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September 27, 2009

Atlantic Yards gets a lift

Crain's New York
By Amanda Fung

This article takes a cautious view as to whether the proposed Atlantic Yards project will proceed.

Last week's pledged cash infusion of $200 million from Russian billionaire Mikhail Prokhorov represents a major windfall for Forest City Ratner Cos. as it struggles to get its vast Atlantic Yards project in Brooklyn under way, but that is still far from a slam dunk.

In a nutshell, Mr. Prokhorov's cash takes some of the financial pressure off the developer as it tries to line up financing for its new $900 million Atlantic Yards home for the Nets basketball team. Indeed, the developer has the go-ahead to raise $700 million in tax-free bond financing. The rub is that Forest City's ability to raise the hundreds of millions of dollars it needs to build out the remainder of the 22-acre Atlantic Yards site remains in as much doubt as ever.

...

When it comes to the Barclays Center, where the Nets could play ball as soon as the 2011 season, Forest City's plans definitely seem to be gathering steam—four years after the developer first unveiled them. Earlier this month, the Empire State Development Corp. approved the developer's modified plans, giving it the green light to assemble land and proceed with the project. On Oct. 14, New York's highest court, the Court of Appeals, will reconsider a lower court's approval of the use of eminent domain to acquire the last plots of privately owned land the developer needs to fully assemble its site.

Bruce Ratner, chairman of Forest City, has expressed confidence that he'll win the case. Many legal experts are inclined to agree.

“Forest City is relying on substantial precedents which permit use of eminent domain for large economic development projects with the addition of affordable housing,” says Scott Mollen, an attorney at law firm Herrick Feinstein. “However, each case involves unique facts.”

Defeat would almost certainly scupper Mr. Ratner's plans, and would most definitely kill his deal with Mr. Prokhorov. That deal calls for his Onexim Group to invest $200 million in return for an 80% stake in the Nets—including its more than $200 million in debt—and a 45% interest in the 18,000-seat Barclays arena. All that is contingent upon Forest City obtaining all the land by the end of this year.

...

“I question whether or not someone associated with the Kremlin would respect unions or prevailing wages and affordable housing,” says Brooklyn Councilwoman Letitia James. “This partnership takes away from this project being about the borough of Brooklyn.”

In order for Mr. Prokhorov to take his stake in the project, however, it has to get built—and there the odds are still long. Forest City needs to break ground by year's end to take advantage of the tax-free bonds that it desperately needs, and then turn its attention to raising yet more money for future phases.

This deal helps in terms of bolstering Forest City's balance sheet, and will speed up the process,” says Kenneth Krasnow, managing director at Massey Knakal Realty Services. “But we haven't seen financing of this magnitude in a year or two.”

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Atlantic Yards gets a lift

Crain's New York
By Amanda Fung

Last week's pledged cash infusion of $200 million from Russian billionaire Mikhail Prokhorov represents a major windfall for Forest City Ratner Cos. as it struggles to get its vast Atlantic Yards project in Brooklyn under way, but that is still far from a slam dunk.

In a nutshell, Mr. Prokhorov's cash takes some of the financial pressure off the developer as it tries to line up financing for its new $900 million Atlantic Yards home for the Nets basketball team. Indeed, the developer has the go-ahead to raise $700 million in tax-free bond financing. The rub is that Forest City's ability to raise the hundreds of millions of dollars it needs to build out the remainder of the 22-acre Atlantic Yards site remains in as much doubt as ever.

Originally, Atlantic Yards carried a price tag of $4 billion and was to include 16 towers, some residential, some office. But a modified plan produced this year scaled back that vision to only one 400-unit residential tower, including some affordable housing, with a tentative opening date of late 2011. Construction on future components of the project is expected to begin after the arena is built, but only if the financing can be lined up.

“The deal appears to make it more likely that Forest City can take advantage of the tax-free Liberty Bonds by year's end and attract other investors,” says Neysa Pranger, director of public affairs for Regional Plan Association. “But there's still a way to go.”

When it comes to the Barclays Center, where the Nets could play ball as soon as the 2011 season, Forest City's plans definitely seem to be gathering steam—four years after the developer first unveiled them. Earlier this month, the Empire State Development Corp. approved the developer's modified plans, giving it the green light to assemble land and proceed with the project. On Oct. 14, New York's highest court, the Court of Appeals, will reconsider a lower court's approval of the use of eminent domain to acquire the last plots of privately owned land the developer needs to fully assemble its site.

Bruce Ratner, chairman of Forest City, has expressed confidence that he'll win the case. Many legal experts are inclined to agree.

“Forest City is relying on substantial precedents which permit use of eminent domain for large economic development projects with the addition of affordable housing,” says Scott Mollen, an attorney at law firm Herrick Feinstein. “However, each case involves unique facts.”

Defeat would almost certainly scupper Mr. Ratner's plans, and would most definitely kill his deal with Mr. Prokhorov. That deal calls for his Onexim Group to invest $200 million in return for an 80% stake in the Nets—including its more than $200 million in debt—and a 45% interest in the 18,000-seat Barclays arena. All that is contingent upon Forest City obtaining all the land by the end of this year.

Much-needed windfall

Having sustained $380 million in pretax net losses over the five most recent years, Forest City could certainly use Mr. Prokhorov's cash. His option to acquire as much as 20% of the overall Atlantic Yards project represents another potentially major windfall for the developer.

But his potential involvement does carry some political risks, too. Some community officials wonder if the Russian tycoon will deliver the affordable housing that was promised by Forest City.

“I question whether or not someone associated with the Kremlin would respect unions or prevailing wages and affordable housing,” says Brooklyn Councilwoman Letitia James. “This partnership takes away from this project being about the borough of Brooklyn.”

In order for Mr. Prokhorov to take his stake in the project, however, it has to get built—and there the odds are still long. Forest City needs to break ground by year's end to take advantage of the tax-free bonds that it desperately needs, and then turn its attention to raising yet more money for future phases.

This deal helps in terms of bolstering Forest City's balance sheet, and will speed up the process,” says Kenneth Krasnow, managing director at Massey Knakal Realty Services. “But we haven't seen financing of this magnitude in a year or two.”

Posted by steve at September 27, 2009 10:23 AM