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March 1, 2007

Three pages of mystery: FCR's cash flow documents leave questions unanswered

Atlantic Yards Report

Assemblyman Jim Brennan’s effort to get the Empire State Development Corporation (ESDC) to release the Atlantic Yards business plan provided by developer Forest City Ratner reaped some results yesterday, but not nearly enough to evaluate the project.

The ESDC released three pages dated 10/10/06 and 10/11/06, but with no explanation for the assumptions behind the numbers. I showed them to David A. Smith, an affordable housing expert in Boston, who’s paid close attention to the Atlantic Yards plan. "These cash flow schedules are like a Japanese landscape watercolor; fascinating and evocative in their own right but only lightly drawn,” he wrote in response. “They make one hungry for more detail, without which it is impossible to have a properly informed opinion about either the expected profit the developer may make relative to the risk, or whether the public is receiving fair public benefit for the public resources contributed."

Thus, the documents would not help Brennan evaluate whether Atlantic Yards could be downsized without harming the financial viability of the project. ...

The documents fill in some details about the arena:

The documents do offer some tantalizing details, for example pegging revenue from suites in the suite-intensive arena at $38 million a year (beginning in 2009-10), with an annual increase of $1 million, slated within five years to surpass the annual arena debt service of $43.8 million. In other words, the suites alone could, as I’d predicted, pay for the arena, the most expensive ever in the country, at $637.2 million.

They also show that the new arena would easily pay for its operations; as sponsorship revenue, starting at $31.2 million annually, would nearly cover operating expenses. (That revenue would include $20 million a year from the Barclays Center naming rights deal.)

Norman Oder also explains the difference between “investment internal rate of return” and profit and why the later is impossible to calculate without knowning how much of the money the developer would put up."

David Smith explains it this way:

“Knowing the net cash flows without knowing the fees is like learning that the Nets scored 89 points last night, without knowing who they were playing, what the other team's score was, and whether they won or lost."

There are also some discrepancies in the numbers related to the "Affordable Housing" and several unexplained gaps, like lack of numbers for the hotel, retail space or parking.

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Posted by lumi at March 1, 2007 10:28 AM