« NJ Nets snap record-setting losing streak at 18 with 97-91 victory over Charlotte Bobcats | Main | Atlantic Yards Report Friday Hangovers »
December 5, 2009
As Atlantic Yards Gets Pricier, How Much Red Ink Can Ratner Absorb?
Village Voice
By Neil deMause
This item shows that the finances for an arena in Prospect Heights indicate an iffy chance of success.
Uberdeveloper-turned-Nets-owner Bruce Ratner better have some good meds, because this is rapidly shaping up to be a month of rapid mood swings for him and his Atlantic Yards project. While Tuesday's granting of a desperately needed investment-grade rating for the Nets arena bonds must have been a sigh of relief for Ratner, since then he's been pelted by less-good news that promises to take chunks out of his wallet:
- The record-setting $20 million a year naming-rights deal agreed to by Barclays back in 2007 turns out to be worth only $10 million a year and change.
- A state judge overturned the seizure of land by eminent domain for Columbia University's Harlem expansion — a case with many similarities to Atlantic Yards — writing in his ruling that designating the land as "blighted" was "mere sophistry" for the benefit of a development that is "nothing more than economic development wearing a different face."
- As a condition of not consigning the arena bonds to a junk rating, Moody's and Standard & Poor's forced Ratner to cut the amount of tax-free bonds from $650 million to $500 million — which means more money that must be raised either by more expensive taxable bonds, or via cash from Ratner or his new Russian pal.
...
So, Ratner and partner Mikhail Prokhorov are looking at getting less naming-rights money, and paying through the nose for the arena debt. At what point, then, does Atlantic Yards stop being a viable investment, and instead turn into a sea of red ink?
For a glimpse at that, we must turn to page 89 of the 772-page bond offering document released yesterday by Goldman Sachs that was the source of the naming-rights revelations. (Posted here by Eliot Brown of the Observer, who dug through it in the first place; annoying registration required.) This lists all of the revenue streams — from suite sales to concessions revenue to a $1-per-ticket "green building fee" — that are getting assigned to ArenaCo, the new Ratner-and-Prokhorov-owned company that will actually operate the arena. After bond payments and operating expenses, the arena is projected to turn a profit of around $46 million its first year of operation, rising slightly in subsequent years.
While that would seem like a decent cushion, there are reasons for the dynamic duo's bean counters to be at least a bit concerned. First off, the Goldman Sachs doc lists the bond payments (listed here as "PILOTs," for the fake "payments in lieu of taxes" that will be used to service the bonds) as "preliminary, subject to change" — and as we've seen this week, those figures are only going up. Secondly, it doesn't account for the fact that Ratner and Prokhorov will presumably want to be repaid for their cash outlay on the arena, currently estimated at $293 million. Not to mention the $300 million Ratner spent to buy the Nets originally, or the tens of millions he's lost since then while running the team into the ground.
And what could be more interesting is what's not on the chart: the projected finances of the Brooklyn Nets once they land in the borough of overpriced Asian fusion cuisine. With all those other arena revenues dedicated to paying off the arena, that would leave the Nets to survive mostly just on ticket sales — which, while no doubt higher than they're getting in the Meadowlands, could amount to a pretty thin gruel compared to their NBA brethren, especially if the team never wins another game.
Related...
Posted by steve at December 5, 2009 10:10 AM