Friday, April 06, 2012

Transit connection to arena now said to be less delayed than was reported last month. How so? Construction monitor fudged the timetable.

Barclays Center bondholders take note: they moved the goalposts again regarding project construction. And while that may not make it less likely you'll get the interest you expect, it sure raises questions about the credibility of the reports you're getting.

Once a month, real estate consultant Merritt & Harris, the real estate consultant that "strives to be the leader in providing consistently excellent construction-related services to the real estate lending and investment community," issues a Site Observation Report report to the arena PILOT Bond Trustee (Bank of New York Mellon), Forest City Ratner, and the Empire State Development Corporation.

In the latest report is dated 4/2/12 and based on a visit of 2/23/12 and documents made available 3/20/12, Merritt and Harris began fudging the schedule for the new Transit Connection.

In other words, as with the arena, Merritt and Harris declared the Transit Connection less behind schedule than previously estimated, all because it extended the schedule, with no real explanation.

Transit connection

The text of the report contains some standard language:
The document seems to be updated elsewhere, since it provides a later date:

Note that the Construction Schedule did not slip because of "early delays." Such delays had no significant impact, because the transit connection was well ahead of schedule for many months, as the graphics below indicate.

But given that there is slack in the schedule--the arena will open in September--the delay should not be fatal.

Transit connection progress

If the Construction Schedule had slipped by about two months, it should be finished in June, right? That's what all previous graphs marking progress have noted, as indicated below. The graphs measure projected spending (the solid circle) vs. actual spending, with the percentage difference noted in the bottom row.

In last month's report, as indicated in the graphic below, as of October 2011, the transit connection was behind 0.35%. As of January 2012, the transit connection was behind 3.42%. (Click on graphics to expand.)

Merritt & Harris report, March 2012
But let's look at the April report, below. In that report, as of October 2011, the transit connection was ahead 4.36%, not behind 0.35%.

In the April report, as of January 2012, the transit connection was behind only 0.22%, not behind 3.42%.

Merritt & Harris report, April 2012

What's behind the recalculation? The secret is extending the timetable through an additional month, to July 2012. By extending the timetable, the spending is stretched out through another month.

Thus, the projected spending per month diminishes and, voila, the actual spending becomes more prominent. Thus the graph gets revised to make the project look more certain.

But that technique is not explained anywhere in the report.

Indeed, the graphic contradicts the text of the report, which nowhere suggests that the transit connection would be finished in July. And that date presumably would exceed the "approximately 2 months" the schedule is said to have slipped from the original target of 4/2/12.


Arena progress

The document states that the arena is still expected to be substantially complete by 9/5/12:

However, there's still no documentation on a final completion date. The report mentions a new GMP2 (Guaranteed Maximum Price) schedule to be issued in February that would establish the final completion date. As with many promised documents in the past, it has not emerged as scheduled.
The latest chart of arena construction, below, suggests that actual spending handily outpaces projected spending. But, as I pointed out in February, the chart accompanying the January report indicated that the arena had been slightly behind for three months.


How to fudge

The solution, in the reports beginning in February (and indicated above in the latest report), was to stretch out the timetable for the hard cost spending total of $485 million-plus, thus portraying current spending as outpacing the projected spending.

In the January report, as of the June 2013 final completion date, there was to be $485,012,000 spent, or 100% percent of the total.

In the February 2012 report, that timetable was relaxed. As of June 2013, there was to be $479,818,000 spent, or 98.88% of the total. The March 2012 report put the June 2013 total at $480,131,000, or 98.88% of the total. The latest report puts the June 2013 total at $480,186,000, or 98.88% of the total

Given the longer period to spend the total, each previous month has a target completion percentage lower than in the January chart, with less spending needed to keep pace. Oddly, unlike with the chart regarding the transit connection, there's no indication of when the 100% mark would be met.

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