urban Dev. Corp.)

An AY comparison

From the majority opinion:

In support, the petitioners note that AKRF, the consultant for this Project, as well as the Atlantic Yards project, used different standards for determining blight. For example, the petitioners noted that in the Atlantic Yards study, AKRF considered buildings that are at least 50% vacant to exhibit blight, whereas in this Project AKRF considered a vacancy rate of 25% or more to be substandard. We agree with the petitioners' contentions and find that the statute is unconstitutional as applied.

After two renegotiations, Barclays naming rights agreement is $10 million a year (not $20 million, never formally confirmed)

Maybe it was never $20 million. Or maybe it was, but that changed after renegotiation. I suggested Tuesday that the Barclays Capital naming rights agreement for the Atlantic Yards arena--unspecified in ratings agency reports--may well have been renegotiated after the project was delayed and marquee architect Frank Gehry left the project.

Well, the Barclays Center Project Preliminary Official Statement (see p. 38 and 78-79) indicates that the 20-year Barclays Center Naming Rights Agreement was renegotiated twice and is worth $10 million a year. The statement was prepared by Goldman Sachs.

(The document was acquired by Eliot Brown of the New York Observer, who quotes Forest City Ratner spokesman Joe DePlasco, spinning as always, as asserting the value is more because it includes "the arena, team and hospitality assets." Sure. But they're not saying $20 million a year.)

Other previous evidence of sweeteners: the addition of Barclays to the bond deal and the naming rights agreement for the Atlantic Avenue/Pacific Street station.

By the way, the New York Times just this week asserted the agreement was for $20 million a year.

When it comes to tax-exempt bonds (for BALDC and WTC), the ESDC shows inconsistent transparency

The New York Liberty Development Corporation, another special-purpose subsidiary (more or less) of the Empire State Development Corporation (ESDC), is having a meeting today at 9 am (webcast) regarding $2.6 billion in tax-free bonds for the use of World Trade Center (WTC) developer Larry Silverstein.

Except the bonds were already approved yesterday. Reuters reports:

Following its "common practice," the board approved Silverstein's Liberty bonds one day before holding a public hearing on the offering, she said.

"In case there is a large amount of public testimony, then the board is asked to meet again to review the testimony and the board will deny or affirm the sale," the spokeswoman said.

Bettina Damiani, project director for Good Jobs New York, an advocacy group, criticized the state agency for not waiting until after the public had a chance to comment.

"For the corporation to approve the bonds before a public hearing is the height of hypocrisy," she said.

Compared with BALDC

That seems both worse--and better--than the process last week by which the Brooklyn Arena Local Development Corporation (BALDC) approved tax-exempt and taxable bonds for the Atlantic Yards arena.

However much the decision was preordained, the BALDC did not meet a day ahead of time. On the other hand, no testimony was allowed; it was a public meeting, not a public hearing.

More notice

Earlier this week, Damiani pointed to ways in which the process behind the New York Liberty Development Corporation offering was more transparent than the BALDC process.

For example, the ESDC distributed a description of the project, the financing terms, and the application in advance of the hearing. In 2005, she said, materials regarding the Goldman Sachs application for such bonds included a paragraph on the “social and economic impact” of the project.

That's not in the more recent materials--nor, I'd add, in the BALDC materials.

"By comparison, the New York City Industrial Development Authority has a more systematic and transparent process (which didn’t hold up egregious tax-free financing to the Yankees or Mets, TWICE!) that make public copies of application and a cost-benefit analysis in advance of hearings," Damiani said.

"I’m confused why the ESDC believes the various public hearings on the Atlantic Yards project are a suitable replacement for a proper hearing when basic information like the terms of the bonds, economic and social impacts were never made public at those hearings," she observed.

"Which of these projects deserves more transparency than the other?" she said, contrasting today's hearing with last week's meeting. "How does the ESDC quantify the value of a community’s input? Who decides where that line is drawn? Inconsistent policies, like what we’ve seen the past several days, do little to boost New Yorkers confidence of the state’s public authorities or the projects they aim to develop."

At the Izod Center, an "End Ratner’s Reign of Error!” sign is squelched

From columnist Steve Politi of the Newark Star-Ledger, reporting on the game in which the Nets set a record for season-starting futility:

The sign was a simple protest, scrawled on a white poster board in black Magic Marker. It did not contain any naughty words. It was, as these things go at sporting events, rather tame.

“End Ratner’s Reign of Error!” the sign read, and 14-year-old Evan Juliano held it up twice from his seats a few rows behind the Nets bench.

He held it up because he and his father, Dave, are season-ticket holders for what is fast becoming the worst team in NBA history, an 0-18 train wreck that didn’t even bother to show up for its date with infamy Wednesday night.

But somewhere in the second quarter, as the Mavericks impossibly scored on 22 of 24 possessions en route to a 117-101 victory, the Julianos were told to put their sign down. They were told it was derogatory.

...“I told him, it’s not derogatory to me — it’s the truth,” Dave Juliano said, pointing to the mess on the court. “We’re season-ticket holders. We have the right to express ourselves.”

Not here, apparently. The Nets and Bruce Ratner deserve every iota of criticism they get for putting this steaming carcass of a basketball team on the floor, but apparently, they’re not willing to take it.

Click through for the rest, and the video in which Politi discusses the episode with colleague Dave D'Alessandro.

Ken Berger of CBSSports.com, however, thinks the Brooklyn move is a reason for long-term hope.

Could Prokhorov become majority owner of the arena, too? If he buys the subordinated bonds and they fail, so it seems

Could Russian billionaire Mikhail Prokhorov control not just the majority of the Nets (of which he would buy 80%) but also the Atlantic Yards arena (of which he's slated to own a 45% stake)?

Maybe, but two not-at-all assured things have to happen: 1) he buys the riskier subordinated bonds and 2) there's not enough revenue from the project to make the bond payments.

(Remember, there would be $500 million in tax-exempt bonds, which were rated by the ratings agencies, and $146.8 million in unrated taxable bonds, likely at junk bond interest rates.)

Prokhorov's role

An article headlined Nets Arena gambles on subordinated tranche, in the subscription-only ProjectFinance magazine, suggests, without a named source, that Prokhorov will be buying the bonds:

But the new Russian investor is set to have a majority position in the team's equity, and the subordinated bonds, as well as a substantial minority position in the project company's equity. If Prokhorov buys the subordinated bonds, which are serviced through lower quality and more uncertain cashflows, and the project experiences a sustained period of weak financial performance, then in the event of a default on the subdebt, he would take control of the project. Nevertheless, the likely overlap in ownership between the team, project company and subordinated bonds minimises the potential for conflict between these parties.

The upshot, though, is that the enormous state effort to get the project going--the Blight Study, the use of eminent domain, the tax-exempt bonds, etc.--could turn out to provide the most significant benefits to Russia's richest man.

The mysteries of the $131 million in New York City equity and the number of arena events

As I wrote yesterday, the bond ratings agency Moody's counts $131 million from New York City as an substantial equity component, but that doesn't make sense.

If Moody's is counting city funding for land and infrastructure--and considering the "project" the arena plus infrastructure--it should also count at least some portion of the state's $100 million for infrastructure.

That $131 million figure, nor any other component of equity, is not mentioned in the other ratings agency report on the project, from Standard & Poor's.

Arena events

According to the Standard & Poor's report:

Of the 220 expected annual events at the arena, 41 will be basketball (excluding playoffs) and the remainder will be concerts, family shows, etc. We believe this expectation to be aggressive.

Indeed, they should. After all, the arena sponsors most recently predicted "over 200" events, and the one-time prediction of 225 events a year depended on no competing arenas in either the Meadowlands or Newark.

If all goes well, the Nets might play in Brooklyn for the last games in 2012

A tidbit in the Standard & Poor's report rating tax-exempt bonds for the planned Brooklyn arena: "construction is expected to be completed by April 1, 2012."

If the Nets aim to play ball, as Bruce Ratner asserts, "in the 2011-2012 NBA Season," that would mean--extrapolating from the current schedule--that the team would play its last three home games in Brooklyn.

Don't count on it. (The Times reported June 2012.)

Revised public authority reform legislation passes Senate, should be signed by Paterson

With passage of a revised bill in the Senate, the long legislative effort to reform public authorities has finally come to fruition, with modest changes from the earlier bill that passed the Legislature but was stalled by complaints, notably from Mayor Mike Bloomberg. This bill is expected to be signed by Governor David Paterson.

The legislation still binds authority board members to their fiduciary duty, rather than the bidding of the public official that appointed them, and still requires an appraisal of property before it's disposed of.

Selling assets below fair market value

But the language regarding selling assets at less than fair market value was tweaked to allow more flexibility. While such transfers are still allowed, the governor, the Senate, or the Assembly can veto such a proposed transfer.

Should a below fair market value asset transfer be proposed, not only is an appraisal required, but also a description of the expected benefits of the transfer and the names of the private parties participating in the transfer and the private parties who made an offer for the asset.

Also, the board must determine, in writing, that "there is no reasonable alternative to the proposed below-market transfer that would achieve the same purpose of such transfer."

As noted by WNYC, this was provision prompted by the Metropolitan Transportation Authority's initial Hudson Yards sale--and the issue has been raised repeatedly in the Atlantic Yards dispute.

So, had the bill passed before the MTA's Vanderbilt Yard deal, the latter would have prompted a lot more scrutiny and, perhaps, a denial.

On WBAI radio this afternoon: an Atlantic Yards/eminent domain discussion

This afternoon, on WBAI radio's Behind the News, host Doug Henwood (also editor of the Left Business Observer), will discuss Atlantic Yards and eminent domain with two guests.

They are City Council member Letitia James and Dana Berliner, an attorney with the libertarian Institute for Justice, who worked on the Kelo case in New London and many other high-profile cases.

The segment will be from 5:10-5:30 pm on WBAI, 99.5 FM. Shows are livestreamed here and archived here.

Nets (Never Ending Terrible Season) lose to Mavericks, set record for futility

Blown out tonight, 117-101, by the hot-shooting Dallas Mavericks, the Nets are now 0-18 to start the season, setting a National Basketball Association record for futility (at the start of a season) and validating the sign in the audience reading Never Ending Terrible Season.

The arena, reports the Times, was "perhaps half full." The official attendance was 11,689, about 58% of capacity.

It is no small irony that the record was set against the Mavericks, led by point guard Jason Kidd, whom the Nets traded away for Devin Harris. Last year, it looked like the Nets had gotten the better of the deal, but, with Harris's injuries and Kidd's resurgence, sportswriters aren't so sure.

And, of course, it is no small irony that the record was set as the long-delayed move of the Nets to Brooklyn comes closer and closer, with arena bonds rated at (barely) investment grade and the salary cap flexibility to upgrade the team.

So, team backers riding out this very rough patch of sea think there's smoother sailing someday.

AY facts and fiction, from Noticing New York

Noticing New York blogger Michael D.D. White, in a post headlined Unfair Substitution of Fiction for Fact in the Atlantic Yards Dialogue, writes:

A prevailing hallmark of the promotion for Forest City Ratner’s proposed Atlantic Yards Brooklyn real estate mega-monopoly is the extremely unfair way that fiction has been routinely substituted for and intermingled with what are theoretically the actual facts.

Some of the fictions are more debatable than others--after all, the Atlantic Yards site likely would have an arena, thus different from the infamous site in New London.

But White and other critics/opponents have a lot of ammo, starting with incontrovertible deceptions like the crime analysis in the Blight Study.

Read on to the conclusion:

Applying this formulation to Ratner’s saying that he needed to “get a bigger wall”: It has the characteristics of truth or what can be referred to as “one or more truth characteristics.”

Ratings agency Moody's, asked why it assumes 225 events a year at the AY arena, won't discuss it

Given that a Moody's analyst told the Bond Buyer that its just-above-junk rating for $500 million in Barclays Center PILOT bonds depended in part on 225 events a year, I thought it was worth following up.

Noting that the arena sponsors most recently predicted 200 events a year (an 11% difference), I asked if Moody's was confident of the stated total of 225 events and, if there were 200 events, how might that change the rating.

(More precisely, the sponsors predicted "over 200," but had previously, with much more confidence, predicted larger numbers. And, as we've known for years, the original projection of 225 events a year depended on the closing of the Meadowlands Arena (now the Izod Center) and no construction of an arena in Newark.)

Moody's spokesman John Cline responded, "I'm going to have to direct you back to the release. That is our comment."

The ratings agency release said nothing about the number of events; that was elicited in an interview.

My take: Moody's made a mistake.

Were there only 200 events a year, that doesn't mean projected revenue would go down 11%, given that naming rights and sponsorships are separate from ticket sales. But revenue would go down somewhat, which adds to the risk of an already risky deal.

Ex-Net Jason Kidd 'fesses up: AY is "about a real estate play" (not "doing the right thing")

Nets point guard Jason Kidd, at an 8/23/06 press conference event before the Empire State Development Corporation's public hearing on the Atlantic Yards Draft Environmental Impact Statement:

"Getting to know Brooklyn and getting to know the community has proven to me that [Nets principal owner] Bruce [Ratner] is doing the right thing."

Kidd, now with the Dallas Mavericks, had a different message for today's New York Daily News:

"It's just one after another. It (the Nets' downfall) was something that was going to eventually happen. It reminded me of when I was with Dallas the first time (in the early '90s) and (H. Ross Perot Jr.) bought the team and it wasn't about basketball. It was about a real estate play. That is what happened with the Nets."

On blight, the Court of Appeals vs. New York magazine's "Approval Matrix"

From New York magazine's weekly Approval Matrix, locating last week's Court of Appeals decision on eminent domain at the extreme intersection of "Highbrow" and "Despicable."

How the BALDC seemingly flouts the state Open Meetings Law, and why it probably doesn't scotch the AY bond deal

When the Brooklyn Arena Local Development Corporation (BALDC) adopted several resolutions in September--including a predicate to the issuance of tax-exempt arena bonds--without a public meeting, it seemingly violated the state's Open Meetings Law.

However, that seeming violation likely had no impact on the issuance of those bonds because another clause in the law says its provisions won't affect the validity of bond issues.

Official concerns

The issue was first raised in a report on WNYC radio, quoting Robert Freeman, executive director of the state Committee on Open Government (COOG):

REPORTER: Robert Freeman, a state official overseeing freedom of information law, says the September decision was apparently invalid anyway, given that it took place not in an open meeting, but by written consent.

(This report concerned only the now-abandoned plan to issue $400 million in tax-exempt bonds for infrastructure.)



Arena bonds invalid?

If that September decision was invalid, was not the rest of that Inducement Resolution--adopted by unanimous written consent in lieu of a meeting--in which the BALDC resolved to issue up to $1.1 billion in bonds for the arena?

If so, was the invalid decision superseded by the BALDC open meeting last week?

Freeman, in an interview, said that the BALDC, which he called a "dummy not-for-profit corporation," should not be allowed to avoid meeting in public. However, he backed off from assertions that decisions made by the BALDC regarding bonds were thus invalid.

What's a meeting?

The BALDC Inducement Resolution (click on excerpt to enlarge) asserts that it operates subject to Section 708(b) of the state's Not-for-Profit Corporation Law, which allows for business to be conducted inprivate, by writing:

(b) Unless otherwise restricted by the certificate of incorporation or the by-laws, any action required or permitted to be taken by the board or any committee thereof may be taken without a meeting if all members of the board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the board or committee shall be filed with the minutes of the proceedings of the board or committee.

Meanwhile, Section 102 of the Open Meetings Law, requires meetings to be viewable by the public:

1. "Meeting" means the official convening of a public body for the purpose of conducting public business, including the use of videoconferencing for attendance and participation by the members of the public body.

So, which applies? Freeman says the latter, noting that the Not-for-Profit Corporation law is aimed at organizations that have nothing to do with government.

"Dummy not-for-profit"

The BALDC is among those Freeman calls "dummy not-for-profit corporations," which are formally not-for-profits but essentially operate as the equivalent of government agencies or authorities. After all, the BALDC board consists of state officials and staffers from the Empire State Development Corporation (ESDC) work for and answer questions about the BALDC.

"My understanding is this particular corporation acts under the umbrella and functions under the umbrella of the ESDC," said Freeman, who acknowledged he was providing an unofficial verbal opinion. "It is government, irrespective of its corporate status. I believe it is required to comply with both the [Freedom of Information Law] and the Open Meetings Law."

He pointed to a unanimous 1994 Court of Appeals decision, Buffalo News v. Buffalo Enterprise Development Corporation , in which the latter was determined to be an "agency" within the meaning of the Freedom of Information Law. The decision stated:

The BEDC, a Not-For-Profit local development corporation, channels public funds into the community and enjoys many attributes of public entities. It should therefore be deemed an "agency" within FOIL's reach in this case.

Impact of meeting?

So, would the failure to hold an open meeting in September have any impact on the issuance of bonds approved at an open meeting in November?

Freeman said he wasn't sure, but agreed that another part of the Open Meetings Law seems to offer a pass. Section 107 states:

The provisions of this article shall not affect the validity of the authorization, acquisition, execution or disposition of a bond issue or notes.

Court oversight?

Freeman said there's virtually no case law on the latter issue, so any effort to enforce the seemingly conflicting provisions--the need for a public meeting and the apparent trump card given to bond issues--would be up to the courts.

In other cases, the most stringent penalty for violations of the Open Meetings Law is invalidation of the action taken by the public body, he said. But courts have a great deal of discretion.

(My bet is that the courts would let this one go, given that they've failed to look closely at other issues, such as blight/eminent domain and the project's environmental review.)

Who could go to court? "Any aggrieved person," he said.

The COOG, he said, has no authority to initiate litigation but does "prepare advisory legal opinions at the request of anybody."

The slippery, risky Atlantic Yards bond deal

Did you notice that the Atlantic Yards financing deal keeps changing and has some very unclear numbers?

No infrastructure bonds

In September, the Brooklyn Arena Local Development Corporation (BALDC) agreed that it was willing to authorize up to $400 million in tax-exempt bonds for Atlantic Yards infrastructure. Now that plan is off the table.

PILOT bonds lowered in a week

Last week, the BALDC contemplated issuing up to $825 million in tax-exempt and taxable bonds for the arena. Yesterday, the amount of tax-exempt bonds had declined from $600-$650 million to just $500 million, in order to reassure investors.

Risky tactics denied but not ruled out

Officials of the BALDC say they won't do the following things, but won't definitively rule them out:

• issue additional bonds
• bail out investors who lose on arena bonds
• issue tax-exempt bonds for infrastructure

Unclear source of funds

Ratings agency Moody's says:

The financing structure of the Barclays Center Project has a substantial equity component of approximately $424.4 million (40%) of the approximate $1.06 billion in total funding sources. The funds are being contributed to the Barclays Center Project by New York City ($131 million) and the sponsors/developers, Forest City Enterprises Inc. and affiliates as well as Mikhail Prokhorov ($293.4 million), in the form of additional rent. The $131 million from New York City demonstrates strong municipal government support for this project.

That $131 million city subsidy doesn't make sense. If Moody's is counting city funding for land and infrastructure--and considering the "project" the arena plus infrastructure--it should also count at least some portion of the state's $100 million for infrastructure.

Overblown number of arena events

Ratings agency Moody's says its assessment of the Atlantic Yards bonds depends on 225 events a year. But the developer of the Barclays Center claimed in September that the arena would hold 200 events a year. That's an 11% difference.

Ratings agency Moody's says its estimates are based on 225 events a year at the Brooklyn arena, but that total's overblown

An updated article in the Bond Buyer, headlined Atlantic Yards Debt Gets Rated, quotes a ratings agency analyst explaining why the PILOT bonds for the planned Barclays Center got an investment grade.

But the number of arena events is inflated:

Out of the 225 days a year the arena is expected to hold events, only 40 to 45 of those will be Nets games, [Moody’s analyst Richard Donner] said.

“While the Nets are important as an anchor tenant, the arena is reliant upon other revenues,” Donner said. “We view that as a positive.”

However, a 9/16/09 Barclays Center press release stated, "Overall, the arena will host over 200 events annually."

And, as we've known for years, the original projection of 225 events a year depended on the closing of the Meadowlands Arena (now the Izod Center) and no construction of an arena in Newark.

But there's an arena in Newark.

So, does Moody's know what it's doing?

Louisville comparison

According to the Donner interview in the Bond Buyer, the ratings agency compared the revenue streams to new stadiums in New York and a new arena in Louisville.

Why tax-exempt bond total was reduced

Also, now we know why the amount of tax-exempt bonds was reduced:

Last week the Brooklyn Arena LDC approved up to $825 million of bonds for the project, of which up to $650 million was to be PILOT bonds. The deal was sized down to improve the senior debt’s coverage ratios, Donner said.

A "debt service coverage ratio" is "the amount of cash flow available to meet annual interest and principal payments on debt."

Paterson meets with Atlantic Yards opponents, promises "objective and fair hearing" (but what does that mean now?)

So, as the Empire State Development Corporation (ESDC) moves forward with Atlantic Yards, can the man in charge of the agency, Governor David Paterson--once a public opponent of eminent domain (as DDDB's Daniel Goldstein reminds us), now a tacit supporter of Atlantic Yards--do anything?

Well, at least he's listening. Last night, before a "community conversation" at the First A.M.E. Zion Church in Bedford-Stuyvesant, organized by local elected officials. Paterson held a hastily-called meeting with a small group of Atlantic Yards opponents.

(Photos by Tracy Collins; set)

He promised them "an objective and fair hearing"--seemingly meaningless (and too late) boilerplate given that state agencies like the ESDC and Metropolitan Transportation Authority have already been charged to do so and have vigorously defended their actions in court after being sued.

Also, with a bond sale in the works, surely others in the administration would tell Paterson that the horse is about to leave the barn and stopping the project would lead to a huge legal mess. Then again, there's a serious argument--as per Nicole Gelinas--that the bond sale is risky, thus giving Paterson some cover, should he invoke his maverick streak.

(What could he do? Tell the ESDC not to pursue eminent domain? Stall the bond sale?)

The meeting

Paterson's staff organized the meeting with less than a day's notice, in response to communications from Council Member Letitia James. Later, in the segment of the meeting acknowledging local elected officials, Paterson dubbed James "the ghost of Atlantic Yards."

In her brief public remarks, James eschewed direct mention of AY but said, "We need development which is in the best interests of the city and state and which will not increase our debt."

The AY question

The Atlantic Yards question came not from one of the several AY activists in the crowd--well outnumbered by hundreds of neighborhood folk--but from Mary Alice Miller, a writer for Our Time Press and a Room 8 blogger.

"Would you tell us how you feel about giving 1.5 billion dollars in tax-free bonds in order to build Atlantic Yards, build a stadium that would create part-time jobs, and there's no promise that affordable housing would be built?" Miller asked.

Actually, there would be only $500 million in tax-free bonds; the state says there would be 4538 new jobs, but that depends significantly on the building of an office tower.

Other full-time jobs, in retail and building services, depend on the construction of housing towers and, under one scenario acknowledged by the ESDC, only one may be built in the near term.



(Video by Tracy Collins)

Paterson's response

Paterson responded, "In the case of Atlantic Yards, a committee of advocates who are opposed to the Atlantic Yards decision met with me right here in this church prior to this meeting. And I have promised them an objective and fair hearing on the issue."

He seemed to be focusing on the decision last week by the Court of Appeals in the Atlantic Yards eminent domain case rather than the project as a whole. He thus bypassed Miller's specific questions about bonds, housing, and jobs.

"We cannot reverse the Court of Appeals decision," Paterson said. "But whether the state has an interest in Atlantic Yards is something that to this point we have, but, upon advisement from Council Member James, we will review it."

Whether the state has an interest in Atlantic Yards is something that to this point we have? The state has invested $100 million and is backing it to the hilt.

As the video shows, Paterson's statement drew some healthy applause, but only a relative fraction of the audience applauded. (No one, as far as I could tell, booed or otherwise expressed disagreement, however.) The crowd was far more enthusiastic about issues closer to home.

What might happen

"He said he'd have independent, disinterested individuals take another look," James said afterward. "I await the review, because individuals on his staff have privately indicated that this project is not in the best interests of the state."

However, James acknowledged, Paterson has indicated to staffers that "he can't rescind the state's commitment."

Which doesn't leave him much room.

More on the event

While Paterson's been battered in the polls, it was a friendly audience, where speakers invoked Comptroller Bill Thompson's better-than-the-polls mayoral race to support Paterson's bid for a full term as governor. "Run, David, Run," the crowd chanted at one point.

Speaking without notes (obviously; he described himself as "I'm black, I'm blind, and I'm still alive"), Paterson took a place not at the podium but at the pew level of the church, allowing for a more intimate exchange. He asserted that New York has been far more fiscally responsible than other states, which are cutting vital services.

He even vetoed a bill he had proposed as a legislator, deeming the cost of a bill on lead paint removal too high, but later established a task force to address the issues.

And when James, in greeting the audience, said Paterson should not enact cuts in social services but instead tax the rich, he responded, "we are doing that right now."

He took some tough questions, including ones about teacher tenure, AIDS, and affordable housing. But, as NY1 reported, it was a comfortable setting for the governor who never sought the job.

So, are tax-exempt bonds for infrastructure ruled out forever? Where would infrastructure funds come from?

So, have the Empire State Development Corporation (ESDC) and Brooklyn Arena Local Development Corporation (BALDC) ruled out the use of tax-exempt bonds for Atlantic Yards infrastructure, though the BALDC is authorized to issue $400 million in such bonds?

Well, yes--but not definitely.

Scenario not foreseen

The ESDC said Monday that it ultimately "decided not to pursue that type of financing."

Does that mean that it's been ruled out for ever, I asked the ESDC, noting that the Inducement Resolution for BALDC sets out a Public Improvement Project to be financed by tax-exempt bonds. Is that Public Improvement Project off the table? If so, does BALDC have to rescind part of the resolution?

"ESDC does not foresee a scenario in which the abandoned financing structure would be taken up again," responded spokeswoman Elizabeth Mitchell. "Even so, there is no formal action required of the BALDC with respect to the Inducement Resolution."

As I read it, "does not foresee" does not preclude the possibility of issuing such bonds. And the term "abandoned financing structure" belies the fact that the financing structure was approved in September, not so long ago.

(Given the time involved in marketing bonds, I hardly think--as a few readers have suggested--that my report Monday prompted the ESDC to abandon the plan to use tax-exempt bonds for infrastructure. Still, it's odd that the ESDC was not prepared to answer queries last week, albeit as a holiday weekend approached.)

Where the funding would come from

So, without tax-exempt bonds, how will the infrastructure be financed? As noted, there seems to be a major funding gap.

"The funding for the entire project will be a combination of tax-exempt bonds, New York State funds, and New York City funds," Mitchell responded. "Any additional funding required will be made available by Forest City Ratner Companies."

She left out taxable bonds--unless that's subsumed under FCR funding. Still, there's a gap. Will the developer go back to the city and state for "extraordinary infrastructure" funding? Stay tuned.

Times roundup on bonds, court case adds some important context but gets basic issues wrong

A roundup story in the New York Times on arena bonds and more, headlined online New Nets Arena Wins Another Court Challenge, adds some important context--the bond ratings issued yesterday are no different from those assigned to bonds for the Yankees and Mets stadiums this year and in 2006. And rating agency Moody's says it's not worried about lawsuits.

But the article also contains some major errors.

Start with the headline. The arena didn't win the challenge. While Forest City Ratner was a defendant in the case, the main defendant was the Empire State Development Corporation and the case concerned much more than the arena.

Bond ratings

The Times reports:

The financial underpinnings of the project, the cornerstone of the 22-acre Atlantic Yards development, also emerged on Tuesday when two rating agencies assigned an investment grade rating for $646 million in bonds for the project. In addition, the developer and his partners will use a $131 million subsidy from the Bloomberg administration and invest $293.4 million of their own to build the 18,282-seat arena at the intersection of Atlantic and Flatbush Avenues.

The investment grade rating was assigned only to the $500 million in PILOT bonds, not the riskier $146 million in subordinated bonds.

And that $131 million subsidy, stated in the Moody's report, doesn't make sense. If Moody's is counting city funding for land and infrastructure, it should also count at least some portion of the state's $100 million for infrastructure.

The court case

The Times reports:

At the same time, the Court of Appeals declined to hear an appeal from some property owners who said the state’s decision to condemn their land would benefit a private developer, rather than the general public, as required by the New York Constitution. Last week, the Court of Appeals ruled six to one that the state could exercise eminent domain in claiming businesses, public property and private homes for economic development projects like Atlantic Yards.

Actually, those two sentences describe the same eminent domain case. The appeal denied Tuesday challenged the environmental impact statement (EIS) and the petitioners were community groups, not property owners.

Court of Appeals denies appeal in EIS case; no effort to engage Justice Catterson's fiery concurrence criticizing ESDC's Blight Study

In a decision announced today, the state Court of Appeals denied without comment a motion to appeal the challenge to the Atlantic Yards environmental review. It was another blow to Atlantic Yards opponents, who nonetheless cited new pending suits challenging the project.

The challenge to the environmental impact statement (EIS) was dismissed first at the trial court level and then by the Appellate Division, with Justice James Catterson writing a concurrence that had the tone of a dissent, slamming the Empire State Development Corporation (ESDC) "for being used as a tool of the developer to displace and destroy neighborhoods that are ‘underutilized'."

While Catterson said his hands were tied, the petitioners hoped to leverage his dismay at the limits of the law to get the state's highest court to look at the "ESDC’s obligations under SEQRA [State Environmental Quality Review Act], the standard of review of a blight determination and legal ability of ESDC to lease a civic project to a for-profit entity under the UDCA [Urban Development Corporation Act]."

Multiple petitioners

The case, organized and funded by Develop Don't Destroy Brooklyn (DDDB), involved 25 co-petitioners, including the Council of Brooklyn Neighborhoods, New York Public Interest Research Group/Straphangers, the Sierra Club, the Crown Heights North Association, the Fort Greene Association, and Park Slope Neighbors.

Issues bypassed

In choosing not to accept the case, the Court of Appeals chose not to engage with claims regarding consultant AKRF's misrepresentations of crime data and the failure to analyze real estate rents and values, as was requested in the original contract with AKRF.

Here's more on the legal argument.

DDDB statement

DDDB's Daniel Goldstein said:

The environmental review was a sham process and a rubberstamp. It did not accurately or adequately evaluate the environmental impacts.

The appeal we were asking the Court of Appeals to take, in the end, was about whether or not he blight study and finding was arbitrary and capricious. In our view it was.

The blight finding has always been bogus and a pretext. The state did not determine this site, hand drawn by Ratner, to be blighted until 3 years after the project was announced. The bulk of the site had never ever been called blighted through ten amendments to ATURA--it is actually some of the most expensive real estate in Brooklyn. The state lied about crime statistics and lied about conditions on the site. These factors combined are the definition of arbitrary. The site is not blighted and never was, and it is a disgrace that that determination stands.

Now we turn to two other suits the community has brought, including that the State must do a Supplemental Environmental Impact Statement because the project has changed so much. And the plaintiffs on the eminent domain suit will litigate every step of the way to stop New York State from stealing their homes and businesses.

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.

The "Battle of Brooklyn" funding homestretch and a December 10 screening

With some 15 hours to go, the producers of the Battle of Brooklyn documentary say they need about $4500 more to gain $25,000 in matching funds.

On December 10, a screening (RSVP required) of the first portion of the film will be followed by a panel discussion about the use and abuse of eminent domain in New York, featuring:

• Mindy Fullilove, PhD, professor at Columbia University and author of Root Shock
• William Stern, former CEO of New York State's Urban Development Corp.
• Daniel Goldstein, lead plaintiff, Goldstein v. Empire State Development Corp.
• Michael Galinsky, producer, Battle of Brooklyn
• Norman Siegel, civil rights attorney
• Robert McNamara, attorney, Institute for Justice

It's notable that, in the eminent domain context a longtime liberal like Siegel finds himself in common cause with the libertarians of the Institute for Justice, an organization that infuriates many who consider themselves reasonable supporters of eminent domain.

Outsourcing government to Forest City Ratner: three examples

1. The Empire State Development Corporation (ESDC) lets developer Forest City Ratner supply the Atlantic Yards Construction Updates sent out under ESDC cover.

2. The ESDC, as noted by the Court of Appeals decision in the Atlantic Yards eminent domain case, lets the developer [indirectly] pay for a Blight Study by AKRF--part of the ESDC's General Project Plan--that declares blighted the properties needed for the project.

3. Mayor Mike Bloomberg relies on Forest City Ratner's figures regarding jobs, rather than more conservative government estimates.

If bonds won't be used to build AY infrastructure, there would still be a huge funding gap

The Empire State Development Corporation (ESDC) said yesterday, in response to my report, that, though it "was at one time considering additional tax exempt bonds for infrastructure financing," it ultimately "decided not to pursue that type of financing."

(It was the plan as recently as September, given the 9/11/09 date of the Inducement Resolution adopted by the Brooklyn Arena Local Development Corporation.)

Still, as I wrote yesterday, the 2009 Modified General Project Plan, passed by the ESDC in September, budgeted $717 million for project infrastructure, with $205 million coming from government funds but no particular source for the rest.

So, where's the money going to come from?

Private sector builds infrastructure?

Seth Pinsky, president of the New York City Economic Development Corporation, testified at the 5/29/09 state Senate oversight hearing, "It is only by moving forward with projects such as Atlantic Yards that use a few million dollars from the public sector to leverage billions of dollars from the private sector that we'll be able to create the jobs and build the infrastructure to ensure the future of New York."

The direct subsidy figure is $305 million, while there would be hundreds of millions of dollars more in indirect subsidies, according to the New York City Independent Budget Office.

In Bloomberg statement on AY, inflated jobs figures come from FCR; by contrast, ESDC projections are more conservative

In his radio address last Friday (transcript, audio), Mayor Mike Bloomberg saluted new infrastructure projects, agreements with construction unions, and new efforts to broaden access to construction trades--and then connected that to Atlantic Yards.

He said:

And last week, New York State's highest court moved us closer to realizing a major piece of that future, in its 6-1 decision concerning Brooklyn's proposed Atlantic Yards development. The court's ruling was a long step forward for a project that will spur extensive investment in new offices, stores, and thousands of units of new housing. It will also produce a new Brooklyn home arena for the Nets professional basketball team. All told, Atlantic Yards is expected to create some 8,000 new permanent jobs in Brooklyn. More immediately, building it is also going to produce nearly 17,000 of the new union construction jobs that New Yorkers need.

(Emphases added)

Some factchecking

Well, not exactly. Those figures--17,000 "construction jobs" and 8000 permanent jobs--come directly from Forest City Ratner's press release rather than a governmental source.

By constrast, the Empire State Development Corporation (ESDC), in its 2009 Modified General Project Plan, projects 12,568 new direct job-years and 21,976 total job-years (direct, indirect, and induced) for project construction and 4,538 new jobs in New York City (direct, indirect, and induced). There would be an annual average of 5,065 jobs in the state.

Keep in mind that the 17,000 jobs--overstated--would be in job-years, and that all figure presume a project buildout over a decade, which is highly doubtful. For example, a good portion of those new permanent jobs would be in an office tower, but there's no market for office space right now, as Bruce Ratner recently told Crain's.

During the 5/29/09 state Senate oversight hearing on Atlantic Yards, state Senator Marty Golden asked a series of questions, including, "The approximately 17,000 construction jobs--still estimated at 17,000 construction jobs?"

Maria Lago, then the CEO of the ESDC, responded, "I believe that the General Project Plan estimated that there would be approximately 12,000 construction jobs and 5000 direct and indirect permanent jobs."

Post columnist Peyser's dada take on Atlantic Yards

Probably the best way to read New York Post columnist Andrea Peyser is to consider it some sort of dada performance, untethered to reality.

Yesterday, one section of a larger column, headlined 'Net' result sure beats a nut revolt, concerned Atlantic Yards.

She's no longer touting the 10,000 "incontrovertible" office jobs Forest City Ratner once promised but she's still on board.

"Hearty go-ahead"?

She writes:

After years of legal combat that rivals the days of the Roman forum, the state's highest court has given a hearty go-ahead to the Nets basketball arena in Brooklyn. Finally! Sanity reigns in a borough where people will protest sunny days and rainbows if given the chance.

Hearty go-ahead? They said they wouldn't second-guess the Empire State Development Corporation's approval of the project (not merely the arena).

The "selfish handful"

She continues:

The Court of Appeals says the small knot of resisters who've refused to sell their properties to developer Bruce Ratner -- at handsome profits, I might add -- can be displaced by eminent domain.

Several of the people are residential renters not about to gain any money. The profits--no longer likely--came thanks to public money, not developer generosity.

She continues:

This is good news to the many New Yorkers who will win jobs and affordable homes, and bad news only to the selfish handful who'd refused to let their neighbors get a shot at prosperity.

Selfish handful? Thousands of people who have financially supported lawsuits challenging AY, and dozens of community groups have signed on. The provision of affordable housing is very much in question, as are the number of jobs.

"So blighted" spot

She continues:

Smack in the middle of some of the richest real estate in the city sits Atlantic Yards, a spot so blighted, it's an outrage nothing has been built there in 40 years. Now, there's a chance.

Atlantic Yards is a project, not a place. The "so blighted" Vanderbilt Yard is and was a working railyard; only when vacant land shrunk and land values rose did it become cost-effective to propose development.

The "outrage" is the fault of borough and city leaders who chose never to try to market this piece of real estate. And even the Court of Appeals calls the situation "relatively mild conditions of urban blight."

"Big entertainment dollars"

She concludes:

Even better, big entertainment dollars will be sucked back into New York from New Jersey, where the Nets currently play. It's a win-win situation.

Bring it on!

Well, some spending would be sucked back into New York. But these days Nets attendance--and ticket revenue--is sinking.

ESDC: no tax-exempt bonds for infrastructure will be issued

The Empire State Development Corporation (ESDC), says the Brooklyn Arena Local Development Corporation is not going to issue tax-exempt bonds for Atlantic Yards infrastructure, as documents prepared in September suggested (as I reported this morning).

The ESDC issued a statement:

ESDC was at one time considering additional tax exempt bonds for infrastructure financing. Ultimately ESDC decided not to pursue that type of financing. Last week’s Board authorization of last week is the only financing under consideration by the Brooklyn Arena Local Development Corporation. Additional details of the bond sale will be released once documents are finalized. There will be a formal mid-December closing and we anticipate marketing the bonds prior to that time.

I'm several hours late posting this because I was in transit, but the ESDC had a day and a half last week to tell me that the plan was off.

Lipsky's gyrations on eminent domain: OK for AY, but not for Willets Point

Eric McClure of NoLandGrab has the analysis of Richard Lipsky's Olympic-style gyrations, in which the AY lobbyist says the Court of Appeals decision on AY eminent domain was fine, but the fallout from the Kelo case in New London means that the courts should back property owners (whom he represents) in Willets Point.

I'll just add that the plaintiffs in the Willets Point case, via attorney Michael Rikon, filed an amicus brief in the AY case supporting the AY plaintiffs.

Revealed: state is prepared to issue up to $400 million in tax-exempt bonds so FCR could save on Atlantic Yards infrastructure

According to a previously unrevealed action in September, developer Forest City Ratner could benefit from $400 million in state-authorized tax-exempt bonds for much more than the planned arena.

The recently-formed Brooklyn Arena Local Development Corporation (BALDC) is prepared to authorize up to $400 million in tax-exempt bonds for Atlantic Yards infrastructure, thus allowing FCR to save tens of millions of dollars and filling a funding gap discernible in project documents.

This raises significant questions:
--When, if ever, would such bonds be issued?
--What revenues would back bond payments?
--Could the state be on the hook to pay off the bonds?
--Would the bonds be used to build the new railyard?
--Would the full $400 million be issued?
--Why wasn't this funding mentioned in the Modified General Project Plan issued in 2006 or its update in 2009?
--How could bonds be paid off in the "delayed buildout" scenario envisioned in the Technical Memorandum (p. 55) issued in June by the Empire State Development Corporation (ESDC)?

Partial answers

We know answers to some of the questions, but I'm waiting for the ESDC to provide additional answers (and will update this post when I get them).

After the BALDC was formed, I reported on 1/26/09 that its scope contemplated financing for infrastructure improvements beyond the arena. (No dollar figure was attached, however.) That function had not been mentioned in other ESDC documents and has not been mentioned since.

The infrastructure bonds, ESDC officials said at the time, would be paid back via a development fee to be paid by Forest City affiliate(s) leasing certain development parcels. If bondholders aren't paid, they could exercise leasehold rights, which would be subordinate to the ESDC's rights, so lien holders could develop the project only in accordance with the ESDC’s General Project Plan (which can be amended).

Though ESDC officials said in January that the state would not have obligations to bondholders, last week, BALDC and ESDC officials, when asked (at about 2:25 of the video below) if the state could bail out arena bondholders, refused to definitively rule it out, saying "That's speculation" and "That's not foreseeable."

No disclosure

The size of this important funding component--revealed in response to a Freedom of Information Law (FOIL) request--was not disclosed by the Empire State Development Corporation (ESDC) during the public comment period earlier this year regarding the revised Atlantic Yards plan nor before the ESDC approved the plan in September.

There was no opportunity for the public to comment at the November 24 BALDC meeting authorizing arena bonds.

(The BALDC authorized up to $825 million for the arena, including $150 million in taxable bonds, though in September it set a cap of $1.1 billion. Thus, while the infrastructure cap is $400 million, that total need not be issued.)

"[W]e are issuing governmental bonds and there is no federal or state requirement for a hearing," ESDC spokeswoman Elizabeth Mitchell stated before the meeting. "The distinction is based on the fact that governments are already subject to a public process, in our case ESDC's prior hearings, for governmental projects."

But the public process did not include any mention of tax-exempt financing for infrastructure. Thus, the public costs of such tax-exempt bonds were not available to those examining the project, such as the New York City Independent Budget Office.

Questions pending

I submitted several questions to the ESDC early last Wednesday afternoon before the Thanksgiving holiday and then sent more on Friday morning. Though Friday was a business day, many people were out of the office and I was told a response might not come until today.

Timing issues

The ESDC voted on September 17; the two BALDC documents--an Inducement Resolution and a document listing multiple resolutions adopted by written consent--were signed on September 11.

I received them in response to a Freedom of Information Law request dated October 31. The documents were mailed on November 23, which ensured that I would not see them before the 10 am public meeting of the BALDC on November 24.

State law requires agencies to grant or deny access to FOIL requests in five days or, if more time is needed, to respond within 20 additional business days. While the response to my request fell within the boundary, I suspect that the records sent to me could have been made available within just a few days.

Special-purpose subsidiary

The BALDC last week authorized the issuance of some $800 million in bonds (mostly tax-exempt, with $150 million taxable) for the Atlantic Yards arena.

After the meeting, BALDC President (and ESDC CFO) Frances Walton was asked (at about 3:26 in the video below), "Is there any provision to sell bonds in the future, either taxable rental bonds, kinda like, y'know, the Yankees did, in 2006, they did taxable rental bonds, and they did again, this year."



"There's no expectation at this time that the LDC will be issuing any additional bonds for this project," Walton said.

"Is it permitted, though, in the bond documents?" Bond Buyer reporter Ted Phillips followed up.

ESDC attorney Jonathan Beyer, after turning and seemingly looking for a cue from colleagues, acknowledged "Yes."

The exchange seemingly concerned additional bonds for the sports facility, but Beyer's response could have been an acknowledgment that the BALDC can also authorize bonds for infrastructure.

Walton's statement, while seemingly referring to the "Atlantic Yards Redevelopment Project," may have been more ambiguous. It could have more narrowly meant the "Arena Project" and not the "Public Improvement Project," both subsets of the overall project, as stated in the 9/11/09 BALDC documents.

So even if there is no expectation of issuing additional bonds for the "Arena Project," that doesn't rule out issuing bonds for the "Public Improvement Project."

But it has not been urgent for the BALDC to act on infrastructure bonds. Only the tax-exempt arena bonds face a 12/31/09 deadline.

From the Inducement Resolution

The document states:

WHEREAS, Brooklyn Arena Local Development Corporation... was formed to finance certain components of the Atlantic Yards Redevelopment Project, including the design, development, construction and operation of an arena for use by a professional basketball team and for other sports and arena events (the "Arena Project") and, if deemed beneficial to the Atlantic Yards Redevelopment Project, to finance certain public infrastructure improvements related to such project (the "Public Improvement Project").

"Public Improvement Project" needed for eminent domain?

The term "Public Improvement Project" is previously unmentioned in any Atlantic Yards documents, as far as I know.

But it may be crucial to the exercise of eminent domain, because the state will not pursue condemnation until arena-related infrastructure is on track.

The ESDC's 2009 Modified General Project Plan (MGPP) for Atlantic Yards states:

(p. 9) The Arena Block will contain, in addition to the Arena itself, four buildings, a publicly accessible "urban room," and infrastructure to service the entire complex, including subway improvements and utility improvements.

(p. 23) ESDC's acquisition of all such properties will not occur until such time as ESDC receives commitments, guaranties and other evidence satisfactory to ESDC that FCRC will (i) promptly commence construction of the Arena, and all of the infrastructure necessary for the Arena (together with the Arena, the "Initial Development")...

(Emphasis added)

The infrastructure gap

In January, I wrote that the 2006 Modified General Project Plan (MGPP) budgeted $544.4 million for project infrastructure, with $205 million coming from government funds but no particular source for the rest.

The 2009 MGPP, passed in September, budgeted $717 million for project infrastructure, again with $205 million coming from government funds but no particular source for the rest. That gap apparently would be filled by the bonds.

Would delay leave state on the hook?

The Technical Memorandum acknowledges the potential for delay:

However, if current economic conditions persist beyond the timeframes of current projections, it is possible that future delays may occur.
These potential delays due to prolonged adverse economic conditions would not affect the timing of the development of the arena, the transit access improvements, the construction of the new LIRR railyard, the reconstruction of the Carlton Avenue Bridge or the construction of Building 2. It could, however, delay the construction of some of the remaining buildings on the arena block as well as the Phase II sites. While the current construction plan calls for the continuous construction of the platform over the rail yard in Phase II, under this delayed build out condition, sections of the platform for Buildings 5 through 10 could be constructed as each of the buildings move forward in development.

A significant amount of infrastructure is implied in the list above: the development of the arena, the transit access improvements, the construction of the new LIRR railyard, the reconstruction of the Carlton Avenue Bridge, and the construction of Building 2.

Should tax-exempt bonds be used to fund the infrastructure, with the payments based on development fees paid for the lease of certain development parcels, a delay in development could lead to a delay in payments.

Inducement Resolution

The authorization is revealed in an Inducement Resolution the BALDC adopted on 9/11/09.

The document (click to enlarge) states:

RESOLVED, that the Corporation hereby declares its official intent... to issue tax-exempt Bonds and use the proceeds to finance payment by or reimbursement of Forest City for costs of the Arena Project and the Public Improvement Project incurred for the benefit of the Governmental Project and the Public Improvement Project incurred for the benefit of the Governmental Entities. This declaration of official intent is subject to subsequent approval of the proposed financing of each of the Arena Project and Public Improvement Project by the Corporation. The Corporation understands that Forest City has paid and will pay certain capital expenditures in connection with the Arena Project and the Public Improvement Project for the benefit of and on behalf of the Governmental Entities prior to the respective issuance of Bonds for each. Forest City may use temporary funds that are or will be available on a short term basis to pay for preliminary expenditures, construction and certain equipping costs for the Arena Project and the Public Improvement Project. Said declaration is based upon the representation of Forest City that it reasonably expects that it will seek reimbursement for the use of such funds from the proceeds of tax-exempt Bonds to be issued by the Corporation to finance the respective costs of the Arena Project and Public Improvement Project for the benefit of and on behalf of the Governmental Entities. The maximum amount of Bonds currently expected to be issued by the Corporation for the Arena Project is $1,100,000,000, of which $950,000,000 is expected to be tax-exempt, and the maximum amount of Bonds currently expected to be issued by the Corporation for the Public Improvement Project is $400,000,000, all of which is expected to be tax-exempt, in each case measured by the "issue price" of such Bonds as determined under applicable Treasury Regulations.

(Emphases added)

In error-filled editorial, Crain's says elected officials should reassure arena bond investors

In a Crain's New York Business editorial, headlined Affirming Atlantic Yards: In every decision so far, the courts have held for Mr. Ratner, the errors start with the headline.

The state eminent domain case case was filed against the Empire State Development Corporation (aka Urban Development Corporation), and the courts have held for the state, not the developer.

Public good?

The editorial begins:

New York's highest court did more than affirm the right of the state to use eminent domain in last week's crucial ruling on the Atlantic Yards project. The Court of Appeals endorsed both the public good the project offers and the right of elected officials to implement development plans over the objections of a few holdouts. If bond investors are willing and New York politicians steadfast, Forest City Ratner will break ground in the coming months.

The basic rationale for building Atlantic Yards has been forgotten amid financing problems, legal challenges and orchestrated opposition. It is nothing less than a bet that New York has a bright future—that the surging growth of the city's population will require new residential neighborhoods near transit hubs. The sports arena is designed to kick off a project that will bring thousands of new residential units to an underdeveloped area and give Brooklyn's prestige a worldwide boost.

The Court of Appeals, in its decision November 24, did not endorse the public good. It chose not to substitute its judgment for the ESDC's questionable--but still "rational"--determination of the public good.

Nor have "elected officials" implemented development plans. The ESDC is an agency of gubernatorial appointees.

Yes, new residential neighborhoods near transit hubs may be needed, but a rezoning could do the trick. The sports arena wouldn't necessarily "kick off" anything, given that the ESDC's delayed buildout scenario contemplates just one residential tower and there's ample reason to doubt the announced ten-year timetable.

Public opinion

The editorial continues:

Also not well-understood is that opposition to the project has been grossly overblown. A 2006 Crain's poll found that two-thirds of New Yorkers—and two-thirds of Brooklyn residents—supported the project. There is no reason to believe that much has changed. The mayor and governor—whether Spitzer or Paterson—have never wavered. A few Brooklyn politicians have defected, but others remain behind the project. Develop Don't Destroy Brooklyn and its earnest but small band of allies essentially demand that they dictate the terms of development in the area, not elected officials.

The questions in the Crain's poll were stunning generalities, leading the uninformed to a positive opinon. One example: "The project will provide 2,250 low-, moderate-, and middle-income rental apartments."

Not only would the project itself not provide the apartments--for that we need to scarce tax-exempt bonds, the timetable and total of apartments is in question, while a slice of the subsidized apartments would be more than market-rate.

Develop Don't Destroy Brooklyn (DDDB) has raised $1.25 million from more than 4700 donors. Numerous local groups have signed on to lawsuits; just recently, several members of the BrookynSpeaks coalition, recognizing the futility of the "mend it don't end it" position, filed a lawsuit very similar to the one filed by DDDB and adopting similar rhetoric.

The financing issue

The editorial continues:

One major hurdle remains for Forest City. The company must sell tax-exempt bonds by the end of the year in a difficult market or lose access to that source of inexpensive financing. Investors must be willing to buy the bonds despite at least three new lawsuits filed in recent weeks against Atlantic Yards that theoretically could end the project and cause them to lose their money.

The idea of mounting a successful legal challenge is far-fetched. All the court decisions so far—and there have been 24—have turned back the lawsuits against Mr. Ratner. The strategy of Don't Destroy Brooklyn and its allies isn't even about the law anymore; it is about trying to scare the investors away.

While it's fair to say that clouding the investment climate may be one part of the strategy, the lawsuits, backed in several cases by local elected officials, aim to do much more than that: to hold government accountable.

Political leaders

The editorial concludes:

That's where political leaders should come in. It is up to the mayor, the governor, the borough president and other elected officials in Brooklyn to reconfirm their support and their commitment to making this project happen in order to reassure those investors.

What does that mean? No local elected officials had a voice in deciding the project. Now Crain's says they should affirm their support to help investors and, not coincidentally, a project that would benefit Russia's richest man.

Why, for example, should local officials commit to assigning tax-exempt housing bonds for Atlantic Yards without comparing the cost per unit to other affordable housing projects?

And doesn't Crain's, the voice of the business community, have the slightest qualms about endorsing arena bonds that might--despite state assurances to the contrary--leave the state on the hook?

Lawyer for developers: expect a crisis every eight to ten years

From the Spring 2009 issue of Development magazine, the quarterly publication of NAIOP, the Commercial Real Estate Development Association:

[John W. Waldeck, partner and chair of the Real Estate Group at the Cleveland-based law firm Walter & Haverfield] observed that the commercial real estate industry is in the midst of its third major crisis in 30 years (the first two being the period from ’77 to ’80 and again in the early ‘90s). “If you’re an entrepreneur, is this what you have to anticipate? That once every eight to 10 years the industry will go through the ringer?” The answer clearly being yes, he advised owners and developers to “build up a substantial war chest.”

In other words, even industry peers might say that Atlantic Yards developer Forest City Ratner and the Empire State Development Corporation aren't realistic in anticipating a ten-year buildout for the project. I've suggested several reasons for skepticism.

Editorializing on AY: Noticing New York's Michael White and the WSJ vs. the New York Daily News editorial

There was a method beyond Noticing New York blogger Michael D.D. White's running silent commentary on the Atlantic Yards bond deal Tuesday. Remember, and most importantly, no public comment was allowed. Here's part of White's message:

Of course, you should be worrying that these bonds will default and consequently don’t deserve a good rating. A default will negatively affect the market for all New York issuers. But that is not all you should be worrying about. Moody’s has warned that the entire state is weeks away from a substantial downgrade of its credit rating if it doesn’t close its budget gap.

Wall Street Journal editorial

The Wall Street Journal, in an editorial headlined Property Owners Get Dunked On: Another victory for the powerful over property rights, grasped the issue:

In allowing the property seizure, the Court of Appeals dodged some of the central challenges to the condemnation, including whether the Empire State Development Corporation's designation of blight in the Atlantic Yards area was applied after the stadium project had already been planned, making it a "pretext." Nor did the court take on the question—at the heart of eminent domain law since Kelo—whether economic development may be considered a public use under the New York Constitution.

Daily News editorial

Contrast the above with another (duh) wrongheaded New York Daily News editorial, headlined A Net gain for Brooklyn: High court did right by the city in Atlantic Yards lawsuit, which claimed:

On the upside, the court rendered expeditious judgment, positioning Ratner to meet a year-end deadline for financing the start of construction and - even more important - established a wise standard for the use of eminent domain in New York State.

It did nothing of the sort. It acknowledged that the standard may be very fuzzy, but said it was not the place for courts to intervene. More critique from Eric McClure of No Land Grab.

Plaintiff Sheets: "welfare kings," "civic masturbation," and the Michigan cases the Court of Appeals ignored

At the Develop Don't Destroy Brooklyn press conference on Tuesday, held after the Court of Appeals upheld the use of eminent domain for Atlantic Yards, plaintiff David Sheets (left), a residential tenant, spoke so softly that only those close in could hear him, but the video below captures his words.

In his pointed commentary, he referenced two court cases in Michigan, a state, unlike New York, where the highest court was willing to reverse itself on eminent domain. While those cases were raised in amicus curiae briefs to the court, none of the three opinions--majority, concurrence, dissent--acknowledged them.

(Photo by Tracy Collins)

"It's a scam"

"I'm not an attorney, but I am a paralegal. I know my way around a legal document," said Sheets, who as a tenant is in a precarious position serving as a plaintiff in the case, since comparable housing is not at all guaranteed. "This is a scam. It's sucking up to the public trough. These are welfare kings, and it needs to be looked at that way."

There are processes on the books to guarantee public participation, he said, but "the state and developer have done everything they could think of to reduce those to nothing more than occasional acts of civic masturbation. They are utterly meaningless."

Civic masturbation? Well, state Senator Velmanette Montgomery, using different language, pretty much agrees, declaring:

Public participation in the process has been reduced to the occasional “Public Hearing,” which is treated as a meaningless exercise in public theater, a quaint custom, a formality.

(Videography by Jonathan Barkey)

Life on Dean Street

Sheets lives three doors from Freddy's Bar and Backroom, the backdrop for the press conference and a business slated to be evicted via eminent domain, and once worked as a bartender there.

"We should not have to live like this--no one should," Sheets said, a reference to not just the broader battle but the experience of living on a street where utility work and demolition in unoccupied properties can make it very uncomfortable to those still there.

What the court missed

"The judges need to wake up, and surely they have," he said, making reference to another state high court that chose to look closely at eminent domain and change its mind. If they read the Poletown cases from Michigan, and then read the Hathcock opinion--the Michigan state Supreme Court overturned itself. We are not asking the impossible."

Except it does seem impossible regarding Atlantic Yards, unless the longshot strategy proposed by DDDB lawyers can reopen the case.

Also speaking in the video is plaintiff Henry Weinstein, who owns a building and adjacent lots at the corner of Pacific Street and Carlton Avenue.