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|A model shown to potential immigrant investors in China in 2014,|
though not shown publicly in Brooklyn.
This watchdog blog, by journalist Norman Oder, offers analysis, commentary, and reportage about the $4.9 billion project to build the Barclays Center arena and 16 high-rise buildings at a crucial site in Brooklyn. Dubbed Atlantic Yards by developer Forest City Ratner in 2003, it was rebranded Pacific Park in 2014 after the Chinese government-owned Greenland Group bought a 70% stake in 15 towers. New York State still calls it Atlantic Yards. Contact: AtlanticYardsReport[at]hotmail.com
|A model shown to potential immigrant investors in China in 2014,|
though not shown publicly in Brooklyn.
We Are Subject to the Risks of Owning and Operating an Arena
Barclays Center is the home venue for the Nets basketball team and future home of the New York Islanders professional hockey team which will relocate to Barclays Center for the 2015-2016 hockey season. In addition, the mix of events at the Barclays Center include a variety of concerts, family shows, and other sporting events. As we approach stabilized operations, which is taking longer to achieve than originally anticipated, our investment in the Barclays Center is dependent on a number of factors, that could adversely affect us, including:
• Pricing and sales pace for suites and sponsorships, including new sales and renewals of existing agreements;
• Performance of the third party asset manager to operate the Arena efficiently and effectively;
• Attendance at games and events, which drives on-site spending for concessions and merchandise;
• General economic conditions that affect corporate and individual spending on entertainment and leisure activities;
• Ability to secure event bookings through relationships with promoters, artists and other clients;
• Popularity of live entertainment events as a whole and individual acts;
• Popularity of the Nets and New York Islanders, their performance, and fan base;
• Competition from other event venues in our marketplace;
• Competition from other leisure-time activities, such as television, radio, and the internet;
• Organized labor matters; and
• Actions of the NBA, NHL, the Nets and the New York Islanders.
For the three months ended December 31, 2014, the company had net earnings attributable to common shareholders of $69.2 million, or .31 per share, compared with a net loss of $207.7 million, or $1.05 per share, for the fourth quarter of 2013. For the full year of 2014, the company had a net loss attributable to common shareholders of $7.6 million, or .04 per share, compared with net loss of $20.5 million, or .10 per share, for the full year ended December 31, 2013. Per-share amounts are on a fully diluted basis.The B2 hit
Based on the recent events, including the temporary ceasing of construction and litigation related to the construction of B2 BKLYN, we investigated and evaluated alternatives to restart and complete the construction. During the three months ended December 31, 2014, we completed our evaluation of various scenarios to complete B2 BKLYN and in November 2014, purchased the Construction Manager’s entire 50% ownership interest in the factory used to construct the modular units. In December 2014, we engaged a new construction manager to oversee the construction of B2 BKLYN and began preparations to recommence construction of modular units. Based on current information available, including the Company’s decision to complete B2 BKLYN using modular units and to purchase the modular factory, the Company updated its impairment calculation. As a result, the Company’s estimated undiscounted cash flows no longer exceed the carrying value of the asset, requiring the Company to adjust the carrying value to its estimated fair value as of December 31, 2014. As such, the Company recorded an impairment charge of $146,300,000 during the three months ended December 31, 2014. Based on the latest information available, we estimate the construction will be completed in the third quarter of 2016.Additional warnings from the annual report
At December 31, 2014, we have $40,538,000 capitalized on the Consolidated Balance Sheet related to B2 BKLYN. Based on the most current information available, total project costs are estimated to approximate $162,100,000, after giving effect to the impairment discussed above. Significant estimates were used to develop the estimated remaining project costs and may change in the future. We continue to vigorously pursue legal action against Skanska USA for damages related to their default of the CM Contract. However, we cannot assure we will be successful in recovering these damages.
Subsequent to the construction stoppage, we received a notice of default on the nonrecourse mortgage secured by B2 BKLYN. We have since entered into a forbearance agreement with our lender which expires on April 8, 2015. In the event we are unable to complete the negotiation of a longer term agreement, or cure the default, we may be required to repay the current outstanding balance of $45,000,000 currently secured by, amongst other things, $37,500,000 of restricted bond proceeds included in restricted cash, $10,000,000 of cash in escrow and an equity letter of credit of $9,300,000. In addition, we may be required to fund the completion of B2 BKLYN with equity until the uncertainties regarding its construction are resolved.
We Are Exposed to Additional Development Risk in Connection with Using a New Construction Methodology on B2 BKLYN, Modular Construction, Litigation Risks, and Owning a Factory to Produce the Modular Units
B2 BKLYN is an apartment building under construction in Brooklyn, New York adjacent to the Barclays Center at the Pacific Park Brooklyn project. We decided to use modular construction to build this 32 story, 363 unit apartment building. During 2014, our former partner in the modular factory and the B2 BKLYN construction manager ceased operations at and closed the factory for the fabrication of apartment modular units which were being used in the construction of B2 BKLYN. As a result, in November 2014, we purchased our former partner’s ownership interest in the modular factory and in December 2014, we engaged a new construction manager to oversee the construction of B2 BKLYN and began preparations to recommence construction of modular units.
We are engaged in litigation with our former partner in the modular factory and the former B2 BKLYLN construction manager relating primarily to the project’s delays and associated additional completion costs. We are seeking to recover all costs associated to complete the building, including those incurred by the modular factory. With the re-opening of the modular factory and the re-activation of the B2 BKLYN project site, we do not anticipate further delays resulting directly from the litigation, as the natural conclusion (or settlement) of the pending litigations will be limited to the payment of monetary damages from one party to the other. We may not be able to successfully recover all or any of the costs we are seeking to recover.
In addition to risks inherent in construction projects generally, such as unanticipated site conditions, environmental, and force majeure issues, the following additional risks exist with constructing B2 BKLYN:
• High rise modular construction has not previously been done at the heights of B2 BKLYN. As a result, the project has encountered, and may continue to encounter, delays and increased costs in the fabrication and assembly of the modular units. Based on the latest information available, we estimate the construction will be completed in the third quarter of 2016. If the project continues to experience such delays, we may fail to satisfy completion deadlines set forth under the lending arrangements for the project and the lenders may not be willing to extend such deadlines. Failure to meet the completion deadlines could result in a default under such lending arrangements with a resulting acceleration of the debt and foreclosure of the project, as well as reputational damage;
• Third party claims that any element of the design or construction methodology infringes on protected intellectual rights could delay the project and increase construction costs; and
•In 2013, two trade organizations representing New York City-licensed plumbers and mechanical contractors sued the City of New York, challenging a determination by its Department of Buildings (“DOB”) that certain piping work performed in a modular factory need not be performed by licensed plumbers or mechanical contractors if such work was monitored by a licensed professional engineer and otherwise complied with the technical requirements of the New York City Building and Construction Codes. Piping work at our modular factory is being performed by non-licensees monitored by a licensed professional engineer in accordance with DOB’s determination. We intervened in the proceeding, and in December 2013 the Court dismissed the suit. However, these trade organizations appealed the Court’s determination. It is possible that the lower Court could be reversed on appeal. It also remains a possibility that other construction industry organizations could bring similar suits challenging the DOB-authorized fabrication methodology used in our factory. If the DOB’s determination were overturned and licensees were required in the modular factory, it would likely increase the cost of construction and potentially delay the completion of B2 BKLYN.
An ironworker died on Tuesday afternoon when steel beams fell on him as he worked to install Barclays Center’s new green roof, according to a police spokesman.Greenland Forest City Partners issued a statement:
The 52-year-old was an employee of a Massachusetts steel company contracted by Hunt Construction Group... The worker, a member of the Ironworkers Local 361 union, was crushed by four steel beams when they rolled off a truck before they could be attached to a crane, police said. Cops and paramedics responded at 1:33 pm and found the man lying in the loading dock on Dean Street, where he was pronounced dead, according to a report.
The iron worker who was killed was involved in the installation of the green roof on the arena. We are all devastated by what happened. All of us at Greenland Forest City Partners and Barclays Center extend our most heart-felt condolences to the worker's family and friends.While there have been some workplace injuries in construction work at Atlantic Yards/Pacific Park, this is the first death. The worker has not yet been named.
We are currently working with all relevant agencies to determine what caused this terrible tragedy.
Investigators believe the victim may have accidentally hit the emergency release button causing the load to come down on him.A piece of overall context: it may (or may not) be relevant that the cold weather has been blamed for delays in the green roof construction process.
|Projected income/expenses, Official Statement, December 2009|
Of course, it’s not yet stabilized financially. If you were to look at the numbers and research it, you would learn it’s still a work in progress. It takes awhile to get an asset like that to its stabilized, operating income.
|From Official Statement; see debt service coverage ratio|
He estimated the arena will generate annual net income of about $110 million to $120 million, cost $30 million to operate, and require about $45 million to $50 million a year to pay off financing, leaving the company with about $35 million a year in profit...(Emphases added)
|From December 2014 report|
|From The Business of Sports|
Moody’s expects the senior bonds will have a 10-year average debt-service coverage ratio of 2.85 times and stressed that even without being in operation, the existing sponsorship deals and naming rights deal would provide 0.95 times coverage on the bonds.
|From the December 2009 Official Statement for the arena bonds|
When Bruce Ratner took over as chairman of the Museum of Jewish Heritage in June, he and museum officials expressed optimism that a new era was beginning for the 17-year-old institution perched at the tip of lower Manhattan.The article portrays museum director and CEO David Marwell as the obstacle to change, while former chairman Robert Morgenthau, who picked Ratner as his successor, suggests the developer should keep hands off.
Nearly eight months later, there is little disagreement over direction. The museum, which explores Jewish life before, during and after the Holocaust, needs to boost annual attendance, which is far below that of comparable city institutions, despite a respected collection. It must stabilize its balance sheet, which has been in the red five of the last six years. And it needs to undertake significant projects, such as reimagining key sections of its core exhibit.
But a deep divide has emerged between Mr. Ratner, a prominent real-estate developer, and museum officials over the urgency of these problems, the roles of each leader and some of the solutions.
Suri Kasirer, an early supporter of the museum who drifted away but was recently re-engaged by Mr. Ratner as a lobbyist and strategic consultant, said she sees a certain amount of adherence to the status quo. “Sometimes you’ve got to shake things up a little bit and I think that’s what he’s trying to do. Not shake it up for its own sake, but shake it up for a vision.”Kasirer's firm also works for Ratner on Atlantic Yards.
Mr. Ratner nonetheless remains eager to light a fire under the institution. Without new momentum, he said, “I’m not sure what will happen to the museum and that’s what worries me.”
And to cement its stake in Brooklyn, the Nets are launching a multichannel campaign dubbed "We Are Brooklyn" that spans out-of-home, TV, web and social media content. New York residents and visitors might spot ads on subways, buses, taxis and MetroCards. In 2012, the "Hello Brooklyn" campaign helped launched the team as a lifestyle brand, while last year’s "Are You Ready" effort was more product-focused.
"Year three is a combination of both," [team/arena CEO] Yormark said. "Our fan base has evolved from being a little more casual to a little bit hardcore." Most of that fan base resides in the borough, and this year’s effort looks to capitalize on a growing national and global group of sports fans.
According to 2013 year-end reports, Barclays Center finished first in revenue and tickets sold for U.S. arenas with capacities of 15,001 or more. Attendance was up 30% from 2011-2012, the team's final season in New Jersey. And ticket revenue jumped 278%. Next, the New York Islanders will make Barclays their home, starting with the 2015 season.---
"We want to maximize all the revenues we can," Mr. Mangione said.
Between the New York Yankees, the New York Knicks, the Rangers , New York City has some of the big sports franchises. They earn big money. But there is another team scoring on and off the court. The Brooklyn Nets. The team and the Barclays Center CEO Brett Yormark sat down with my colleague and Market Makers anchor Stephanie Ruhle She asked him how business was doing.Yormark was very positive: "It has been incredible. It has exceeded all of our expectations. As I often tell people, New York City is the big event business, and we are part of that big event business now in Brooklyn. That was our vision, bringing world-class entertainment to the borough. We've delivered on that, in so many ways...."
They believe that the idea of Brooklyn itself—the Brooklyn brand, the actual word Brooklyn—has commercial power. As Yormark puts it: “I often tell people, ‘Shame on us if we do not leverage this. It comes for free. You do not have to pay for it, and to some degree we inherit it.’ From a marketer’s perspective, just the diversification of Brooklyn itself is a marketer’s dream.”They certainly made a lot out of it, but it can only go so far.