September 18, 2012

The Culture of Cheating: Forest City gets the inside track with the MTA, then gets to revise the deal (though the MTA could have recognized its leverage)

Atlantic Yards Report

The spanking new Atlantic Avenue-Barclays Center subway entrance is an undeniable asset to the Barclays Center, Brooklyn, and the city of New York. But in this public-private partnership, the subway station will serve arena patrons more than anybody--and Forest City Ratner won't pay for additional service.

Moreover, the key parts of the developer's transaction with the Metropolitan Transportation Authority (MTA), notably the payment for development rights over the Vanderbilt Yard, and the subsequent development thereof, still wait, thanks in part to FCR's ability to get in on the ground floor in 2003 with no competition for years, then renegotiate the deal in 2009.

Did it have to be that way? Maybe not.

Yes, there’s a “fundamental asymmetry” in complex projects that favors a developer, because it “can generally leave the project and even the city while politicians cannot,” as planning professor Lynne Sagalyn warned in Times Square Roulette, her epic 2001 epic analysis of redevelopment.

With Atlantic Yards, however, the public had more power: Forest City was desperate to move the money-losing Nets from New Jersey into a profitable new arena, larded with luxury suites and sponsorships enabled by the country's richest media market, and to get tax-exempt bonds sold by the end of 2009.

Instead, when Forest City asked to renegotiate, the MTA, controlled by the governor and mayor, complied. This is the Culture of Cheating from another angle: less deception than an inside deal from the start.

link

Posted by eric at 12:45 PM

September 11, 2012

As EB-5 "visas for job creation" program faces renewal vote today, the Daily reveals that an investigation into waste, fraud, and abuse has begun

Atlantic Yards Report

Federal overseers are apparently following the vastly obvious clue that not all is right with the booming EB-5 program, which grants wealthy foreigners green cards for themselves and their families in exchange for purportedly job-creating investments marketed by private investment pools known as regional centers.

In 'INVESTOR VISA' PROBE: Federal program trading foreign finance for citizenship comes under scrutiny, The Daily's Sarah Ryley (ex-Brooklyn Eagle) reported yesterday:

A burgeoning immigration program that gives wealthy foreigners and their families a chance at citizenship if they lay down big cash is under scrutiny by Homeland Security and the Securities and Exchange Commission, The Daily has learned.

...Jay Peak Resort in Vermont has used $200 million to transform itself into a year-round destination. And the developer of a new basketball arena for the Brooklyn Nets has collected $228 million to replace costly conventional financing.

But many projects have gone bust and some are in legal disputes that allege fraud, casting doubt on the immigration agency's ability to effectively monitor the program....

Last month, Homeland Security's Office of Inspector General launched an investigation to determine if the program is "effectively administered and managed to detect and deter fraud, waste, abuse, while avoiding national security threats," according to the internal announcement obtained by The Daily.

Beyond the legal disputes, there's much evidence of misleading marketing, as shown in videos from web sites in China regarding the Atlantic Yards investment.

article

Related content...

The Daily, ‘INVESTOR VISA’ PROBE: Federal program trading foreign finance for citizenship comes under scrutiny

Posted by eric at 11:44 AM

August 29, 2012

Jay-Z Didn’t Want People Knowing Just How Little Of The Nets He Actually Owns

Deadspin
by Barry Petchesky

The Times had a fascinating little story a couple of weeks ago, about Jay-Z's outsized involvement with the Nets, considering his scant ownership stake.

Among the nuggets revealed: his $1 million investment amounts to just one-fifteenth of one percent of the franchise, someone at the NBA didn't think the Nets' black jerseys would look good on black people, and the sheer amount of synergy Jay-Z is getting out of this deal—the Barclays Center will have a Rocawear store, a 40/40 Club, and a champagne bar that sells his uber-expensive Armand de Brignac line. But here's the most fascinating thing: Jay-Z gave zero cooperation to the Times story. This was "Shawn Carter Has a Cold."
...

The story, then, is a classic write-around of the sort that's probably stronger for having kept its subject at arm's length. Halbfinger didn't have to dance around the issues that might have soured access. Instead, he spoke with Brett Yormark, Bruce Ratner, Billy King, and others from the ranks of the NBA offices, sports agents, and the music industry. As a consequence, he was able to raise thorny questions like whether Jay-Z's various businesses got sweetheart deals to be associated with the Nets, and if Jay-Z stopped attending Nets games during losing seasons specifically to protect his own brand. (Halbfinger makes clear he believes the answer to both questions is yes, even if he couldn't come out and say it in the Times.)

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Posted by eric at 1:00 PM

July 19, 2012

A confounding HDC hearing on first Atlantic Yards tower: public testimony without clarity about financing; Forest City denounced, supported; FCR’s housing partner says first building falls short but should proceed

Atlantic Yards Report

There was something dismaying, but not so surprising, about the public hearing yesterday held by the New York City Housing Development Corporation (NYC HDC) regarding up to $92 million in tax-exempt bonds for the first Atlantic Yards tower, a 32-story, 363-unit building at the corner of Flatbush Avenue and Dean Street, adjoining the Barclays Center arena.

It wasn’t simply that no board members were present for the hearing in Lower Manhattan, just three agency lawyers, plus an intern, observed by fewer than three dozen people, some of whom warned the agency about going forward, while others said, however flawed, it was a good start.

It was that no official presentation went beyond the contents of a developer-created handout (bottom) provided a day earlier, describing 150 studios (41%), 165 1-BR (46%) and 48 2-BR (13%), 50% of them subsidized, over five income bands.

Then again, the project does not have a transparent history.


We know developer Forest City Ratner seeks nearly $92 million in tax-exempt bonds, which offers crucial savings over taxable financing. We don’t know the full cost of the building nor the full mix of financing. We don’t know whether the tower, known as B2, would be built using modular construction, which is Forest City Ratner’s goal.

We don’t know how the subsidies compare to other projects in the so-called 50/30/20 program, with 50% market, 20% low-income, and 30% moderate- and middle-income units. We don’t even know the rents, at least beyond my unofficial calculations, which suggest that the top subsidized rungs easily track the market.

We weren't told the size of the units, though NYC HDC's Mixed-Income Program term sheet indicates they could be small, with the subsidized studios at 400 square feet minimum, 1-BR units at 575 sf, and 2-BR apartments at 775 sf.

We didn't learn the NYC HDC’s criteria for decisionmaking, though the building's skew toward smaller units actually goes against agency preference.

Also, there was no mention of modular plans. Would construction of what would be the tallest modular apartment building in the world be welcomed as a cost-saving tactic, or does the agency, and those who might insure the bonds, have any wariness about an experiment?

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Posted by eric at 7:45 AM

July 18, 2012

Noticing New York's Hearing Testimony Re New York City Housing Development Corporation's Subsidization of Ratner's Atlantic Yards Mega-Monopopoly

Noticing New York

The New York City Housing Development Corporation held an important hearing today on its proposed very substantial subsidization of Forest City Ratner's Atlantic Yards mega-monopoly. Here is Noticing New York's testimony.
...

Delivery of scarce-resource subsidy to Forest City Ratner for out-of-scale development hogs and misdirects subsidy that could and should be better used elsewhere, including smaller developers and not-for-profits with a better chance of it benefitting minority developers.

HDC needs to pay attention to the unhappy saga of abuse. None of us has amnesia about Ratner’s misdeeds and we are not about to get it.

article

Related coverage...

Raulism via YouTube, Noticing New York's Hearing Testimony Re New York City Housing Development Corporation's Subsidization of Ratner's Real Estate Megamonopoly

Posted by eric at 7:18 PM

July 8, 2012

Sunday quotes: the lingering scandal over Barclays and the reason to transcend "bank-scandal fatigue"

Atlantic Yards Report

John Brennan in the Record's Meadowlands Matters, What’s in a name: problems for The Barclays or for The Barclays Center?:

The entire Atlantic Yards development plan has been a source of controversy since 2004, with the unusual use of eminent domain to aid the development project and the intensity of construction near downtown Brooklyn among the gripes. But I concur with the analysts cited here that this scandal is not going to lead to a repeat of the Houston Astros’ playing in a place renamed from Enron Field to Minute Maid Park.

The relevant comparison is to the Mets’ CitiField, named after Citigroup, which did not change its name after its own high-finance issues in recent years.

I think it’s just a harsh fact that to the extent that the public is aware of misdeeds by financial institutions, there is little surprise about it since the collapse of 2008.

I agree, the name won't change (though there likely is and will be more dismay toward the renaming of the Atlantic Av-Pacific St station as Atlantic Av-Barclays Ctr). And no, it's not Enron. It's not even CitiField, for which the issue was "Bailout Ballpark."

The Barclays controversy goes deeper. New York Times columnist Joe Nocera wrote yesterday, in Libor's Dirty Laundry:

Even now, Barclays justifies the latter rationale as being a kind of emergency measure brought on by the financial crisis. But the bank is wrong about this. Submitting false data, for whatever reason, is a violation of the law — not to mention a fundamental abuse of trust. Once again, it leads one to believe that bankers feel neither the constraints of the law nor of morality.

Which brings me to the second big surprise. Britain and America have reacted to the Libor scandal in completely different ways. Britain is in an utter frenzy over it, with wall-to-wall coverage, and the most respectable, pro-business publications expressing outrage. Yes, Barclays is a British bank, and the first word in Libor is “London.” But still: The Economist ran a headline about the scandal that read, in its entirety, “Banksters.”

Yet, on these shores, the reaction has been mainly a shrug. Perhaps we’re suffering from bank-scandal fatigue, having lived through Bank of America’s various travails, and the Goldman Sachs revelations, and, most recently, the big JPMorgan Chase trading loss. Or maybe Libor is just hard to gets one’s head around.

But the Brits have this one right. They may not understand the intricacies of Libor any better than we do, but they sense, powerfully, that banks have once again made a mockery of the role that society entrusts to them.

link

Related content...

Meadowlands Matters [NorthJersey.com], What’s in a name: problems for The Barclays or for The Barclays Center?

Then there is the Barclays Center, a FAR more complicated issue. This arena’s developers received hundreds of millions of dollars in public subsidies based on the amount of short-term and long-term jobs that would be created as well as the affordable housing that would be built. So far the “Jobs Housing Hoops” mantra introduced nearly a decade ago has not produced as promised, and the basketball coming in October not surprisingly was not the highest priority listed by supporters many years ago.

Posted by steve at 9:46 AM

June 19, 2012

Senate Minority Leader John Sampson's curious EB-5 gig: helping market green cards to immigrant investors from China

Atlantic Yards Report

I have an article in City and State headlined THE “VOLUNTEER” V.P.: John Sampson’s unusual new gig marketing green cards to Chinese nationals.

It's not about Atlantic Yards, but there is a skein of connection. I wouldn't be following the (generally) little-scrutinized EB-5 industry if I hadn't gotten a tip in the summer of 2010 that it would be used for Forest City Ratner's Atlantic Yards project.

Since then, despite ample reasons for closer scrutiny, the EB-5 business has been booming.

In this case, Sampson, the Senate Minority Leader, quietly--as in no announcements/press releases in English--began participating as the (seeming) Chief Executive Vice President of the New York City Real Estate Regional Center (NYCRERC).

Sampson's role? To help market green cards to would be immigrant investors from China, under the federal government's EB-5 program.

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NoLandGrab: What the hell's a "Chief Executive Vice President?" Either you're the chief executive, or you're a vice president. Not both.

Posted by eric at 1:14 PM

June 17, 2012

Under the radar: EB-5 heavy-hitters appear at conference in Brooklyn

Atlantic Yards Report

From the EB-5 News blog, Brooklyn real estate conference explores EB-5 program: Photo via EB-5 News Blog

The 3rd Annual Brooklyn Real Estate Summit hosted by TERRACRG was held at St. Francis College in downtown Brooklyn, New York June 14, 2012. [Blog operator] Mr. Brian Su was invited to join the "Foreign Investors: attracting foreign investment capital to Brooklyn projects" panel discussion. The discussion panelists include Mr. George Olsen (Managing Principal) of New York City Regional Center, Ms. Julia Yong-Hee Park (Principal Attorney) of Law Offices of Julia Park, Mr. Brian Su (CEO) of Artisan Business Group, Inc., and Mr. Paul Travis (Managing Partner) of Washington Square Partners. The forum was moderated by Mr. Steven Polivy (Chairman - Economic Development & Incentives Practice) of Akerman Senterfitt. The New York City Regional Center has attracted over $800 million EB-5 funds to development projects in Brooklyn and New York city areas. Chinese and Asian investors have always shown interests in EB-5 project in New York city. For more information about EB-5 regional center investment program, please contact us today.

Note the presence of George Olsen of the New York City Regional Center, who otherwise has been unavailable to the press. Remember that coverage last December in the New York Times of gerrymandering so-called Targeted Employment Areas to ensure they had high-unemployment rates:

The consultants arranging the EB-5 financing for the Battery Maritime and Atlantic Yards projects declined to comment.

If the NYCRC has raised more than $800 million in EB-5 funds, that's an enormous number, because little more than a quarter of it is for Atlantic Yards. The entity claims 800 approval letters for investors, which means $400 million from them.

link

Posted by steve at 8:40 AM

June 7, 2012

Another Delay at Atlantic Yards

Brownstoner

Forest City is going to miss the June 30 deadline it initially agreed to for commencing work on the MTA train storage yard it is committed to building as part of its Atlantic Yards Project, according to the Wall Street Journal. “It’s more of the same,” said Democratic district leader Jo Anne Simon. The MTA doesn’t seem upset though. “From our perspective, very little is changing here,” said a spokesperson for the Transit Authority. FCR says it will break ground by the end of the year and still meet its 2016 deadline for completion.

link

Related coverage...

The Real Deal, Forest City Ratner admits to more delays for Atlantic Yards benefits

Posted by eric at 6:45 PM

LIRR Faces New Delay: Brooklyn Train Yard

The Wall Street Journal
by Eliot Brown

The developers of the $4.9 billion Atlantic Yards project in Brooklyn have delayed construction on a new train storage yard, one of the many public benefits that had been promised in order to win public approval for a professional basketball arena and housing development at the site.

While the storage facility for Long Island Rail Road trains is still required to be completed by 2016, the delay comes as developer Forest City Ratner Cos. has struggled with higher-than-expected costs and a sluggish economy that have slowed other portions of the project.

"It's more of the same," said Jo Anne Simon, a Democratic district leader in Brooklyn who is a critic of the project. "There's a whole host of things that are problematic and have been delays in benefits."

Forest City spokesman Joseph DePlasco said the yard will still be completed on time. The developer has already built a portion of the yard, he said, and other related work will continue.

MTA spokesman Adam Lisberg said the developer has agreed to do $10 million of additional work in the interim, and the LIRR is using a temporary rail yard meanwhile.

"From our perspective, very little is changing here," Mr. Lisberg said.

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NoLandGrab: From our perspective, too — it's just one more in an endless parade of examples of broken promises that ultimately screw the taxpayers. We're guessing the MTA won't be delaying fare hikes, right?

Related coverage...

Atlantic Yards Report, WSJ: Forest City gets MTA to accept start date on permanent railyard moved back 18 months; finished yard still due by September 2016

Developer Forest City Ratner, which successfully renegotiated the deal for Vanderbilt Yard development rights to build a smaller, cheaper replacement railyard and to attenuate payments, has managed to save cash flow by renegotiating another aspect of the schedule with the Metropolitan Transportation Authority, according to the Wall Street Journal.

By building the arena, Forest City Ratner had to move the railyard functions (storage and cleaning) to a smaller temporary yard east of the arena block, and to build a larger--though not as large as originally promised--upgraded yard by 9/1/16.

As the screenshot above indicates, construction of the larger yard was supposed to begin this June 30, as indicated in an MTA Staff Summary dated 6/22/09.

The Journal's Eliot Brown reports that the start date has been moved back 18 months to 12/31/13, with terms disclosed to the MTA board members this week.

Posted by eric at 12:16 PM

Despite the arena hoopla, are they making their nut? Forest City's behind on contractually obligated revenues, and stated $4 million for Calvin Klein sponsorship claim looks doubtful

Atlantic Yards Report

The Barbra Streisand concert announced recently may be "a feather in the cap of the promoters of the arena," as the Times suggested, and the Justin Bieber announcement generated more buzz, as did even the announcement of a couple of hockey games from the Eastern European professional league, KHL.

However--and this question was relevant even before the Nets didn't get lucky in the NBA lottery--it doesn't remove the question mark over whether the Barclays Center will bring in the revenue predicted from ticket sales and sponsorships.

After all, in late March parent company Forest City Enterprises reported that some "64 percent of forecasted contractually obligated revenues for the [Barclays Center] arena are currently under contract."

While that's a not insignificant rise from the 56 percent reported in December 2011, the developer has admitted that the 100% mark will not be met by the arena opening.

The next quarterly report arrives late this afternoon and it should factor in the announcement that Calvin Klein signed on as a Founding Partner, in a deal reported at $4 million a year.

So we'll see how much closer they are to the 100%.

However, as described below, it's doubtful that the Founding Partner deals are worth $4 million a year.

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Posted by eric at 11:59 AM

May 28, 2012

A myth multiplied: "5 Signs That China Is Colonizing America" said to include Atlantic Yards

Atlantic Yards Report

If you search on Google for "45 Signs That China Is Colonizing America," you'll get a bunch of results, which include the same, misleading Atlantic Yards sign:

'#8 Chinese investors have been gobbling up real estate all over New York City. The following is from a recent Forbes article….

According to a recent report in the New York Times, investors from China are “snapping up luxury apartments” and are planning to spend hundreds of millions of dollars on commercial and residential projects like Atlantic Yards in Brooklyn. Chinese companies also have signed major leases at the Empire State Building and at 1 World Trade Center, the report said.

Except that not-by-Forbes-linked 8/11/11 Times article got it wrong. Providing a low-interest loan for infrastructure and loan replacement doesn't give them much purchase on Atlantic Yards. The immigrant investors seeking green cards would only control actual real estate if Forest City Ratner doesn't pay them back in seven years.

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Posted by steve at 10:05 PM

May 27, 2012

Forecasted contractually obligated revenues for the arena: from 64% to how much? (Also, 15% of office leases for FCE from City of NY/U.S. government)

Atlantic Yards

In late March, Forest City Enterprises, parent of Forest City Ratner reported that some "64 percent of forecasted contractually obligated revenues for the [Barclays Center] arena are currently under contract."

While that's a not insignificant rise from the 56 percent reported in December 2011, the developer has admitted that the 100% mark will not be met by the arena opening.

So we should keep watch for the next report, which will come with the FY 2012 First Quarter conference call. Last year it was held in early June.

Meanwhile, the documents embedded below show how FCE describes the Atlantic Yards project, among many others, to investors. Note that, even through early March, they were using the now-outdated 56 percent mark.

Also note, in last year's Third Quarter Supplemental Package, the document immediately below, one page pulls out a list of "significant office tenants as of October 31, 2011."

The largest, with 9.38% of total office square feet, is the city of New York. The third largest, with 5.82%, is the U.S. Government. Note that the latter is surely spread over several cities. And Forest City would say that it competed to bid for at least some of those leases.

But it's still notable how more than 15% of office leases come from governmental clients.

link

Posted by eric at 8:43 AM

May 21, 2012

Terminal Tower, Cleveland headquarters of Forest City Enterprises, has overdue loan; developer must go to "special servicer" to revise terms

Atlantic Yards Report

Crain's Cleveland Business, in Forest City overdue on Terminal Tower loan: Developer houses 500 workers in city icon, reports (sub. required):

A $38 million loan secured by Terminal Tower, the Public Square skyscraper the Guide to Cleveland Architecture calls “the landmark of the city,” is overdue.

How that debt will be resolved by the building's owner, real estate giant Forest City Enterprises Inc. — which has its headquarters and more than 500 employees in the 52-story structure — remains to be seen.

As with other buildings that are worth less than previously valued and not delivering the once-predicted revenues, the loan has been assigned to a "special servicer" to revise and extend loan terms and even potentially re-assign ownership.

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Posted by eric at 11:49 PM

May 7, 2012

From Crain's Insider: Atlantic Yards subcontractors worried

Atlantic Yards Report

From Crain's Insider today, Subs at Atlantic Yards Worried:

Subcontractors at the Atlantic Yards fear that money withheld by Forest City Ratner’s contractor won’t be paid to them when the project nears completion. “Toward the end, there’s a lot of change orders,” said Ron Berger, executive director of the Subcontractors Trade Association. “We’re worried they don’t have sufficient funds to pay for the change orders.” Berger wants the developer to float a $50 million bond to set aside cash; FCR offered $25 million. Regardless, a spokesman for the developer said, the trustee of the public bonds floated by the company has put aside money to pay subcontractors.

link

NoLandGrab: Pshaw! Bruce Ratner has kept all his other promises, hasn't he? Oh, um, wait a minute...

Posted by eric at 10:32 AM

April 16, 2012

Times op-ed: EB-5 program lacks credibility, needs reform, but "solutions are straightforward" (really?)

Atlantic Yards Report

A New York Times op-ed today, Making Visas-for-Dollars Work, suggests that the EB-5 program can and must be fixed. Writes author Ann Lee a senior fellow at the center-left think tank Demos and the author of “What the U.S. Can Learn From China”:

Given how many high-worth investors are clamoring to enter the United States, the program could have a significant effect on American unemployment. Indeed, it has brought in some $1 billion over the last fiscal year, and the President’s Council on Jobs and Competitiveness has called for the program to be “radically” expanded over the next few years.

Unfortunately, the program is so rife with fraud and corruption that it could actually have the opposite impact and deter investment. To regain its credibility, the program must make a number of changes to enable more transparency and demand more competence from its operators.

The most egregious problems with the EB-5 program can be found in its 218 regional centers, which work with private-sector brokers to identify local investments and direct foreign participants to them. Examples abound of centers and brokers playing down risky investments and misrepresenting how the program works, including a promise that EB-5 investments are guaranteed by the federal government — when the government in fact does nothing of the sort. Many investments have failed to create the required 10 jobs and even gone bankrupt, leaving the investor without his money or his green card.

That's not the half of it. It goes far, far deeper, such as misrepresenting the project itself. And the regional centers do not merely "work with private-sector brokers," that's what they are: private businesses.

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Posted by eric at 12:09 PM

April 10, 2012

EB-5 follies: are immigrant investor funds going into the Brooklyn arena?

Atlantic Yards Report

Like a game of telephone, news can be distorted along the line. Take for example coverage in Bloomberg Business Week about the EB-5 program of investment immigration...

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Posted by eric at 11:36 AM

April 8, 2012

Brooklyn arena financing (as well as the two NYC stadiums): an exception to the "exception to the exception" in the tax code

Atlantic Yards Report

Would you believe that sports facility financing in New York City is so byzantine that it qualifies as an exception to the third power?

Let's go to What’s the Easiest Way to Cheat on Your Taxes?, a column in today's New York Times Magazine about various questions "you always wanted to ask your accountant:

Why is the tax code so complicated?

The answer, according to most accountants, is simple: “exceptions to the exceptions,” which, typically, are extremely complicated. John Yeutter, a C.P.A. who teaches accounting at Northeastern State University in Tahlequah, Okla., offered the following example:

RULE: When you buy a bond, you have to pay taxes on the interest payments you receive.

EXCEPTION: You don’t have to pay taxes on interest from municipal bonds (because the federal government wants to make it easy for local governments to borrow money).

EXCEPTION TO THE EXCEPTION: If a municipal bond is used to finance a professional sports arena, you have to pay taxes on the interest (the government doesn’t want to support a sports team).

Now imagine this times a thousand. “Each step along the way is great,” Yeutter says. “But after 100 years, we have a system that is very, very complex.”

Indeed it is, because there's yet another exception.

The new Yankee Stadium in the Bronx, the Mets' new Citifield in Queens, and the emerging Barclays Center arena (for the Brooklyn Nets) are all financed via a clever scheme, fully tax-exempt.

link

Posted by steve at 8:59 PM

In China, EB-5 advertisers "bombard" cellphone users with text advertising

Atlantic Yards Report

How big is the EB-5 immigrant investment business in China?

Well, check out this mention from a 4/6/12 San Jose Mercury News article headlined Wealthy Chinese seek special visas to relocate to Bay Area:

"When I go to China, I get a Chinese cellphone and I am constantly bombarded with EB-5 (advertising) text messages," said Kevin Wright, a consultant with offices in the United States and China.

Who bears the risks?

The article states:

The investor visa, which began in 1992, will expire in September unless Congress reauthorizes it, but experts expect that to happen.
"It has enjoyed bipartisan support," said Peter Joseph, executive director for the Association to Invest In the USA, a trade group that lobbies Congress. "It's about creating jobs without spending anything from the public purse."
Indeed, the risks are borne by the immigrant investors, San Jose immigration attorney Acton Yang said.
"The EB-5 requires a risky investment," he said. "It can't be investing in a security. You can't just buy a house. It has to be a risky investment that will generate employment in the United States."

It may not spend "anything from the public purse," but what about opportunity costs? Should we be "selling" green cards when some projects don't create any new jobs?

And the risks aren't borne merely by the immigrant investors. The risks are borne by the public at large, who accept this program rather than one more focused on protecting the public interest.

link

Posted by steve at 8:47 PM

April 7, 2012

New Jersey's governor gets called out in the Times for offering tax breaks, but Bloomberg sounds like a white knight (nah)

Atlantic Yards Report

In a front-page New York Times article two days ago, Christie Leaning on Tax Subsidies in Hunt for Jobs, New York Times development reporter Charles Bagli took a tough look at New Jersey Gov. Chris Christie's approval of "a record $1.57 billion in state tax breaks for dozens of New Jersey’s largest companies after they pledged to add jobs."

But the nut graph gave way too much credit to New York:

The generous distribution of subsidies in New Jersey has come under fire from government-reform groups, Mayor Michael R. Bloomberg of New York City and some New Jersey landlords, who contend that the programs are an expensive and ineffective form of assistance to wealthy corporations.

However Christie deserves criticism, Bloomberg is hardly pure. After all, when New Jersey tried to lure Fresh Direct, which needs proximity to neighborhoods in Manhattan and Brooklyn, Bloomberg more than matched the subsidies.

Times columnist Michael Powell wisely called Fresh Direct's flirtation with New Jersey "more a feint than a threat" and pointed out that the city exacted no guarantees from the grocer.

Also, I'd add, Bloomberg offered developer Bruce Ratner $100 million--and then nearly $100 million more, later--for his Atlantic Yards arena-cum-skyscrapers project, leveraged by moving the basketball Nets from NJ to Brooklyn.

And Ratner saved well over $100 million thanks to the issuance of federally tax-exempt bonds. Should the feds subsidize the movement of one sports team across state lines? That's not good public policy, but Bloomberg was fine with that.

link

Posted by steve at 3:07 PM

April 5, 2012

Vermont newspaper takes close look at EB-5 program, finds some reason for concern

Atlantic Yards Report

A long and interesting article from Seven Days Vermont about EB-5 investment, headlined Seeing Green: Vermont's EB-5 program trades cash for visas — fair deal or shady business?, analyzes the program in the state where it probably has the largest impact.

While the article probably leaves an overall positive impression of the program, it breaks some news, describing one apparent scam and explaining how those benefiting from EB-5 reward those who support it.

And it doesn't quite grapple with the question of opportunity cost: if we are going to "sell" visas, are we really getting our money's worth?

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Posted by eric at 10:51 AM

March 30, 2012

Forest City reports additional losses on Nets, 64% of forecasted arena revenues under contract

Atlantic Yards Report

It's a good thing for Bruce Ratner that the New Jersey Nets served as the phony "civic" aspect of his Atlantic Yards project, because, beyond that, his purchase of the team has been a complete financial debacle.

Forest City Enterprises, parent of Forest City Ratner, issued full-year and fourth-quarter earnings today, citing record-setting EBDT (Earnings Before Depreciation, Amortization and Deferred Taxes) of $1.61, compared with $1.59 per share for fiscal 2010.

However, for 2011, the net loss attributable to Forest City Enterprises, Inc., was $86.5 million, or $0.52 per share, compared with net earnings of $58.0 million, or $0.34 per share, in 2010. Why? Forest City made less money on property sales and joint ventures, and lost money by deciding "to strategically reposition the company's land business through sale or other disposition."

Nets losses, arena revenue

Losses on the Nets also hurt, as the company is absorbing additional losses after the amount in the red exceeded the $60 million cap on losses accepted by team owner Mikhail Prokhorov when he bought the team.

The company also reported that some "64 percent of forecasted contractually obligated revenues for the [Barclays Center] arena are currently under contract," a not insignificant rise from the 56 percent reported in December.

Still, with six months to go before the arena opens in, if that rate of growth continues, the 100 percent mark, which Forest City has admitted it won't meet, will be a good margin away.

(Contractually obligated income, which includes revenue from naming rights, sponsorships, suite licenses, Nets minimum rent and food concession agreements, accounts for 72 percent of total forecasted revenues for the arena.)

article

Posted by eric at 10:43 AM

March 25, 2012

EB-5 industry group: let's get law renewed, then we can worry about weeding out the bad apples

Atlantic Yards Report

An insight into the world of EB-5 investment immigration just emerged: apparently some of those marketing investments to would-be immigrants think some of their peers are cutting corners.

The response from an industry group? Let's get the law authorizing regional centers, investment pools federally authorized to market such investments, permanently renewed by September. Then we can go after the bad apples.

link

Posted by steve at 11:33 PM

March 24, 2012

High-paying, scandal-plagued immigration racket

New York Post

If you have the bucks and the right investment project that will create jobs, you can become a permanent resident of the United States. At least, that's the idea behind the EB-5 visa category. Foreign nationals with $500,000 to spend on a project here can gain entrance to the US and apply for a green card, along with their spouses and children (under age 21), as long as they invest in something that will create at least 10 full-time, continuing jobs.

Trouble is that the program is an abyssmal mess. Bloomberg News has a report highlighting cases of investors who came here expecting to be able to stay but are facing deportation because their investments went sour, they got taken for a ride and have lost their money and their legal right to be here.

...

"Some claims about job generation are dubious, said Michael Gibson, a Tampa-based investment adviser who vets EB-5 deals for foreigners. When a project “substitutes EB-5 capital for more expensive bank financing or bond funding or even equity,” he said, “that isn’t really creating new economic activity. It’s margin for the developer.”

Just look at the new Brooklyn arena for the New Jersey Nets. "The Atlantic Yards developer, Forest City Ratner Cos., is borrowing $228 million in EB-5 money for a $1.4 billion infrastructure and arena fund that’s paying for a new subway entrance, parking facilities, municipal water and sewer line upgrades and other work in the vicinity of Barclays Center, according to Joe DePlasco, a spokesman for the company." But the foreign investors are claiming responsbility for all of the supposedly 8,000 permanent jobs that Atlantic Yards will create.

link

Posted by steve at 6:21 PM

March 23, 2012

BusinessWeek takes look at "dodgy" EB-5 program, cites AY figure at $228 million; Forest City claims money is going to infrastructure, but documents suggest it's just replacing land loan

Atlantic Yards Report

In Coming to U.S. Costs $500K With Dodgy Job Plan, Bloomberg BusinessWeek takes a critical look at the fast-growing EB-5 program, in which developers and others have found a source of cheap financing: immigrants and their families can get green cards for themselves and their families if their $500,000 investment creates ten jobs.

The investigation, which looks at several projects, takes a somewhat critical look at Atlantic Yards, and reveals some new information: a total of $456 million raised, not the announced $498 million, and a questionable explanation for how the money is being used. But it leaves some lingering questions unanswered or unaddressed.

Overall, the portrait of EB-5 is tough, citing limited federal oversight:

Projects aren’t rigorously vetted and have been hyped by operators and brokers, and immigration authorities have botched visa claims and stranded investors and their families, according to lawsuits and participants critical of government supervision.

Several of the projects described are fairly small time, involving a few million dollars, not the $400 million-plus Brooklyn project.

AY and jobs

The article states:

In one case, Brooklyn’s Atlantic Yards real-estate development, immigrant investors are putting about 30 percent of the capital into one pool financing the project, and claiming all jobs that pool is expected to create, according to George Olsen, managing principal of New York City Regional Center LLC.

The EB-5 program rules don’t demand enough proof that promised jobs, however they’re calculated, will be generated, said Jose Latour, a Miami immigration lawyer who co-owns American Venture Solutions Regional Center LLC in Florida.

“There’s no accountability,” he said. “Atrociously inflated projects are going to result in a lot of rejected green card applications.”

Latour may be right, but that's not an apt criticism of the Atlantic Yards EB-5 venture. In that case, the applications have been approved. The question is whether that approval meets the letter of the law (apparently) and the spirit of the law (dubious).

article

Related content...

BloombergBusinessweek, Coming to U.S. Costs $500,000 With Job Plan

Civic leaders in El Monte, California, saw the Transit Village development planned for land around the bus station as a way to revitalize downtown.

Developers John Leung and Jean Lang pitched it as something else to wealthy Asians: a ticket to a U.S green card.

The pair solicited $500,000 from a South Korean eager to win a resident visa through a federal program designed to stimulate job creation. The developers’ company went bust, the investor doesn’t have a green card and Transit Village didn’t produce any jobs in El Monte, a city of about 120,000 east of Los Angeles. Leung and Lang said they did nothing wrong. City officials said federal authorities didn’t do enough.

“Little El Monte stepped up to expose these people,” said Rene Bobadilla, the city manager. “Where the heck is the federal government?”

If the Feds aren't going to crack down on a couple of two-bit California developers, who's going to police Bruce Ratner?

Some claims about job generation are dubious, said Michael Gibson, a Tampa-based investment adviser who vets EB-5 deals for foreigners. When a project “substitutes EB-5 capital for more expensive bank financing or bond funding or even equity,” he said, “that isn’t really creating new economic activity. It’s margin for the developer.”

The Atlantic Yards developer, Forest City Ratner Cos., is borrowing $228 million in EB-5 money for a $1.4 billion infrastructure and arena fund that’s paying for a new subway entrance, parking facilities, municipal water and sewer line upgrades and other work in the vicinity of Barclays Center, according to Joe DePlasco, a spokesman for the company. The arena, which is being built for the National Basketball Association’s New Jersey Nets, will be an anchor of the $4.9 billion development, planned to include up to 6,430 housing units and 247,000 square feet of retail space.

The loan money is coming from 456 foreigners through the New York City Regional Center, according to Olsen, the managing principal. Forest City first asked for EB-5 money to pay off loans to the company from a unit of New York-based Gramercy Capital Corp., a real estate investment trust. When USCIS ruled against that, the plan was revised, Olsen said.

As Norman Oder points out in his coverage of the Businessweek story:

Hold on. There's no $1.4 billion infrastructure and arena fund. There is a purported $1.4 billion infrastructure and arena project, a fiction created to market a portion of the overall Atlantic Yards project to investors.

The money for the arena, and infrastructure, was already in place when the then-$498 million investment was marketed to potential investors. There was an existing arena project, funded mainly by $511 million in bonds, plus private equity and city and state subsidies. And the subsidies were supposed to go to infrastructure, in the main.

Posted by eric at 11:59 AM

March 15, 2012

A Goldman Sachs executive director parts publicly with the company

Atlantic Yards Report

In a New York Times op-ed today headlined Why I Am Leaving Goldman Sachs, Greg Smith, a Goldman Sachs executive director, announced his resignation after almost 12 years at the firm.

He doesn't quite call the company a "vampire squid," in Matt Taibbi's famous formulation, but he does reference it.

How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.

...I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them.

...It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.

Goldman and AY

Goldman Sachs, of course, sold the bonds for the Atlantic Yards arena. No illegal behavior, but was it pushing the envelope? Maybe not to clients, but the deadline for the bond sale drove the timetable for the hasty Metropolitan Transportation Authority consideration of a revised railyard deal.

And Goldman last month seemed like it was running the Brooklyn Arena Local Development Corporation.

link

Posted by eric at 11:59 AM

March 2, 2012

A blow to the EB-5 immigration investment industry: heavily promoted project in Vermont sees partnership ended, with questions looming

Atlantic Yards Report

To attract immigrant investors under the federal government's EB-5 program, promoters must design projects that:

  1. provide sufficient job creation (10 jobs, however indirect, per $500,000 investment) to generate green cards for themselves and their families
  2. be secure enough investments so that the investors, after granting a low- or no-interest loan for five years, get their money back from project promoters.

(With the Atlantic Yards EB-5 investment, promoters have gotten the United States Citizenship and Immigration Services to sign off on job-creation figures that I think bear little relation to reality, while it's way to soon to see if the investors will get their money back.)

A setback for Jay Peak

One project that has proven its bona fides, at least with the job-creation challenge, is the Jay Peak Resort in Vermont, which has garnered much good press as an EB-5 exemplar. Its president, Bill Stenger, has testified at least twice before Congress about EB-5, including before a Senate Committee led by his friend, Sen. Pat Leahy (D-VT).

So it is a serious blow to the EB-5 industry that, as reported by EB5Info.com, the firm that brokered investments in Jay Peak to potential investors has ended "what may have been the longest and most successful agent/broker relationship in EB-5 visa history," with letters to more than 100 immigration attorneys.
...

So, what happened? [EB5Info.com's Michael] Gibson can only quote speculation that either Jay Peak is in shaky financial condition or the job creation numbers will not be met.

article

Posted by eric at 10:55 AM

February 16, 2012

Did Goldman, Sachs try to run the Brooklyn Arena LDC? It appeared so, but then an Investor Update call for today was canceled.

Atlantic Yards Report

Well, we knew that the Brooklyn Arena Local Development Corporation (BALDC), the entity set up to issue tax-free bonds for the arena, was little more than an alter ego of the Empire State Development Corporation (ESDC), even though it is officially a "creation" of the Job Development Authority (JDA), another ESDC alter ego.

I was recently alerted to an Investor Update Call scheduled for today, apparently to alert arena bondholders on the progress of construction. The document, issued via the Municipal Securities Rulemaking Board, stated:

The Brooklyn Arena Local Development Corporation invites you to participate in an Investor Update Call related to the above-captioned transaction.

The RSVP went to a staffer at Goldman, Sachs.

Very curious

That sounded odd, given that the BALDC is a publicly created body, with board members appointed by public officials.

How could this be delegated to Goldman? Was the ESDC (also known simply as Empire State Development) involved?

article

Posted by eric at 11:54 AM

February 8, 2012

A critic of the EB-5 visa program says it's failing (maybe); report says it's easier to buy your way into the U.S. than other countries

Atlantic Yards Report

David North of the "low-immigration, pro-immigration" Center for Immigration Studies (also see SPLC's criticism of the organization's ties with extremists), the most public critic of the EB-5 immigrant investor program, expands on his December 2011 Congressional testimony with a January 2012 report titled The Immigrant Investor (EB-5) Visa: A Program that Is, and Deserves to Be, Failing.

His summary is that "despite massive promotional efforts":

  • There are comparatively few takers, and only a fraction of them complete the process and get green cards;
  • No one, citizens or aliens, middlemen or workers, or the economy generally, seems to be getting much out of the program;
  • Many of the investments turn out to be bad ones, some scandalous; and
  • Other immigrant-receiving nations run much more rational programs than we do, while securing more significant investments, proportionately, from aliens.

article

Posted by eric at 11:17 AM

February 7, 2012

As EB-5 goes mainstream, association presents options to financial agencies; head of Vermont regional center says program crucial to state

Atlantic Yards Report

The Council of Development Finance Agencies (CDFA), a national association of state, county and municipal agencies, on 1/17/12 sponsored a webcast introducing EB-5 investment immigration to its members.

The speakers were David Andersson, President, Association to Invest In USA, and James Candido, Director, Vermont EB-5 Regional Center.

Andersson noted that the trend these days among regional centers to cover several jurisdictions or even a full state, though the regional center he manages in northwest Washington, the Whatcom Opportunities Regional Center, covers just one county.

When the WORC was designated in 2006, he said, there were only about 14 regional centers. Now there are more than 208.

In fact, not until November 2010 did prospect regional centers have to actually pay a filing fee to achieve federal designations. At that point, the United States Citizenship and Immigration Services (USCIS) introduced the I-924 form, which comes with a $6230 filing fee to get designated or to have a designation amended.

"There is a move afoot," Andersson said, to get USCIS to offer "pre-approval of projects," which, I might add, is what promoters of the Atlantic Yards project promised investors. "This preapproval has not yet been perfected."

article

Posted by eric at 8:12 AM

USCIS criticized in Inspector General's report for "getting to yes" and being "owned" by immigration attorneys; it didn't cite EB-5, but maybe it could have

Atlantic Yards Report

The United States Citizenship and Immigration Services (USCIS), the federal agency in charge of the EB-5 immigrant investor program, has recently come under fire by its own parent agency for going too far to help potential immigrants.

While the criticism, raised by the Inspector General of the parent Department of Homeland Security (DHS), does not address cases within the immigrant investor program, it suggests that USCIS has a "get to yes" culture and is also too much in the sway of private immigration attorneys--both of which, by my observation, apply to the EB-5 program.

The issue was first raised in a 1/5/12 article in The Daily, which got a copy of the DHS report.

article

Posted by eric at 8:09 AM

February 6, 2012

EB-5 visa use booms; ex-elected officials cash in; immigrant investor funding eyed for sports facilities in Sacramento, Oakland

Atlantic Yards Report

EB-5 is all over the news these days, in terms of record-breaking statistics, new opportunities to deploy immigrant investor funds, former elected officials cashing in, and some questionable deals.

The Association to Invest In the USA (IIUSA), the trade association for the EB-5 Regional Center Investment Pilot Program, on 2/1/12 celebrated a new peak in investment immigration....

article

Related coverage...

Atlantic Yards Report, New cautions from China about EB-5 investments (taxes, investment risk)

Even as EB-5 business--and the ambition behind it--continues to grow, there's new caution in China about the benefits and costs of EB-5 investments, in which a $500,000 investment in a purported job-creating enterprise brings green cards for the immigrants and their families.

In a 1/10/11 article headlined Expats in US pay high price, China Daily reported some pitfalls, given that not only must residents pay taxes on worldwide income, there are new reporting requirements....

Posted by eric at 11:12 AM

February 4, 2012

Super Bowl 2012: Are Sports Stadiums Ripping Off Cities?

International Business Times
By Roland Li

No story about public financing of sports facilities would be complete without a mention of the poster child of wasteful public spending: Atlantic Yards.

But the most controverial arena has been Forest City Ratner's Barclays Center at Atlantic Yards in Brooklyn. Conceived in the early 2000s, the project received $511 million tax free bonds in 2009, but had to clear lawsuits challenging the use of eminent domain to seize private property. A design by Frank Gehry was later dropped in favor of SHoP to cut costs, and prefabricated steel is being used on residential towers for more savings. The arena is set to open later this year.

link

NoLandGrab: Let's see: Government subsidies and use of eminent domain and all we get is a money-losing arena? I do believe we've been ripped off.

Posted by steve at 3:03 PM

January 31, 2012

Ratner’s parent company unveils $300M in NYC property financings

Company closes loans on Queens Place, Nine Metrotech

The Real Deal
by Katherine Clarke

And we thought lenders had learned their lessons...

Forest City Ratner’s Cleveland-based parent company Forest City Enterprises completed more than $300 million in property financings in the quarter ending Jan. 31, 2012, including two worth a combined $163 million in New York City, it announced today.

The company closed a 10-year, $87 million loan for Queens Place, a 455,000-square-foot, five-level retail center on Queens Boulevard. It also purchased the existing $75 million loan at Nine Metrotech, a 317,000-square-foot office building in the MetroTech Center office campus in downtown Brooklyn, and then closed a new 10-year, $63 million loan for the same property.

link

Posted by eric at 10:27 AM

January 25, 2012

Federal agency overseeing EB-5 immigrant investment program confirms that it will continue to let states gerrymander districts of high unemployment

Atlantic Yards Report

I wrote 1/11/12 how a revised draft memo on EB-5 Adjudications Policy, issued that day by the United States Citizenship and Immigration Services (USCIS), punted regarding the practice by states of gerrymandering maps to ensure projects aimed at immigrant investment were located in areas of high unemployment.

And that allows for a lower investment level, $500,000, rather than $1 million, for those seeking green cards and their families.

Last month, in a front-page article, the New York Times put the gerrymandering issue on the national agenda, forcing USCIS Director Alejandro Mayorkas to acknowledged concern about the spirit of the legal provision which aims to help high-unemployment districts.

The Times article, which focused on the odd maps approved for New York projects (including what I've dubbed the "Bed-Stuy Boomerang" involving Atlantic Yards), even generated an editorial chiding the federal agency.

But the memo issued earlier this month stated that the USCIS would continue to give deference to the lines drawn by the state.

article

NoLandGrab: We suppose it's too much to ask for that boomerang to come back and hit Bruce Ratner in the tuches.

Posted by eric at 12:02 PM

January 19, 2012

Is America shutting the door on expats?

After an eight-year battle to become a US citizen, London-born Sebastian Doggart looks at how the Obama administration has tightened the defences of Fortress America

The Telegraph
by Sebastian Doggart

Bruce Ratner's favorite immigration program is the one place where America's borders have not been solidified.

The Obama administration has overseen an escalation of America’s greenbacks-for-Green-Cards policy. These visas are called EB5s, and getting them has become a whole lot easier recently. Their cost has dropped from $1million to $500,000. The requirement that an EB5 investor should employ at least 10 workers is rarely enforced. EB5s have been used to refinance troubled schemes, including, in my own neighbourhood of Brooklyn, the blighted Atlantic Yards project. The subject of a powerful, new documentary called Battle for Brooklyn, this highly controversial scheme was backed by New York City Mayor Michael Bloomberg, and sought to evict local residents to build high-rise buildings and a new stadium for the New Jersey Nets basketball team. When financing dried up after the 2008 financial crisis, developer Bruce Ratner had to find new financial instruments to pay for construction. These included raising $249 million from 498 investors, mostly from China and South Korea, in exchange for EB5 Green Cards, as well as the sale of the Nets to Russian oligarch and presidential candidate, Mikhail Prokhorov.

For anyone not in the one per cent, the locks on the gates to America have been fortified.

article

Posted by eric at 9:40 AM

January 14, 2012

In the New Yorker, a dissection of plans behind a new stadium (and some AY echoes); also, a look at the modest study of the Staples Center economic impact

Atlantic Yards Report

Connie Bruck's New Yorker profile of Philip Anschutz and the Anschutz Entertainment Group, The Man Who Owns L.A.: A secretive mogul’s entertainment kingdom., is subscribers-only, but it's well worth reading, especially for the machinations behind plans for a new football stadium in Los Angeles.

Anschutz owns the Staples Center and L.A. Live, and via key lieutenant Tim Leiweke, has proven quite adept at getting city and state legislators on their side.

Getting going

Bruck writes:

For the nation's second-largest city, L.A.'s downtown was shockingly underdeveloped. By the late nineties, many of its biggest firms... had been bought by other companies and their headquarters moved elsewhere. It was the perfect place for Anschutz, a confirmed bottom-fisher, to buy low and build a new empire.

Of course, L.A. is a more sprawling, West Coast city, and it had a large downtown, not a small piece of land, as in Brooklyn, designated for sports facility development.

...

As it happens, the Los Angeles City Controller commissioned a 2003 study by sports economist Robert Baade, which aimed to "address the issue of whether the City of Los Angeles derives revenue sufficient to justify their $71.1 million investment in the Staples Center." The report says yes, but the claims are modest, not outlandish.

Baade notes that the investment--which likely involved lower exposure to taxpayers--was quite low in the general realm. And Staples houses five professional sports teams.

...

Baade offers some guidance to those who present gauzy projections regarding sports facilities:

If prospective estimates are to be used in assessing the merits of subsidies for sports facilities, then they should, at the very least, be filtered through retrospective analyses for cities of a similar economic character to lend some context or supportive evidence.

Regarding Atlantic Yards, we could do that already. All the optimistic studies--from the developer's consultant Andrew Zimbalist, the NYC Economic Development Corporation, the Empire State Development Corporation--depend on a full buildout of the project in a decade. No alternative numbers were offered, based on a slower, or less complete, buildout. Thus the extant numbers are all suspect.

link

Posted by steve at 10:28 PM

January 11, 2012

Federal agency not yet ready to deal with EB-5 gerrymandering, as new draft memo still defers to state's mapmaking

Atlantic Yards Report

A revised draft memo on EB-5 Adjudications Policy, issued today by the United States Citizenship and Immigration Services (USCIS) to further discussion of policy regarding immigrant investors, makes no attempt to deal with issues of gerrymandering the map to help those promoting projects to claim they are in areas of high unemployment.

Gerrymandering is crucial, because areas where unemployment is 150% of the national average qualify as Targeted Employment Areas (TEAs), where the minimum investment--for an immigrant investor who seeks green cards for his/her whole family--is $500,000, rather than $1 million.

That issue came to the fore last month after the New York Times published a front-page article describing the odd maps approved for New York projects and an editorial calling for reforms. (I had written previously about the "Bed-Stuy Boomerang" involving Atlantic Yards.)

In the Times, USCIS Director Alejandro Mayorkas expressed concern whether the spirit of the law is being followed. If he's urging reform, though, his agency apparently will wait until legislative renewal of the regional center program--the investment pools through which immigrants invest--rather than via regulation.

article

Posted by eric at 6:51 PM

January 8, 2012

Crain's: gerrymandering of EB-5 districts "irrelevant to supporters because the projects are within commuting distance of these jobless areas"

Atlantic Yards Report

It's not usual that I'll chide the press for focusing on Atlantic Yards Report coverage while ignoring the New York Times, but Crain's New York Business deserves such treatment, in an article posted today headlined Green card program a boon for development funding: Foreigners eager to supply financing; will EB-5 be renewed?.

It provides the unsurprising round-up of projects funded under the federal government's EB-5 program--in which immigrant investors get green cards for themselves and their families in exchange for a $500,000 investment that purportedly creates ten jobs.

Dismissing the controversy

And it mentions--and dismisses--a recent controversy:

Proponents of the program, including President Barack Obama and Mayor Michael Bloomberg, hype its low-interest financing, lack of taxpayer subsidies and ability to create jobs. As it has become increasingly popular in New York, however, it has drawn critics who believe developers and state officials have massaged the rules and not hewed to the spirit of the program. With EB-5 set to expire in September, some potential participants have been given pause.

...But some believe its success in New York stems from developers and economic development officials gerrymandering zones so foreigners can readily invest in projects. Norman Oder, an Atlantic Yards critic and blogger, has shown how officials used census statistics to map districts that connect areas of high unemployment to projects in prosperous parts of Brooklyn and Manhattan. But the issue is irrelevant to supporters because the projects are within commuting distance of these jobless areas.

Well, there's no proof that people from those areas--remember the Bed-Stuy Boomerang?--are working at that site, nor that "commuting distance" meets the letter or spirit of the law.

More importantly, Crain's ignores that the New York Times put the issue on the front page and then published an editorial criticizing the program for such abuses.

link

Related content...

Crain's NY Business, Green card program a boon for development funding

“It was like a gift from the gods,” Mr. Kimball said of the program, recalling how American lenders had been reluctant to offer the Navy Yard financing after the recession. “We'd been exploring every option under the sun.”

Mr. Kimball returned from China with millions of dollars in commitments. Since then, a growing number of developers across the city have taken advantage of the federal program, known as EB-5. Once virtually unknown in New York, the 20-year-old program has become a lifeline for economic development in recent years, raising hundreds of millions of dollars for film studios, hotels and even Brooklyn's Atlantic Yards project.

NoLandGrab: "A gift from the gods?" Kinda like Bruce Ratner, almost.

Posted by steve at 10:41 PM

Brooklyn's fractured demographics, as seen in a new report on health care

Atlantic Yards Report

A report from the state Department of Health, At the Brink of Transformation: Restructuring the Healthcare Delivery System in Brooklyn (see Greater NY Hospital Association comments), aims to restructure Medicaid, but also offers some broader perspective on Brooklyn's fractured demographics and deep disparity between progress and need, a backdrop to the Atlantic Yards debate.

Brooklyn is the state's most populous county, and it has big problems. (Crain's is sponsoring a discussion 1/11/12 on Solving Brooklyn's Hospital Crisis.)

From the report's Executive Summary:

Today, Brooklyn is grappling with high rates of chronic disease and a healthcare delivery system that is, in many areas, ill-equipped to address them. High rates of preventable hospital admissions and avoidable emergency department visits indicate deficiencies in primary care and inefficient use of high-cost resources. Further, while there are several fine hospitals in Brooklyn that are well-managed and financially-stable, Interfaith Medical Center, Wyckoff Heights Medical Center and Brookdale Hospital Medical Center are experiencing financial crises. At the same time, great opportunity presents itself in new models of patient-centered care, focused on prevention, and supported by technology and appropriate reimbursement incentives... With Brooklyn’s high rates of obesity, high blood pressure and diabetes, and 1 million Medicaid beneficiaries among its [2.5 million] residents, the state has a strong interest in the quality, accessibility, efficiency and viability of healthcare in the borough.

link

Posted by steve at 10:35 PM

January 6, 2012

After 15 months, still waiting for response to a Freedom of Information Law request regarding ESDC official's trip to China to support Forest City Ratner's EB-5 sales efforts

Atlantic Yards Report

So, how far did New York State go to assist Forest City Ratner in its efforts to raise a low-interest loan of $249 million from immigrant investors seeking green cards under the federal government's EB-5 program?

After 15 months, I'm still waiting for a response to my Freedom of Information Law (FOIL) request to the Empire State Development Corporation. Nothing's changed since I wrote about my request nearly five months ago, in August.

Still, thanks to New York Times coverage of EB-5 gerrymandering, there's now much more concern about whether New York State bends the rules to help favored projects. So there's even more reason the state should practice transparency.

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NoLandGrab: Yeah, how's that transparency thing coming along, Status Cuomo?

Posted by eric at 12:33 PM

December 28, 2011

Million-Dollar Visas

The New York Times, Editorial

The Times has a big, fat blind spot — and it obscures 22 acres in Prospect Heights.

The federal government’s investor visa, created in 1990, gives foreigners a chance at green cards if they invest $1 million to build a business in the United States that creates at least 10 jobs. Investing in an area with high unemployment would cut that price in half.

The program, known as EB-5, has led foreigners to invest in projects around the country, like factories, resorts, shipyards and other enterprises in designated poor areas in need of jobs. A report in The Times last week found that EB-5 applications have nearly quadrupled in two years, to more than 3,800 in the 2011 fiscal year.

But the program has spawned cynical practices that are stretching the rules and violating the spirit of the law. Some participants in New York, the report found, are pouring money into development zones that are misleadingly labeled as high-unemployment areas to qualify for the lower $500,000 investment threshold, but are not poor or underdeveloped.

For example, a $750 million office tower in the mid-Manhattan diamond district has raised 20 percent of its financing through the EB-5 program. This was made possible through a trick of mapmaking in which state officials counted the number of unemployed people in the census tract next door, which includes Times Square, to justify calling the whole area a high-unemployment zone.

Likewise, the gerrymandered lines of the development zone in Lower Manhattan near Wall Street skirt the wealthy enclaves but cross the East River to enfold a public-housing project in Brooklyn. Visa-seekers have used this district in three separate projects to qualify for the $500,000 discount.

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NoLandGrab: Is it just coincidence that The Times fails to mention the grandaddy of EB-5 abuse, their development partner Bruce Ratner's Atlantic Yards?

Related coverage...

Atlantic Yards Report, Times editorial criticizes EB-5 gerrymandering, ignores Atlantic Yards example, as well as other EB-5 abuses

What's missing

Well, it's good that the Times is taking EB-5 issues seriously, but it's glaring that one of the key projects to take advantage of this gerrymandering, the Atlantic Yards project, went unmentioned. (Is that the "spirit of the Times," channeled through the publisher, a former business partner with Atlantic Yards developer Forest City Ratner?)

It's also notable that the Times does not recognize that the intent of Congress--to create jobs--is subverted in other ways, such as giving immigrant investors credit for jobs created by money contributed by taxpayers, or by allowing dubious calculations of indirect job creation.

MichaelBenjamin2012's Blog, Using Poor NYers as window dressing…Again! – UPDATED

Projects such as Atlantic Yards, the Battery Maritime Building, and the International Gem Tower have used questionable maps and the EB-5 program to attract foreign investors. Blogger Norman Oder and Reuters have revealed that manipulation of the program extends beyond deceptive zoning districts to misrepresentations and flat-out lies told to potential Chinese and Korean investors.

Posted by eric at 11:02 AM

December 27, 2011

States push further into the EB-5 act: New York offers grant to get Capital area regional center off the ground, Maine backs application in progress

Atlantic Yards Report

Given that states and cities benefit when local developers and businesses get cheap foreign capital, it's no surprise that states have begun to assist efforts to establish regional centers that recruit green card-seeking immigrant investors.

According to a 12/8/11 article in The (Albany) Business Review, State plan includes $125K to create EB-5 visa program in Albany:

The state will pay $125,000 [see p. 59 of this awards list] to help establish a federal visa program in the Albany, New York, area that would match wealthy foreign investors with local developers.

The funding is among the $62.7 million awarded to the Capital Region today through a competition set up by Gov. Andrew Cuomo to promote economic development.

The money was requested by the Center for Economic Growth to create the EB-5 visa program.

There are significant start-up costs to a regional center, including a lengthy application and an economic analysis--apparently funded by the grant--that must be submitted to the United States Citizenship and Immigration Services. Then there are marketing costs. The total can reach $600,000.

The Center for Economic Growth (CEG), a not-for-profit membership organization in the Capital Region, would not operate the regional center, according to the article; rather, the overseer would be another not-for-profit or, as is most common, a private business.

CEG President F. Michael Tucker told the 11/8/11 Business Review, “It basically provides a tranche of financing that would complement traditional bank debt and developer equity because right now in this credit market developers need more equity than they have in the past,” Tucker said.

article

Posted by eric at 11:10 AM

December 26, 2011

Defender of EB-5 program recommends "leveling the playing field," but doesn't recognize that ending gerrymandering would kill many regional center projects

Atlantic Yards Report

The front-page 12/19/11 New York Times article on EB-5 abuses, Rules Stretched as Green Cards Go to Investors, generated a defensive and somewhat naive commentary by EB-5 practitioner Scott Barnhart, who serves an an EB-5 economic consultant via his firm, Barnhart Economic Services.

Given that Barnhart's 12/22/11 commentary appeared on a very popular EB-5 web site, Brian Su's EB-5 News Blog: Regional Centers in the USA, it's worth a careful look as an example of industry thinking.

Too much regulation?

First, Barnhart suggests that the article "illustrates the problems encountered when regulators, developers and regional center owners must comply with the myriad regulations set forth by Congress surrounding the EB-5 immigrant investor pilot program."

However, the problems are not caused by over-regulation; they've been enabled by (take your pick) poorly drawn regulation or under-regulation. No one has blown the whistle on such problems previously, but they've long lingered, and the industry has not publicly pushed for reforms.

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Posted by eric at 10:05 AM

European banks retreat from U.S. property sector

Reuters
by Ilaina Jones

In September, German bank Eurohypo and developer Forest City Enterprises Inc (FCEa.N) were negotiating a $65 million loan for 9 MetroTech, part of a 11-building office campus in Brooklyn, New York.

By October, the European bank told Forest City to find another lender, according to sources familiar with the talks. A month later, Eurohypo announced it was halting lending for U.S. commercial real estate altogether.

Eurohypo is not alone. Many European banks are retreating from the United States property market to deal with problems at home.

With other lenders also pulling back from the market, borrowing costs for property developers and buyers could jump, said Michael Higgins, managing director and head of U.S. real estate finance for CIBC World Markets Inc.

The end result could be higher construction costs and lower property values, putting a drag on the U.S. commercial property sector's recovery.

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Posted by eric at 9:58 AM

December 22, 2011

Immigrant investors seeking green cards now own mortgage on development rights for Atlantic Yards tower; more mortgages coming

Atlantic Yards Report

Chinese millionaires are closer to owning a piece of the Atlantic Yards project.

Immigrant investors now own a $24.7 million mortgage on the 1.24-acre site for B12, the first of seven development parcels promised as collateral for a low-interest loan to developer Forest City Ratner.

More such mortgages are coming, a state official says, indicating that proceeds from the $249 million low-interest loan garnered through the EB-5 visa program are being delivered.

Forest City Ratner is thus transferring portions of a longstanding high-interest loan to the cheaper capital raised via Brooklyn Arena Infrastructure and Transportation Improvement Fund, an affiliate of the New York City Regional Center (NYCRC), a private investment pool authorized to recruit immigrant investors.

It looks like the large majority of the cheaper capital will replace that existing loan rather than be used, as Forest City officials once said, to build a new railyard.

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Posted by eric at 12:51 PM

December 20, 2011

Psst, you want to buy a green card? It’ll cost you $500,000

KPCC/Southern California Public Radio

A federal program, known as EB-5, was created by Congress during the recession of 1990 to offer foreigners a way to earn a green card by investing in American construction projects.

The program is so successful that applications have quadrupled in the last two years. The minimum investment in the program was set at $1 million, but if the project is in a rural area or a place where the unemployment rate is fifty percent above the national average, the minimum investment is $500,000. The program is intended to encourage more development and job growth in poor areas, but some evidence suggests that, through selective use of census statistics, state officials are using gerrymandering techniques to designate development zones as having high unemployment in areas that are actually economically flourishing.

link / listen

Related coverage...

Atlantic Yards Report, EB-5 controversy makes CA public radio show; CA rep says state doesn't bend rules

Yesterday, the Patt Morrison Show, on KPCC/Southern California Public Radio featured a segment taking off from the New York Times's coverage of how EB-5 projects in New York City stretch the rules.

The first guest on Psst, you want to buy a green card? It’ll cost you $500,000 was Times reporter Patrick McGeehan, who gave a basic summary of his article, explaining of state officials "string together census tracks" to claim projects are located in high-unemployment areas, thus allowing a more attractive minimum investment to those seeking green cards: %500,000 versus $1 million.

McGeehan used the term "little private investment banks" to describe the middlemen, formally known as regional centers, who earn both fees and the spread between the low interest the borrower is paying and the no-interest paid by those seeking green cards.

He also noted that the EB-5 program is dependent on "theoretical" job creation, based on a formula.

The program, he said, "was used quite effectively in Vermont, to build ski resorts... Now the problem is these big shiny projects... like a pro basketball arena in Brooklyn [are] stealing away the oxygen."

Actually, though the Atlantic Yards EB-5 project was pitched as an investment into the arena, does not involve a piece of the arena.

NY Observer, New York [Hearts] EB-5 Visas

The Farragut Houses, which like many city housing projects suffers from especially high unemployment, is actually included in three different EB-5 zones, including Atlantic Yards. Whether anyone in the houses is actually benefiting from the jobs is unknown. Whatever the ethics of the program, it should at the very least be helping them.

NoLandGrab: And who wants to bet that it's not?

Forbes, Job Creation Program Stretches Claims About Low-Income Neighborhoods

One example: the huge $4.9 billion Atlantic Yards project in Brooklyn. To attract financing under the EB-5 program, the developer, Forest City Ratner, has claimed the project is going up in an oddly-shaped zone that stretches more than two miles from the site and includes low-income parts of Crown Heights and Bedford-Stuyvesant. Longtime journalist and Atlantic Yards watchdog Norman Oder, author of the Atlantic Yards Report blog, has used Freedom of Information Act requests and translators to comb through piles of documents. Oder has described the developers’ supposed project area as “the Bed-Stuy boomerang,” akin to a gerrymandered political district.
...

Oder has written more than 100 articles on the EB-5 program and he tells me the gerrymandered districts only scratch the surface of EB-5’s many problems.

Curbed, Green Cards Go For Real Estate Cash in Visa Deals

In a bid to finance real estate projects, developers have been ferreting out the hungry, tired, and poor already in NYC to qualify for the creation of special development zones, so they can sell visas to wealthy foreign investors.

Posted by eric at 12:37 PM

December 19, 2011

Times, in front-page story, critiques gerrymandering in New York's EB-5 projects, gets defensive response from feds; unmentioned are other rules being stretched

Atlantic Yards Report

In a front-page article today headlined Rules Stretched as Green Cards Go to Investors, the New York Times jumps on one aspect of the EB-5 story, the gerrymandering to ensure that immigrant investor projects qualify as located in high-unemployment areas.

The Times cites the International Gem Tower in the diamond district, the Battery Maritime Building in Lower Manhattan, and yes, Atlantic Yards (as I wrote 12/9/11), as taking advantage of gerrymandering. The Battery Maritime Building's Targeted Employment Area, the Times reveals, even "jumps across the East River to annex the Farragut Houses project in Vinegar Hill, Brooklyn."

Unmentioned: other rules being stretched regarding EB-5, such as the lack of actual job creation (defined via murky, non-public reports by hired economists), or the credit given to immigration investors for investments made by others, including taxpayers.

Also unmentioned is the enormous, sometimes deceptive hype behind project promotion, as well as the participation by city and state officials in such promotion--and the finder's fee to the New York City Economic Development Corporation in brokering EB-5 deals.

In other words, the problem goes much deeper than gerrymandering.
...

Diminishing AYR impact

Describing me as a "local blogger," while not inaccurate, also is imprecise, and diminishes my experience as a journalist. It makes it harder to believe that I might have written more than 100 articles investigating the EB-5 issue.

Moreover, the paragraph leaves the impression that the gerrymandered map was publicly known, and that I merely named it. Rather, the issue was first reported on this blog, based on documents gathered via a Freedom of Information Act request.

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Posted by eric at 10:26 AM

Rules Stretched as Green Cards Go to Investors

The New York Times
by Patrick McGeehan and Kirk Semple

Look who just caught on! In typical half-assed fashion, The Times barely scratches the surface of the EB-5 green cards-for-cash scam, a story on which they would have whiffed completely if not for Norman Oder's dogged reporting.

Affluent foreigners are rushing to take advantage of a federal immigration program that offers them the chance to obtain a green card in return for investing in construction projects in the United States. With credit tight, the program has unexpectedly turned into a mainstay for the financing of these projects in New York, California, Texas and other states.

The number of foreign applicants, each of whom must invest at least $500,000 in a project, has nearly quadrupled in the last two years, to more than 3,800 in the 2011 fiscal year, officials said. Demand has grown so fast that the Obama administration, which is championing the program, is seeking to streamline the application process.

Still, some critics of the program have described it as an improper use of the immigration system to spur economic development — a cash-for-visas scheme. And an examination of the program by The New York Times suggests that in New York, developers and state officials are stretching the rules to qualify projects for this foreign financing.

"Examination?" That's a bit much.

These developers are often relying on gerrymandering techniques to create development zones that are supposedly in areas of high unemployment — and thus eligible for special concessions — but actually are in prosperous ones, according to federal and state records.
...

The giant Atlantic Yards project in Brooklyn, which abuts well-heeled brownstone neighborhoods, has also qualified for the special concessions using a gerrymandered high-unemployment district: the crescent-shaped zone swings more than two miles to the northeast to include poor sections of Crown Heights and Bedford-Stuyvesant. A local blogger and critic of Atlantic Yards, Norman Oder, has referred to the map as “the Bed-Stuy Boomerang.”

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Posted by eric at 10:15 AM

December 15, 2011

EB-5 News Blog: continued uneasiness in China about marketing of EB-5 projects to immigrant investors

Atlantic Yards Report

Apparently there's continued uneasiness in China about marketing of immigrant investor projects, as detailed in the EB-5 News Blog, compiled by Brian Su, head of the EB-5 China Market Council and an EB-5 consultant in Illinois.

On 1/9/11, I pointed to five reports in Su's blog about Chinese officials cracking down on abuses or expressing concern. More recently, Su's EB-5 News blog reported 12/12/11, Report from China: Beijing Exit & Entry Service Association Issues Warning on EB-5 Program:

Beijing Exit & Entry Service Association recently issued a risk warning notice to local Chinese emigration agents and potential investors on EB-5 regional center program. The year of 2011 has been a very busy one for many Chinese emigration brokers that promote EB-5 projects to Chinese investors; various EB-5 projects have been marketed to Chinese investors, and the EB-5 regional center activities in China have been alarming to Chinese emigration trade associations around the country.

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Related coverage...

Atlantic Yards Report, A view of EB-5 regional centers from the inside: marketing key to success, as is endorsement by local government, even though it's a private project

A 4/5/10 report by the Portland (OR) Development Corporation on the possibility of setting up a regional center to market EB-5 investments contains some interesting insights, based on calls to current regional center providers.

The report notes that marketing overseas is crucial, which means local government is rarely the applicant, because it lacks such marketing resources. A minimum of $600,000 is needed to set up, apply, and administer a regional center.

However, endorsement (or the appearance thereof) by local government is critical (as suggested in my coverage of the Atlantic Yards EB-5 venture in China) because it indicates political support, provides the appearance of financial stability, and plays well with investors from China, the largest source of EB-5 funds.

Posted by eric at 11:51 AM

December 14, 2011

Everybody's getting into the EB-5 Act

The green cards-for-cash scam is going viral!

Atlantic Yards Report, Former Governor Paterson signs up to promote an EB-5 project

Former New York State Governor (2008-10) David Paterson, whose post-office roles include hosting a drive-time radio show and teaching at New York University, has also signed on to promote an EB-5 investment immigration program, helping recruit investors seeking green cards for purportedly job-creating investments in the Times Square Hotel.

On 5/27/11, the New York Immigration Fund (NYIF), a federally approved regional center--a private investment pool formed to recruit investors--announced a partnership with Paterson, suggesting in a press release (also at bottom) that it was part of "his long-standing agenda of expanding and improving economic development in New York."

NoLandGrab: Especially his own economic development.

Atlantic Yards Report, Extell turns to immigrant investor funding to support its International Gem Tower in the Diamond District

The Extell Development Corporation, one of the city's most bold and ambitious developers, was the only rival to the belated RFP for the Vanderbilt Yard issued by the Metropolitan Transportation Authority in July 2005, some 18 months after city and state officials announced their backing for the Atlantic Yards plan, which included the railyard.

Now Extell is taking a cue from Forest City Ratner, seeking a low-interest loan from immigrant investors under the EB-5 program to help finance its $750 million International Gem Tower, a long-gestating--and apparently, under-financed--tower in the Diamond District of Manhattan, on 47th Street between Fifth and Sixth Avenues.

It's established the Extell New York Regional Center, with federal approval.

NLG: By the way, we're launching the NoLandGrab Regional Center this week. And we're throwing our hat into the race for Russian President.

Posted by eric at 11:32 AM

December 13, 2011

How Invested Is Bruce Ratner In Prefab? Oh, Only a Few Million

NY Observer
by Matt Chaban

Forest City Ratner has spent $3.5 million on research and development for prefab construction, according to The Journal, which dug the number out of its annual report. Since Mr. Ratner began considering prefab apartment towers in 2009, that is more than a million dollars per year. Add to that the lawsuit Forest City helped fight, and this seems like a considerable commitment to this new approach.

This may put to rest claims that the developer was only looking at prefab as a means to break the unions and get a better rate from them on Atlantic Yards. Then again, with 15 towers containing millions of square feet of space, a few million could be but a drop in the bucket if it means bigger labor saving on the future of the site.

article

Related coverage...

Park Slope Patch, Ratner Still Wants Cheaper Prefab Towers at Atlantic Yards

A five percent savings on the $5 billion project through labor negotiations could mean about $250 million in savings, so even if the developer spends $50 million researching modular construction, Ratner will still be saving money, according to the report.

Posted by eric at 1:21 PM

December 10, 2011

At Forest City Enterprises conference call, CEO claims first Atlantic Yards residential tower "clearly meets" marketplace demands, doesn't mention modular plan (or EB-5)

Atlantic Yards Report

Forest City Ratner has gotten a lot of local ink for its ambitious announced plans to built modular towers at the Atlantic Yards site.

However, at a conference call yesterday (transcript) with investment analysts, David LaRue, CEO of parent Forest City Enterprises, talked up the first Atlantic Yards tower without mentioning modular.

“I want to reiterate our goal to move forward with the construction of the first residential tower in 2012," LaRue said. "This is a very important project for Forest City, and clearly meets demands reflected in the marketplace.”

Well, there's surely demand for housing, but not at the costs Forest City Ratner told government officials it expected. LaRue reiterated a "goal," not a plan. None of the analysts asked a question about it.

Nor did Forest City Enterprises executives, while talking about lowering the cost of capital and refinancing loans, talk about FCR's efforts to raise $249 million from immigrant investors via the EB-5 program.

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Posted by steve at 3:57 PM

An arena grows in Brooklyn

The Record
by John Brennan

The financing of the Atlantic Yards project in Brooklyn – which includes the Nets’ Barclays Center arena – includes about $250 million in investment by about 500 mostly Chinese immigrants who receive green cards in return for investing $500,000 apiece.

That number would be $1 million each, except that the arena neighborhood is said to be an area of “high unemployment.” The estimate by blogger Norman Oder is that Forest City Ratner, the project developer, saved about $140 million by the inclusion of some Bedford-Stuyvestant tracts in a….. rather creatively-designed map.

...

Good luck finding mainstream newspaper coverage of this issue, though. The entire Atlantic Yards saga, dating back to 2003, has been plagued by a lack of consistent coverage by New York City newspapers (I say “consistent,” because sporadically I’ve seen good pieces written). I always recall that line by a Brooklyn activist to me after I had attended a court hearing related to the project that the NYC papers skipped : “It’s a sad day when you have to read a Jersey newspaper to find out what’s going on in Brooklyn.”

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Posted by steve at 3:52 PM

December 9, 2011

The Bed-Stuy Boomerang: how state officials gerrymandered a map to help Forest City Ratner recruit immigrant investors and save big (and how the EB-5 program is riddled with such practices)

Atlantic Yards Report

Just when you think the Atlantic Yards green-cards-for-cash scheme couldn't get any more crooked, Norman Oder unearths a crooked map.

Public officials have done much to help developer Forest City Ratner (FCR) recruit Chinese investors to provide a $249 million low-interest loan in exchange for green cards--and now there's new evidence.

We knew that officials from New York City, New York State, and Brooklyn wrote letters to the United States Citizenship and Immigration Services (USCIS), the federal agency overseeing the EB-5 Immigrant Investor program, to get Atlantic Yards approved as an investment vehicle.

And we knew that Empire State Development Corporation official Peter Davidson joined a road show in China to hype the project before potential investors, misleadingly claiming that Atlantic Yards "will be the largest job-creating project in New York City in the last 20 years."

Now, evidence suggests that two New York State agencies helped gerrymander a map of Brooklyn unemployment--beginning at the Atlantic Yards site (in blue) in Prospect Heights, omitting more affluent census tracts nearby, and extending east to encompass poorer tracts in Bedford-Stuyvesant. (I'm dubbing the map "The Bed-Stuy Boomerang.")

The map ensured that the promoters of the EB-5 project could tell the needed 498 immigrant investors that the project was located in a Targeted Employment Area, featuring high unemployment. That meant investors had to put up only $500,000, rather than $1 million.

By getting this EB-5 project off the ground, the state helped FCR save more than $140 million, by my estimate, on a $249 million loan.

And it could help the New York City Regional Center (NYCRC), a private investment pool federally authorized to attract purportedly job-creating investments, reap some $50 million.

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NoLandGrab: Hello, New York Times, HELLO! While you're devoting an entire Sunday magazine to Hollywood, you're missing out on rampant fraud and abuse being perpetrated on behalf of your "business partner."

Related coverage...

Field of Schemes, New York gerrymandered arena district to aid Nets' green-card-for-arena-funds deal

For those unfamiliar with the nuances of Brooklyn geography, the left end of what Oder calls "the Bed-Stuy Boomerang" is mostly old warehouses along the Long Island Rail Road tracks. The right end, meanwhile, loops up into Bedford-Stuyvesant — and not its rapidly gentrifying western edge, but the still-impoverished middle. Neatly omitted, meanwhile, are the largely affluent brownstone blocks of Fort Greene to the project's north, Park Slope to the southwest, and Prospect Heights to the south.

Posted by eric at 12:01 PM

Senators show enthusiasm for EB-5 regional center program; questions raised about level of investment, length of term; a skeptic vs. Sen. Leahy

Atlantic Yards Report

The EB-5 program of investment immigration--at least via its most popular incarnation, the regional center program--has been booming, with the number of regional centers, privately owned (mostly) investment pools set up to recruit immigrants seeking green cards, growing from some 35 to 200 in three years.

However, the regional center program is a pilot program, extended five times for 19 years, and set to expire at the end of September 2012. So Congress has begun considering making the program permanent, and the Senate Judiciary Committee 12/7/11 held a hearing on a bill (Creating American Jobs Through Foreign Capital Investment Act) sponsored by Chairman Patrick Leahy (D-VT) to do just that.

The only cosponsor so far is Sen. Chuck Schumer (D-NY), but, as at previous Congressional hearings, most legislators seemed positive about a program Leahy called “as much of a win-win program as one could think of.”

Two of the three witnesses program boosters, and the few Senators skeptical seemed more exercised by the rare intersection between EB-5 and illegal immigration than questions of fraud and enforcement.

Still, one Senator put it plainly, that the program is selling green cards.

And the program’s one prominent critic, David North of the (right-wing) Center for Immigration Studies got his due, suggesting that the U.S. scrap the regional center program, that it delivers results that have been poorly documented, and that Senators should not be seduced by positive anecdotes. At the least, he said, the minimum investment--which hasn’t been raised since 1993--should be increased.
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Some skepticism

Sen. Chuck Grassley (R-IA) offered some skepticism, suggesting that “we need to enact reforms to make the EB-5 regional center program worthy of its goals.”

“At the end of the day, one fact remains,” Grassley declared. “The program is simply a way for wealthy investors to buy a green card, not only for themselves but for their families. No skills or management experience is needed. One only needs to write a check... While taking a financial risk... is admirable, evidence suggests that it’s not doing enough to spur job creation.”

But he didn’t drill down very far.

As usual, however, Norman Oder drills down much farther. Click through for more.

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Posted by eric at 11:47 AM

Schumer endorses EB-5 bill making regional centers permanent, cites projects in New York (City Point?!), avoids Atlantic Yards

Atlantic Yards Report

Sen. Chuck Schumer (D-NY), who chairs the Senate Judiciary Committee's Subcommittee on Immigration, didn’t attend a hearing 12/7/11 on making permanent a provision that allows regional centers--federally authorized private (mostly) investment pools--recruit immigrant investors under the EB-5 program.

But Schumer is the first co-sponsor on a bill by Sen. Patrick Leahy (D-VT) to renew the program, and he did offer an enthusiastic statement for the record, applauding “a program that has done so much good in New York State, and which needs to be made permanent.”



“In New York State, we have 9 USCIS-approved regional center projects that are doing a world of good to create good-paying American jobs,” Schumer said, glossing over the fact that, at least with the Atlantic Yards investment, the job-creation calculation is extremely dubious.

The list, including City Point

Schumer proceeded to list five projects, conspicuously omitting the largest, Atlantic Yards, but mentioning--news to me--that the City Point project in Downtown Brooklyn by Acadia Realty Trust has raised $200 million in EB-5 funding.

(Graphic from NYCRC Chinese web site promoting the project.)

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Posted by eric at 11:39 AM

Forest City Enterprises reports: third quarter losses less than last year; some setbacks with New York properties, but expected gain from sale of Nets; forecasted arena revenues stalled at 56%

Atlantic Yards Report

Developer Forest City Enterprises, parent of Forest City Ratner, today announced EBDT (earnings before depreciation, amortization and deferred taxes), net earnings/loss and revenues for the three and nine months ended 10/31/11, saying its net loss was lower this quarter than in the comparable period last year.

EBDT

Third-quarter 2011 EBDT was $77.5 million, compared with $90.7 million in the third quarter of 2010. Year-to-date EBDT was $275.6 million, compared with $266.7 million for the first nine months of 2010.
On a fully diluted, per-share basis, third-quarter 2011 EBDT was $0.37, compared with $0.46 for the third quarter of 2010. Year-to-date per-share EBDT was $1.34, compared with $1.37 for the first nine months of 2010.

Net Earnings and Loss

The third-quarter 2011 net loss attributable to Forest City Enterprises, Inc. was $38.0 million, compared with a net loss of $46.8 million in the third quarter of 2010. For the nine months ended October 31, 2011, net earnings attributable to Forest City Enterprises, Inc. were $17.7 million compared with $60.5 million for the same period in 2010.
After preferred dividends, the third-quarter 2011 net loss attributable to Forest City Enterprises, Inc. common shareholders was $41.9 million, or $0.25 per share, compared with a net loss of $50.6 million, or $0.33 per share in the third quarter of 2010. For the nine months ended October 31, 2011, net earnings attributable to Forest City Enterprises, Inc. common shareholders were $6.1 million, or $0.03 per share, compared with $52.5 million or $0.33 per share, for same period in 2010 (per share amounts are on a fully diluted basis).

What went wrong? The Village at Gulfstream Park, a specialty retail center in Hallandale Beach, FL, opened in the first quarter of 2010, and has faced "very difficult economic conditions." Also, "250 Huron, an office building in Cleveland, was vacated by its single tenant, which had occupied the entire building," and the building will no longer be rented.
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Some setbacks with New York properties, but expected gain from sale of Nets

Third-quarter 2011 total EBDT of $77.5 million was impacted by the following factors:
Pre-tax EBDT from the company’s combined Commercial and Residential Segments (also referred to as the rental properties portfolio), decreased $14.9 million compared with the third quarter of 2010, [including] lower EBDT of $4.3 million due to previously anticipated vacancies at two Brooklyn office properties... reduced EBDT from new property openings of $3.3 million (primarily due to lease-up losses at 8 Spruce Street and Westchester’s Ridge Hill).

...The Nets provided a pre-tax EBDT decrease of $10.9 million, as expected, due to the increase in the company’s allocated share of losses.... Decreased EBDT [year-to-date] from the Nets of $34.6 million, primarily due to the nonrecurring 2010 gain on disposition of partial interest in the team.
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Arena progress, but forecasted revenues stalled

In discussion of the construction pipeline, the company said:

Work continues at Barclays Center at Atlantic Yards, and the arena is on schedule for opening in September 2012. More than 90 percent of steel erection has been completed and installation of the roof deck has begun. Interior build-out is underway on all levels and the structure is expected to be fully enclosed and water tight in the first quarter of 2012. Approximately 56 percent of forecasted contractually obligated revenues for the arena are currently under contract.

That was the same percentage as in September.

article

Related coverage...


PR Newswire via Marketwatch, Forest City Reports Fiscal 2011 Third-Quarter and Year-to-Date Results

Realty & Investments, Forest City Enterprises Narrows 3Q Loss to $41.9 Million on Stronger Residential Leasing

Seeking Alpha, Forest City Enterprises CEO Discusses Q3 2011 Results - Earnings Call Transcript

The Real Deal, Forest City sees losses of $41.9M

Posted by eric at 11:29 AM

December 6, 2011

Who's Suin' Who? Atlantic Yards EB-5 Marketer NYC Regional Center is Awash in Lawsuits

Atlantic Yards Report, Former affiliate of NYC Regional Center files suit, claiming firm stole confidential Chinese client list, thus saving millions in finder's fees for EB-5 investors in Atlantic Yards, other projects

The New York City Regional Center, which has marketed Atlantic Yards as an investment for green card-seeking investors, is the busiest regional center in the China market, and seems to be New York City's designated third-party source for such cheap capital, is embroiled, directly and indirectly, in two lawsuits, one described below, the other here.

Given the early stage of the lawsuits, and the confidentiality of certain exhibits, it's difficult to fully evaluate them. But it is clear that the EB-5 program can bring significant sums to the middlemen, and thus fuel disputes.

The New York City Regional Center (NYCRC), which has focused on recruiting green card-seeking investors in China, is facing a lawsuit filed by a former affiliate, which claims that the NYCRC appropriated its confidential client list and thus evaded obligations to pay $6 million in finder's fees for new investors.

The lawsuit, filed 4/18/11 by Lion's Property Development Group, also names Hoche Partners Capital and its president, Gregg D. Hayden as defendants. Hayden has served as the NYCRC's chief salesman in China (as I've described) under the title "General Manager Asia" on behalf of NYCRC.

Lion's (led by Chaim Katzap) argues that NYCRC has thus recruited more than 200 investors without paying the $30,000 fee it owed Lion's, or a total of $6 million. (That $30,000 fee, however, would have included a downstream finder's fee of $15,000 from Lion's to each local affiliate.)

There's good reason to pay a big referral fee; I estimated that the 498 investors in the Atlantic Yards project might earn NYCRC $50 million. Meanwhile, Forest City Ratner will get the benefit of a $249 million low-interest loan, from 498 immigrant investors, itself saving perhaps $140 million.

The NYCRC would benefit from the spread between the no-interest offered investors--who care more about green cards than investment returns--and the low interest, perhaps 4% to 5%, charged to the borrower.

Indeed, the suit charges that NYCRC told the local affiliates, aka Network Agents, they'd get $20,000 rather than the $15,000 offered by Lion’s if they worked directly with NYCRC to recruit investors for Atlantic Yards and the other two projects, involving the Brooklyn Navy Yard and Steiner Studios.

Atlantic Yards Report, Lawsuit over control, revenues of NYC Regional Center: co-founder charged with fraud by former partner; counterclaim also charges fraud

The New York City Regional Center (NYCRC), the private firm authorized to raise funds from immigrant investors under the EB-5 program is embroiled in a lawsuit one of its founders filed against another, and that engendered a counter-claim.

Empire Gateway, LLC which owns more than half the NYCRC, and Empire's controlling owner, George Olsen, charge that Sandra Kim Dyche fraudulently gained "membership interest in Empire" and never recruited investors. Thus she should return her membership interest, which is nearly half the value of Empire (and about a quarter of the value of the NYCRC).

In return, Dyche charges that Olsen fraudulently gained control of Empire, and that she deserves damages of at least $5 million. ...

The suit has no direct bearing, apparently, on the NYCRC's Atlantic Yards effort, in which it has apparently raised $249 million from 498 investors, mostly from China but some from Korea.

But there's big money at stake.

Posted by eric at 12:53 PM

December 5, 2011

The latest green-card-scam news from EB-5 Report Atlantic Yards Report

Atlantic Yards Report, Senate hearing on EB-5 program December 7; Obama's jobs council recommends EB-5; USCIS issues draft memorandum consolidating EB-5 policy

The EB-5 Regional Center Investment Pilot Program--the main vehicle for immigrant investors seeking green cards--is due to expire in September 2012, unless Congress acts, and advocates and legislators are beginning to take a closer look.

The EB-5 program, which grants green cards to investors and their families who invest $500,000 (or $1 million if it's not in a Targeted Employment Area) to create ten jobs, initially required the investment itself to create the jobs directly.

But investments through regional centers--federally authorized private (or sometimes governmental) investment pools--make it much easier, as indirect jobs can be calculated via an economist's report. No wonder the number of regional centers has been skyrocketing, and developers (like Forest City Ratner) and others seeking cheap capital have glommed onto EB-5.

Hearing December 7

On December 7 at 10 am, the Senate Judiciary Committee will hold a hearing titled “Reauthorizing the EB-5 Regional Center Program: Promoting Job Creation and Economic Development in American Communities.” It will be webcast.

Based on the title, it sounds unlikely that criticism of the program will be highlighted.

Atlantic Yards Report, At last Congressional hearing on EB-5, little skepticism, some evasion, calls for streamlining program

Given the upcoming Senate Judiciary Committee hearing December 7 on the EB-5 investment immigration program, it's worth a look back at a House hearing 9/14/11 held by the Judiciary Committee's Subcommittee on Immigration Policy and Enforcement.

Unsurprisingly, the hearing, titled "The Investor Visa Program: Key to Creating American Jobs" (video), featured little skepticism about the program and some fudging from witnesses. One evaded the fundamental reason why developers and entrepreneurs like EB-5: foreign investors are willing to accept little return in exchange for green cards. (Hence the support for Atlantic Yards.)

Atlantic Yards Report, A new, questionable EB-5 project in China is being called "the new Atlantic Yards"

Would you believe that Atlantic Yards--after my reporting and other reasons for controversy--has now become a cautionary example in the international world of investment immigration?

From EB5info.com, Huge Chicago EB-5 Multi-Hotel Project Under Scrutiny by Investors:

Several Chinese agents and investors are calling into question the claims being made by a new EB-5 Visa Regional Center, The Intercontinental Regional Center Trust of Chicago.

Many are calling this project the new Atlantic Yards due to the extremely large size of the offering ($249.5 million) and the claims being made by its promoters and migration agents in China. The agents need to heavily promote issues of this magnitude in order to raise such an exceptionally large offering (most EB-5 visa project offerings are under $50 million) in a very short period of time.

Posted by eric at 10:56 AM

December 2, 2011

Fraud? Immigrant investors in Atlantic Yards were told their green cards were guaranteed, but New York City Regional Center typically warns investors it makes no warranties

Atlantic Yards Report

Why should the green cards-for-cash scam be any different from all the other Atlantic Yards "guarantees?"

There's a huge gap between what the assurances the New York City Regional Center (NYCRC) gave to potential Chinese investors in Atlantic Yards about the certainty of their expected green cards and the "no warranty" message the firm typically tells investors.

The warning

The following passage appears in the confidential offering memoranda for two previous NYCRC projects, regarding the Brooklyn Navy Yard and Steiner Studios:

In other words, the company offers no warranty and no assurances that the investors, who parked $500,000 for five years and eschewed interest (mostly) in lieu of green cards for themselves and their families, would actually get the green cards.

Presumably, such boilerplate also appeared in the memorandum for the Brooklyn Arena and Infrastructure Project, which sought (and apparently achieved) $249 million from 498 investors, mostly from China.

In China, green cards guaranteed

As I reported last year, in webcast presentations, representatives of the NYCRC offered public assurances that green cards were guaranteed.

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Posted by eric at 11:25 AM

Another look at the huge benefits from the EB-5 program: perhaps $140 million to Forest City Ratner, and $50 million to NYCRC

Atlantic Yards Report

"EB-5 Friday" continues at Atlantic Yards Report.

So, how much is Forest City Ratner saving on its $249 million low-interest loan from immigrant investors under the EB-5 program? And what are the earnings of is the New York City Regional Center (NYCRC), the private investment pool that was marketing the project--green cards in exchange for $500,000 in purportedly job-creating investments?

I have to revise some of my reporting from last year, when I calculated a gain of some $191 million to Forest City, based on the difference between the interest rate the developer might have to pay on the open market and the no-interest being offered to Chinese investors.

I also have to revise my calculations regarding benefits to the NYCRC, which I calculated would earn $38,000 per client in fees, or nearly $19 million.

Earning money on the interest

Rather, the NYCRC may be keeping very little of those fees, since it has to share fees with affiliates. It earns its money on the spread between the interest rate on loan offered to Forest City and the return received by the 498 investors.

Forest City likely will pay 4% to 5%, as with other NYCRC projects promoted by the city, while the majority of the investors, from China, will get no interest, and the 40 or so Korean investors will get .25%.

So it's a win for Forest City and the NYCRC: they both make money. I think Forest City's benefit is still more than $100 million, while NYCRC may earn some $50 million (see bottom).

It's a win for the immigrants: they get green cards for themselves and their family, with the cost being the foregone interest on the investment they get back. (Of course there is a risk, and not every EB-5 investor gets a green card.)

What about the public benefit? The investments are supposed to create jobs, but in some case--as I've shown with the Atlantic Yards investment--they don't create new jobs, and the immigrant investors get credit--apparently legal, though logically questionable--for the jobs created by the entire $1.448 billion in the "Brooklyn Arena and Infrastructure Project."

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Posted by eric at 10:05 AM

New York City Regional Center was busiest nationally in Chinese market in 2011; EB-5 financing via NYCRC seen by city as potential funding for engineering campus, Willets Point

Atlantic Yards Report

Speaking of Willets Point, its future "redevelopers" might be the latest beneficiaries of the ol' green cards-for-dollars scheme.

As I reported 12/17/10, the New York City Economic Development Corporation (NYC EDC) proposed that the NYCRC and Forest City Ratner meet to discuss a potential collaboration, and that the NYC EDC has an agreement with the Regional Center that provides a finder’s fee for projects that it refers and are ultimately are financed through their program.

Now NYC EDC sees EB-5 as an integral part of its arsenal, as it gives developers access to low-cost capital while costing the city nothing. The discount comes because the investors are willing to forego much or any return on their $500,000, since they're looking to gain a green card and, after parking their $500,000 for some five years, their money back.

Request for Proposals (RFPs) for both the Willets Point Development Phase 1, released 5/9/11, and the Applied Sciences Facility in New York City, released 7/19/11, list the EB-5 program via the NYCRC as part of a suite of potential economic development benefits....

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Posted by eric at 9:54 AM

November 29, 2011

The EB-5 files: federal agency stonewalls request for info on job creation by immigrant investors, reveals misleading claim about arena bonds, withholds a letter made public elsewhere

Atlantic Yards Report

So, how exactly did Forest City Ratner and the New York City Regional Center (NYCRC) aim to convince federal overseers and potential investors that the plan to seek $249 million in funds from 498 green card-seeking immigrant investors was kosher?

We may never know, since the federal agency overseeing the EB-5 program is keeping most key information under wraps. For example, the document explaining how that investment would produce--as required by federal law--at least ten jobs per $500,000 investor was redacted, deemed a trade secret.

Other documents deemed trade secrets have already been made public by other parties, suggesting that the United States Citizenship and Immigration Services (USCIS) has a rather heavy hand when it comes to transparency.

No way to evaluate job-creation claim

So, while the EB-5 program is justified as supporting job creation, there's no way to evaluate that claim when it comes to the Brooklyn Arena & Infrastructure Project--said to consist of the arena, infrastructure, and a new railyard--marketed to immigrant investors.

And that's quite curious because the arena was and remains already funded. That makes it questionable that immigrant investors could get credit for jobs created not merely by their investment but by the entire $1.448 billion project, a project that did not need their money to proceed.

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NoLandGrab: If by "trade secret" they mean "complete and utter bulls**t," then by all means, it's a "trade secret."

Posted by eric at 11:53 AM

November 18, 2011

Learning from Atlantic Yards (?): city will no longer "routinely sweeten deals for developers" after selection

Atlantic Yards Report

From Crain's New York Business Insider, today:

City's Tech Campus Leverage

The Bloomberg administration believes that the new way it negotiates deals will produce a better tech campus project for the city. In the past, the city would routinely sweeten deals for developers or have projects die, because bidders were allowed to negotiate terms after being selected and praised at a press conference. No more. “We keep multiple horses in the race until we reach an actual deal,” an administration source said. “We actually make our counterparties bid on the contract document itself and mark it up. And that's part of our evaluation.” With skin in the game, the source added, “if [bidders] walk away or try to kill the deal, they have something to lose.”

(Emphasis added)

With Atlantic Yards, the city and state both anointed Forest City Ratner as the developer before the public process, including the bidding for the key piece of public property--the MTA's Vanderbilt Yard--began.

And Forest City Ratner, after a Memorandum of Understanding was signed with the city and state, then changed the deal, getting more city subsidies in 2007.

In 2009, Forest City renegotiated settled deals with the MTA and the Empire State Development Corporation.

After that was accomplished, FCR brought in Russian billionaire Mikhail Prokhorov as majority owner of the Nets and minority owner of the arena holding company, thus allowing public assistance to flow to an "oligarch of our own."

In 2011, the modular plan emerged.

link

Posted by steve at 3:47 PM

October 21, 2011

Schumer sponsors bill to bail out housing industry by selling temporary visas to immigrant investors; wouldn't this distort the market (and maybe even help AY)?

Atlantic Yards Report

Apparently, essentially selling green cards through the questionable EB-5 program--under which prospective immigrants must create ten purported jobs with their $500,000 investment--was only the start.

Now Congress is considering selling three-year residence visas to foreigners who invest $500,000 in the housing market, and co-sponsor Sen. Chuck Schumer (D-NY) somehow thinks "it won't cost the government a nickel."

Schumer doesn't seem familiar with opportunity cost, the notion that we might choose a different alternative that could prove more beneficial.

For example, immigration analyst David North of the conservative Center for Immigration Studies thinks EB-5 investors should also have to buy a $50,000 U.S. bond for each visa issued. So why not ask prospective home purchasers do more than bail out the housing industry in exchange for those visas?

Schumer's proposal could have major unintended consequences, such as rising prices in prime areas (Hello, Brooklyn) while little impact on foreclosed subdivisions in, say, suburban Las Vegas. (See similar skepticism from a law firm involved in EB-5.)

But this bill, which requires investors to pay cash, will surely gain support from FIRE (Finance, Insurance, Real Estate), the pillars of New York City's uneven economy and, not coincidentally, Schumer campaign support. The founder of the Toll Brothers firm is already on board.

Heck, it just might goose demand for Forest City Ratner's unbuilt luxury condos in the Atlantic Yards project. After all, if the developer wants to sell condos in 2015 for $1217/sf--more than double nearby Atlantic Terrace, it sure helps if buyers care more about visas than price.

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NoLandGrab: Now there's an enervating idea.

Posted by eric at 12:01 PM

October 4, 2011

Cuomo's new regional economic development councils: potential source of new state subsidies for Atlantic Yards?

Atlantic Yards Report

Where will Forest City Ratner look for additional subsidies to meet Atlantic Yards profit goals, to get that first tower built (after additional city subsidies were denied), to finish the Carlton Avenue Bridge (after Carl Kruger came up empty), finish a new railyard (if EB-5 immigrant investor funds aren't enough), and to do much more?

They have to be considering the New York City Regional Economic Development Council, one of ten regional economic development councils established this past summer, as noted in a 7/20/11 press release headlined Governor Cuomo Announces $1 Billion in Economic Development Funding Will be Available Through New Consolidated Application Process.

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Posted by eric at 11:18 AM

September 30, 2011

Comic: Gladwell Goes HAM

HoopSpeak.com
by Anthony Bain

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Posted by eric at 12:41 PM

Malcolm Gladwell, in Grantland, gets the Atlantic Yards big picture: "a man buys a basketball team as insurance on a real estate project"

Atlantic Yards Report

Well, New York Daily News sports columnist Mike Lupica was right all along, writing 11/13/05:

If Caring Bruce Ratner is still the owner of the Nets in five years, I'll eat my hat.

...He doesn't want the team.

He never really did.

He wants the land.

After the March 2010 groundbreaking, Lupica commented, "It was a hustle in broad daylight by Caring Bruce Ratner from the start."

Enter Gladwell

That same sentiment comes from New Yorker writer and Grantland contributing editor Malcolm Gladwell, in a 9/26/11 essay in the latter headlined The Nets and NBA Economics: David Stern would have you believe the Brooklyn-bound franchise embodies everything wrong with the league's finances. It's not true.

His conclusion:

The rich have gone from being grateful for what they have to pushing for everything they can get. They have mastered the arts of whining and predation, without regard to logic or shame. In the end, this is the lesson of the NBA lockout. A man buys a basketball team as insurance on a real estate project, flips the franchise to a Russian billionaire when he wins the deal, and then — as both parties happily count their winnings — what lesson are we asked to draw? The players are greedy.

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Related coverage...

Develop Don't Destroy Brooklyn, It's A Tipping Point: Malcolm Gladwell Nails Bruce Ratner on His Trojan Horse Nets

Malcolm Gladwell is about eight years late to the party nonetheless he has penned a must-read column revealing the bogusness of Bruce Ratner the Basketball Man, and how his toying with the Nets exemplifies the absurd notion that NBA owners are suffering financially.

The main point, which has been one of our mantras since DDDB's inception, is that Atlantic Yards has never been about basketball.

Rainman Suite, Even Malcolm Gladwell Thinks Bruce Ratner Is A Scumbag

Malcolm Gladwell wrote a piece on Grantland about the scam Bruce Ratner pulled on New York to get his massive development built in Brooklyn under the guise of moving the Nets and helping the community. It’s been under-the-radar for a long time but I think this is the most informative article I’ve read about the subject.

NoLandGrab: Under-the-what?! You must have missed our 18,000 or so posts on the subject.

Posted by eric at 12:27 PM

September 27, 2011

How the New Jersey Nets are like Van Gogh’s “Starry Night”

Billy Paultz Reconsidered
by Mike Gross

Terrific piece here from Malcolm Gladwell on the NBA lockout, and especially the colorful recent business history of the New Jersey Nets.

Gladwell’s overarching point here, and in a previous piece on Grantland, is one I’ve made many times. Pro sports teams are not businesses. They are luxury goods like works of art, yachts, Ferraris or Italian Villas.
...

Consider the Nets’ situation, in which the previous owner, Bruce Ratner, wanted the team as part of a mega-real estate arena project in Brooklyn. A competing offer to buy the property from the city, from a developer named Gary Barnett, would have used less land, been far less intrusive to the existing neighborhood, and would have resulted in just apartment buildings. No arena. No Nets.

Oh: And Barnett’s offer was triple Ratner’s.

Gladwell: “Barnett lost. He never had a chance. He wanted to build apartments. Ratner was restoring the sporting glory lost when the Dodgers fled for Los Angeles.”

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Related coverage...

Nets Are Scorching, Gladwell on the Nets and NBA Economics

That said, you don’t need financial expertise to detect BS from billionaires, and Ratner laid it on thick today about youth — citing the prospect of a child seeing their first circus at the Barclays Center as his driving inspiration. Come on, Bruce. If this didn’t give you the opportunity to make boatloads of money, you wouldn’t do it. I’m sure that Barclays will do a lot for kids, but it’s not about them.

The sad truth, though, is that Ratner can always pretend otherwise. We can paint him as a greedy, dirty billionaire as much as we want (fair or not), and he’ll remain a billionaire. That’s the game. I’d just rather watch a different one.

NoLandGrab: It's small consolation, but Bruce Ratner, while rich, is by all reports worth considerably less than a billion dollars.

Posted by eric at 12:57 PM

September 26, 2011

The Nets and NBA Economics

David Stern would have you believe the Brooklyn-bound franchise embodies everything wrong with the league's finances. It's not true.

Grantland
by Malcolm Gladwell

Speaking of must-reads, here's one from Malcolm Gladwell, who does his best impression of Toto pulling back the curtain on the Great and Powerful Bruce's big Monday morning press conference.

Here's an excerpt — but be sure to read the whole thing.

Ratner has been vilified — both fairly and unfairly — by opponents of the Atlantic Yards project. But let's be clear: What he did has nothing whatsoever to do with basketball. Ratner didn't buy the Nets as a stand-alone commercial enterprise in the hopes that ticket sales and television revenue would exceed players' salaries and administration costs. Ratner was buying eminent domain insurance. Basketball also had very little to do with Ratner's sale of the Nets. Ratner got hit by the recession. Fighting the court challenges to his project took longer than he thought. He became dangerously overextended. His shareholders got restless. He realized had to dump the fancy Frank Gehry design for something more along the lines of a Kleenex box. Prokhorov helped Ratner out by buying a controlling interest in the Nets. But he also paid off some of Ratner's debts, lent him $75 million, picked up some of his debt service, acquired a small stake in the arena, and bought an option on 20 percent of the entire Atlantic Yards project. This wasn't a fire sale of a distressed basketball franchise. It was a general-purpose real estate bailout.

Did Ratner even care that he lost the Nets? Once he won his eminent domain case, the team had served its purpose. He's not a basketball fan. He's a real estate developer. The asset he wanted to hang on to was the arena, and with good reason.
...

Let us recap. At the very moment the commissioner of the NBA is holding up the New Jersey Nets as a case study of basketball's impoverishment, the former owner of the team is crowing about 10 percent returns and the new owner is boasting of "explosive" profits. After the end of last season, one imagines that David Stern gathered together the league's membership for a crash course on lockout etiquette: stash the yacht in St. Bart's until things blow over, dress off the rack, insist on the '93 and '94 Cháteau Lafite Rothschilds, not the earlier, flashier, vintages. For rich white men to plead poverty, a certain self-discipline is necessary. Good idea, except next time he should remember to invite the Nets.

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Related coverage...

ESPN.com, What kind of business are the Nets in?

In a must-read story on Grantland, Malcolm Gladwell uses the Nets as an example of how an NBA team's business role can have almost nothing to do with what's at the crux of the current CBA debate: Basketball revenues.

Gladwell tells the tale of Bruce Ratner's business goals in buying the Nets, which he explains started not with a love of basketball, but with a need to build a stadium to inspire the eminent domain seizure of some particularly valuable land he had his eye on.

Posted by eric at 5:22 PM

September 19, 2011

Sports Business Journal confirms Barclays naming rights deal was $200 million, not $400 million

Atlantic Yards Report

Is the Barclays Center naming rights deal worth "nearly $400 million," as the New York Times reported 7/19/11 or is it closer to $200 million and change?

I pointed 8/3/11 to circumstantial and documentary evidence that the deal was worth less, including a report by an FCR-commissioned consultant valuing the deal at $200 million, the loss of architect Frank Gehry, and two renegotiations.

Nets and Forest City officials have claimed that the total value of the deal remains around $400 million, but never offered any documentation.

Now, as noted by NetsDaily, "the authoritative" Sports Business Journal is using the $200 million figure.

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Posted by eric at 3:14 PM

September 18, 2011

China Buys US For A Bargain

The Bull

This item speaks about Chinese investments includes Atlantic Yards, but the EB-5 program is not mentioned. Besides getting Green Cards, it's not clear what return Chinese investors would get from their AY investment.

According to a recent report in the New York Times, investors from China are "snapping up luxury apartments" and are planning to spend hundreds of millions of dollars on commercial and residential projects like Atlantic Yards in Brooklyn. Chinese companies also have signed major leases at the Empire State Building and at 1 World Trade Center, the report said.

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Posted by steve at 10:36 PM

September 17, 2011

Mr. Moinian goes to Beijing

Real Estate Weekly
By Roland Li

Developer Joseph Moinian is emulating Bruce Ratner as he prepares to find Chinese investors as part of the EB-5 program. This federal program is meant to create jobs, but apparently createsd no jobs when used for Atlantic Yards.

Soon, the developer will make another move to attract Chinese business. In November, Moinian will partner with Windham Realty Group and travel to China to meet with prospective buyers, eventually visiting seven cities.

....

Another appeal of investing in American is a federal program called EB-5, which allows foreigners who invest at least $500,000 to gain a green card and possible foreign residence. Forest City Ratner used the program to raise $249 in Chinese loans for the Atlantic Yards project in Brooklyn.

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Posted by steve at 6:31 PM

September 8, 2011

Forest City Enterprises reports big drop in quarterly profits, mainly because last year they could sell Nets share; "forecasted contractually obligated revenues for the arena" have risen only from 51% to 56% in one year

Atlantic Yards Report

Forest City Enterprises's FY 2011 second-quarter and year-to-date results, as noted a press release yesterday, show earnings down, mainly because the company--parent to Forest City Ratner--didn't have shares in a losing Nets team to sell this year.

Also, as noted below, the public statement contained an indication that sponsorship sales for the Barclays Center arena could be more robust.

Earnings down

For this quarter, net earnings declined from $.62/share to $.02/share over last year, a phenomenon that was emphasized by the AP and Cleveland Plain Dealer in their stories.
...

Arena forecast revenues up only slightly

From the release:

Work continues at Barclays Center at Atlantic Yards, and an official opening date of September 28, 2012 has been set for the arena. Approximately 56 percent of forecasted contractually obligated revenues for the arena are currently under contract.

They haven't made much progress in the past year. Three months ago, the figure was 55%. Six months ago, the figure was 55%. In September 2010, one year ago, the figure was 51%.

At the past year's pace, they won't be that much past 60% in September 2012 when the arena opens. I wouldn't doubt they're working on some deals and that they want a much higher number.

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Related content...

Forest City Enterprises Press Release

Posted by eric at 11:04 AM

September 1, 2011

Who got the Liberty Bonds?

The Torch
by Nicole Gelinas

The journalist and free-marketeer reminds us that Bruce Ratner got a chunk of taxpayer money to rebuild that portion of Fort Greene damaged in the 9/11 attacks.

The city’s independent budget office (IBO) has released a report on New York’s post-9/11 disaster and recovery spending. So who got the Liberty Bond money?

As part of its $20.5 billion aid package, remember, Washington gave the city $1.2 billion to support $8 billion worth of “Liberty Bonds” — bonds that private companies could issue for real-estate development projects. No level of government (federal, state, or local) guaranteed the bonds’ repayment, but the bonds are exempt from federal, state, and local taxes, meaning that investors demand a lower interest rate on them.

Of the $6.4 billion in Liberty Bonds issued since 2003, only $3.8 billion – 59 percent — went to build projects at the World Trade Center site. WTC developer Larry Silverstein got about $3.1 billion, and the Port Authority took (or will take) $701.6 million for itself.

Who got the rest? Goldman Sachs got $1.7 billion for its downtown tower. The Dursts got $650 million for the Bank of America building (in Midtown). A Forest City (that’s Bruce Ratner of Atlantic Yards) office-tower project for BONY Mellon in Brooklyn got $90.8 million.

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Posted by eric at 9:28 PM

August 16, 2011

Ten months later, still waiting for a response to my FOIL request about state official Peter Davidson's trip to China promoting Forest City Ratner's misleading "green cards for investments" venture

Atlantic Yards Report

On 10/5/10, I sent the following letter to the Empire State Development Corporation (aka Empire State Development):

Under the Freedom of Information Law, I request records regarding Executive Director Peter Davidson's planned trip to China this month on behalf of the New York City Regional Center's effort, under the EB-5 visa program, to market an investment in Atlantic Yards.

Specifically, I seek records, including but not limited to correspondence to, from, and within the Empire State Development Corporation, that explain:
--the cost and itinerary of the trip
--what Mr. Davidson is expected to do (outline of remarks, etc)
--the solicitation for and decision to make the trip
--any evaluation on ESDC's part of the job numbers used by NYCRC

Last week, I received yet another letter from the state agency telling me they were still evaluating my request and searching for responsive records. I am to get an update on that search, and possible delivery of such records, by September 29.

I wonder why it's taking so long. Is the information really that obscure?

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Posted by eric at 10:21 AM

August 12, 2011

Taking the Times to task for its EB-5 coverage, again

Atlantic Yards Report.

The Times opened up comments on its curious article today on Chinese investment in New York.  Almost nobody commented on the EB-5 angle, which seemed shoehorned into the story. My comment again took the Times to task...

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Posted by eric at 7:11 AM

August 11, 2011

Times article on Chinese investment in New York whiffs on Forest City Ratner's EB-5 venture

Atlantic Yards Report

A front-page article in today's New York Times, headlined As Investors, Chinese Turn to New York, stunningly maintains the newspaper's see-no-evil posture toward Forest City Ratner's questionable recruitment of investors seeking green cards.
...

The Chinese putting money into Atlantic Yards--'scuse me, the "Brooklyn Arena and Infrastructure Project"--aren't making real investments. They're buying green cards for themselves and their families, allowing their children to be educated in America.
...

They're supposed to create jobs. No jobs would be created.

Would the Chinese money support residential and office towers? Forest City's partner in China told the investors they were putting money into a basketball arena. That's why Forest City sent Darryl (Chocolate Thunder) Dawkins to China.

More recently, Forest City executives have said the money would be used to refinance a land loan, as well as pay for infrastructure. Or that they haven't decided.

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Posted by eric at 9:32 AM

August 10, 2011

As Investors, Chinese Turn to New York

The New York Times
by Kirk Semple

Leave it to The Times to completely gloss over the controversial nature of its development partner's EB-5 investment program.

Chinese banks have poured more than $1 billion into real estate loans in New York City in the past year. Investors from China are snapping up luxury apartments and planning to spend hundreds of millions of dollars on commercial and residential projects like Atlantic Yards in Brooklyn. Chinese companies have signed major leases at the Empire State Building and at 1 World Trade Center, which is the centerpiece of the rebuilding at ground zero.
...

Chinese money is also poised to flow into the city through a federal program that offers the possibility of permanent residency to foreigners who invest at least $500,000 in certain development projects.

Under this program, known as EB-5, Forest City Ratner Companies has arranged for $249 million in loans from Chinese investors for residential and office towers at Atlantic Yards, the commercial and residential project in Brooklyn that includes a new stadium for the New Jersey Nets.

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NoLandGrab: That's it, the full extent of The Times's coverage of EB-5 investments in Atlantic Yards.

Posted by eric at 10:00 PM

Immigrant investors helping foot bill for NYC projects

Real Estate Weekly
by Daniel Geiger

A type of transaction that permits foreigners to invest in the United States in exchange for residency rights has caught on as a popular financing mechanism for real estate and development deals in the city.

The EB-5 Immigrant Investor Program, as the vehicle is called, has been used on a number of recent real estate projects in the city, including the just signed $180 million deal to redevelop the George Washington Bridge Bus Terminal.
...

About $250 million of EB-5 money is also being used on the construction of the Net Arena in the Atlantic Yards in Brooklyn.

The pipeline of funds, much of which comes from China, has helped pay for projects that would otherwise be difficult to finance or would have to borrow the money at higher interest rates.
...

The participants typically earn a relatively low rate of return on their money, which allows the developers of the projects being funded a low cost of financing.

Most EB-5 investors aren’t in it for the profits but because they will receive a green card if the deal delivers the promised number of jobs.

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NoLandGrab: In the case of Atlantic Yards, the EB-5 investments aren't going to create any jobs, as Forest City will be using the money to restructure debt. And most EB-5 investors "aren't in it for the profits" because there are no profits; they're buying green cards, plain and simple. So why doesn't the State Department just auction them to the highest bidders?

Posted by eric at 5:51 PM

August 9, 2011

In the midst of a steep market decline, Forest City Enterprises shares plummet nearly 25% over five days

Atlantic Yards Report

Forest City Enterprises shares went from $17.63 at the opening, Tuesday, August 2, and closed yesterday at $13.24. down 13.46% for the day.

By contrast, the Dow Jones Industrial Average was down 5.55% and the iShares Dow Jones U.S. Real Estate Fund was down 8.51%.

Forest City's stock is down 24.9% over five days, as shown in the first chart, via Morningstar.

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NoLandGrab: Given FCE's reliance on government hand-outs, it's no surprise that the specter of fiscal austerity would spook stockholders.

Posted by eric at 10:33 AM

August 8, 2011

Qiao Wai immigration agency in China subject to skeptical local report regarding Brooklyn arena project

Atlantic Yards Report

The Chinese immigration agency recruiting the largest chunk of potential investors for the "Brooklyn Arena and Infrastructure Project"--the odd packaging of a loan to attract immigrant investors to Atlantic Yards--was recently subject to some skeptical mention in the local press. An article pointed to reported exaggerations in the promotion of the Brooklyn project as well as irregularities in the promotion of a project in Philadelphia.

The artilce--from the online news site of People's Daily, one of the country's largest newspapers--is hardly definitive, but it suggests some willingness in the Chinese press to look skeptically at the burgeoning world of EB-5 investment, in which those seeking green cards for themselves and their families park $500,000 in a purportedly job-creating investment.

The 8/2/11 article, was headlined, according to a translation I commissioned, "Risks involved in Immigrant Investment Programs; Qiao-Wai Group In Question." (Here's the Google Translate version.)

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Posted by eric at 11:31 AM

August 1, 2011

Down the rabbit hole: federal agency says immigrant investors in EB-5 program can get credit for all the jobs created or saved; critic suggests most EB-5 investments "are of much lower quality"

Atlantic Yards Report

I'm still waiting for more media outlets to latch on to the absurdity of the federal EB-5 program, which is exploding as immigrants seeking to buy their way into the country hook up with entrepreneurs who devise plans that aim to meet the letter, if not the spirit, of a vaguely defined law.

Remember, the $500,000 from each immigrant investor, which gains green cards for the investor and his/her family, is supposed to generate ten jobs.

In the case of Atlantic Yards, no new jobs would be created, but Forest City Ratner's raising $249 million from 498 investors who've been told, misleadingly, that they're investing in an arena.

Most people, learning that wealthy foreigners can buy their way into the country, are taken aback that the program even exists. I focus on whether the letter and spirit of the law are being followed, and whether there's sufficient oversight.

And, as noted below, critic David North suggests that most EB-5 investments are of lower quality than other deals on the open market, which makes sense, since the lure is not financial return but green cards.

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Posted by eric at 10:14 AM

July 26, 2011

Fitch downgrades pool of loans led by Metrotech Center building

The Real Deal
by David Jones

Fitch Ratings downgraded a $6.6 million class of commercial real estate loans led by 10 Metrotech Center, a seven-story office building owned by Forest City Ratner in Downtown Brooklyn.

Fitch downgraded one class of COMM Mortgage Trust 2005-FL-10, saying 42 percent of the pool is expected to default due a 10 percent overall decline in cash flow compared with the last update.

The 359,000 square foot property, located at 625 Fulton Street in Brooklyn, is faced with an expiring lease with the Internal Revenue Service, which occupies nearly 88 percent of the building. The loan represents 7.4 percent of the pool balance.

The lease is scheduled to expire in February 2012, though the General Services Administration has announced plans to extend the IRS lease for at least six months. The loan is currently in special servicing and has been listed as distressed since early 2010.

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Posted by eric at 1:01 PM

July 8, 2011

Exclusive: Recent New Jersey Nets Books Reveal Huge Losses

CNBC
by Darren Rovell

News flash! Under Bruce Ratner's stewardship, the woeful New Jersey Nets lost a lot of money.

The biggest battle in the NBA lockout right now might be the public relations battle. Are the losses the owners are claiming real or fictional?
...

Not many teams have balance sheets that are publicly available, but there is one team whose balance sheets anyone can view and it happens to be a team that at least claims to have lost a ton of money.

With that in mind, we were provided the financial statements of Nets Sports & Entertainment LLC, that included the finances of New Jersey Nets properties in 2009 and 2010 (through June 30). The team was owned through April of 2010, by Bruce Ratner, chairman and CEO of Forest City Ratner Companies.

If you go through the report, audited by PWC, and you understand how the NBA reported what was in this document to the Players Association, you will understand that it's not out of the realm of possibility that the league's owners were losing north of $300 million for years.
...

For the 2008-09 season, the documents reflect that the Nets lost $77,227,184.

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NoLandGrab: The news that the Nets lose big money isn't news. Also not news is that NBA owners and players disagree about how losses (or profits) are measured, which is at the core of negotiations over a new NBA collective-bargaining agreement.

Related coverage...

Atlantic Yards Report, CNBC analysis: even if the Nets lost $44 milion, not $77 million, it suggests NBA losses (but what about the new arena?)

CNBC's analysis of Nets Sports and Entertainment Consolidated Financial Statements for the years ending June 30, 2010 and 2009 (embedded below) is billed as an "exclusive," but the exclusive, I believe, is the analysis, not the documents, which were made available to the Securities and Exchange Commission.

According to CNBC Sports Business Reporter Darren Rovell's analysis, even if the team's claimed $77.2 million loss in 2008-09 is overstated, a more realistic $44 million figure could be used to back claims of NBA losses.
...

I'd suggest an additional conclusion: the new arena will help the team do much, much better.

Atlantic Yards Report, Nets financials point to 11% loan from Prokhorov, 5% (minimum) development fee to Forest City for arena

The document describes the loan between Brooklyn Arena Holding Company (ArenaHoldCo) and entities controlled by Mikhail Prokhorov (MP Entities) that filled an arena financing gap. The loan was reported back in May 2010, but not, to my knowledge, that it bore a junk-bond level interest rate of 11%:

On May 12, 2010, ArenaHoldCo entered into a loan agreement with an affiliate of the MP Entities in the amount of $75,842,086 (the “Loan”). The Loan bears interest at 11% per annum, compounded monthly and matures on June 12, 2013. Both interest and principal are due at maturity. As of June 30, 2010, accrued interest on the loan of $1,162,947 is recorded as part of the Loan from affiliate and has been capitalized to Land and Arena under construction.
A fee equal to $1,000,000 is due on the date the Loan is paid in full, or a pro-rated portion on the date of any partial repayment of the Loan, which is recorded in Accounts payable — affiliates. In the event the Loan is not paid upon maturity, the Loan converts into an equity position in Brooklyn Arena based on a stipulated formula.

So if ArenaHoldCo, which is controlled by Forest City Enterprises, does not pay Prokhorov back, his share in the arena would be converted to equity (as has been reported).

Ratner gets at least 5%

Since July 2007, when the Times reported it, we've known that Forest City Ratner would get a development fee of 5%. This document suggests the fee could be somewhat more:

Developer Agreement
On June 1, 2005, Brooklyn Arena entered into a Development Agreement with an affiliate (the “Developer”), pursuant to which the Developer will plan, develop and oversee construction of the Arena for a fee not to exceed the lesser of $7,000,000 per year or 5% of the total project cost at completion. Through June 30, 2010, $35,000,000 of development fees have been incurred and capitalized to Land and Arena under construction.
...

Forest City likely would earn much more, especially if it can cut costs via modular construction and continue to finagle low-cost financing from immigrant investors.

NBC Sports, Books show Nets with $44 million loss in 2008-09 season

Posted by eric at 11:17 AM

July 6, 2011

Forest City sells 49% stake in two New York rental buildings, Beekman and 80 DeKalb, at apparent discount to raise cash

Atlantic Yards Report

Like New York, it seems "Forest City Ratner is open for business." But maybe the line should be "everything must go — no reasonable offer will be refused!"

To lower debt payments, Forest City Enterprises is selling nearly half of two New York rental properties developed by subordinate Forest City Ratner, keeping 51% ownership. Similarly, the company sold nearly half of New York area retail properties in March to raise cash.

The press release at bottom, which is distilled in The Real Deal, Forest City restructures financing at 8 Spruce, DKLB BKLN, provides the developer's preferred angle:

Forest City Enterprises and National Real Estate Advisors [NREA] announced agreements to restructure the financing at 8 Spruce Street, the Frank Gehry-designed 76-story rental tower in Lower Manhattan and at DKLB BKLN the luxury tower in Fort Greene, Brooklyn, saving the companies hundreds of millions of dollars in debt payments.

Crain's Cleveland Business also distilled the press release.

But there's a trade-off: while Forest City may save hundreds of millions in debt, it sold stakes in both buildings for what seem to be discounts. (I suspect I'm missing some elements of the financial deal, but the raw math is still worth a look.)

In the press release, Forest City CEO David LaRue hinted that times are still tough: "Finally, by extending the bank credit facilities, it allows additional time for economic conditions and rents to further improve before refinancing is necessary."

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Related coverage...

The Real Deal, Forest City restructures financing at 8 Spruce, DKLB BKLN

Forest City Enterprises and National Real Estate Advisors announced agreements to restructure the financing at 8 Spruce Street, the Frank Gehry-designed 76-story rental tower in Lower Manhattan and at DKLB BKLN the luxury tower in Fort Greene, Brooklyn, saving the companies hundreds of millions of dollars in debt payments.

The development is key for Forest City, the parent firm of Forest City Ratner, as this $876 million rental tower, formerly known as the Beekman, was under pressure to bring in enough renters to become profitable in a market that is just getting its sea legs.

Crain's Cleveland Business, Forest City Enterprises, National Real Estate Advisors recapitalize two N.Y. apartments

Posted by eric at 11:30 AM

June 26, 2011

How the New York Times's watchdog coverage of a supplements company could be transposed to the New York City Regional Center and EB-5

Atlantic Yards Report

A lengthy 6/21/11 New York Times article about Senator Orrin Hatch R-UT), headlined Support Is Mutual for Senator and Utah Industry, described his relationship with the supplements industry, which wants freer reign to make some self-serving claims.

One passage jumped out:

But Xango’s record illustrates how companies eager to exploit the law can go too far.

In 2006, federal regulators warned Xango that brochures improperly promoted mangosteen juice as a disease cure, not just a healthy option. Xango is among more than a dozen Utah companies cited by federal regulators over the last decade for apparent violations of the law.

Xango, whose executives are the single biggest Utah-based contributors to Mr. Hatch’s political campaigns and have drawn Mr. Hatch to its headquarters to down shot glasses of their juice, blamed a marketing company that had printed the brochures. The company also insisted that it was closely monitoring distributors to make sure they did not make inappropriate claims.

But in his talk at Xango in March, [distributor] Dr. [Vaughn T.] Johnson — who lectures across the country at other company events — used some of the same language the F.D.A. had cited in its 2006 warning letter, and he referred the sales agents to a nearby company that still sold brochures making the improper claims.

(Emphases added)

The EB-5 analogue

Why did I highlight the above?

As I wrote 12/27/10, it's stunning how George Olsen, managing principal of the New York City Regional Center (NYCRC), could profess to be shocked, shocked that the firm's affiliates in Asia were deceptively marketing green cards in exchange for investments in Atlantic Yards.

As Reuters reported:

At a recent seminar in Seoul, an agent for the Kookmin Migration Consulting Co., working on behalf of the New York City Regional Center, told would-be investors if they invested in the company's latest project their permanent green cards were "guaranteed." He also implied the investors would be financing the construction of the new home for the New Jersey Nets NBA basketball team.

In a subsequent interview with Reuters, George Olsen, managing principal of the New York City Regional Center acknowledged the claims were "not accurate" - the investors will finance the rebuilding of a rail yard and some related infrastructure near the new basketball court -- and promised he would jump on Kookmin "with two feet."

"But that's what's frustrating," Olsen said. "You can't be at every seminar, you can't be at every meeting, you can't be in the room when one of these people is talking. To raise $100 million, you have to get 200 investors. That's a lot of people. So there's a certain amount of mass marketing that has to go on.

Nah. As I pointed out December 23, those same claims were made by Olsen's own point man in China, Gregg D. Hayden.

More here, including audio.

link

Posted by steve at 7:17 PM

June 25, 2011

No suprise: NYU Schack's Stuckey intersects with EB-5 promotion

Atlantic Yards Report

The immigrant investor law, known as EB-5, has gotten a lot more popular in the past two years, because low-interest loans from immigrants more interested in green cards than returns are now available to clever investors, and the requirement of job creation can be finagled via paper calculations.

From GlobeSt.com, 6/21/11, Shopping the EB-5 Supermarket:

As access to traditional forms of capital continues to tighten, an often underlooked source of funding can help foreign investors establish themselves in the US while benefiting the American economy: the federal EB-5 Immigrant Investor Program. Panelists discussed “The Art of the EB-5 Real Estate Transaction” at a conference hosted by Akerman Senterfitt in conjunction with the Urban Land Institute and the NYU Schack Institute of Real Estate on Monday morning at the Cornell Club in Midtown Manhattan.

...When structuring an EB-5 project, Park asks two questions: Does it meet the legal requirements, and from an investment standpoint, will it sell? “EB-5 projects nowadays are like commodities,” Park says. “You have to think of it in the view of the investor. They want a green card and they walk into a ‘supermarket.’ You go in, look at the shelf and see all these products and if you pick a good one and you get the job, you get your permanent green card two years later.”

And if you think of it in the view of public policy, well, maybe the question is whether the project actually creates jobs.

...

And the article combines former Atlantic Yards point man Jim Stuckey with the clever packagers at the New York City Regional Center, who helped raise $249 million for Atlantic Yards:

The most successful EB-5 projects have demonstrated creative real estate solutions in major metros, explained moderator James P. Stuckey, divisional dean at NYU’s Schack Institute of Real Estate. With a refocus on urban manufacturing, Andrew Kimball, president and CEO of Brooklyn Navy Yard Development Corporation, became the city’s first organization to access low-cost financing--about $60 million--through the EB-5 Regional Center program.

The article mentions the more legitimate Navy Yard program, but, really, shouldn't someone follow up on the revelations about the Atlantic Yards pitched raised by Reuters and by me? The Times has not.

link

Posted by steve at 9:17 PM

June 8, 2011

The EB-5 story: WSJ offers less skepticism than Houston Chronicle; federal agency announces plan to streamline applications

Atlantic Yards Report

One of the lessons of the Atlantic Yards saga, and highlighted in the film Battle for Brooklyn, is the importance of a skeptical approach to the media.

Nowhere is such skepticism more important than in coverage of the EB-5 phenomenon, in which would-be immigrants trade purportedly job-creating investments for green cards for themselves and their families.

Despite ample evidence that the program is dubious, especially related to the Atlantic Yards project, the Wall Street Journal yesterday proceeded with some shoddy journalism, in an article headline Program Gives Investors Chance at Visa.

It's in line with the Journal's lame coverage in February, which ignored misrepresentations made by the New York City Regional Center, the first investment fund in the city that recruited investors, in signing up Chinese and Korean millionaires to invest in the Atlantic Yards project.

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Posted by eric at 7:20 AM

June 7, 2011

Program Gives Investors Chance at Visa

The Wall Street Journal
by Sumathi Reddy and Joseph De Avila

A 38-story luxury Times Square Hotel. A medical center, hotel and condominium development in downtown Flushing. And New York City's reportedly first Proton Therapy Cancer Treatment Center.

All rely on an unusual source of funding: immigrants who invest $500,000 for a shot at a shortcut to permanent residency.
...

The program has its critics. They say it has been pitched at times to foreigners as a sure-fire way to get a green card or as a risk-free investment—which it's not.

Some immigrants have experienced deteriorating investments and been sent home packing after developments flop. Since all of the regional centers in New York City are relatively new, none of the investors have reached the point where they would have applied for permanent residency.

Michael Gibson, who researches EB-5 projects for investors through his Florida-based business, said it's hard to monitor what overseas agents are pitching to foreign investors.
...

The New York City Regional Center has raised $60 million for the Brooklyn Navy Yard and $65 million for Steiner Studios, a film and television studio in Brooklyn. The center is in the process of raising $249 million to pay for infrastructure costs for developer Forest City Ratner Cos.'s Nets basketball arena in Brooklyn, its biggest project so far.

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Posted by eric at 1:10 PM

Forest City Enterprises reports earnings rise for first quarter 2011, claims Brooklyn office vacancies being addressed, must absorb Nets losses

Atlantic Yards Report

Forest City Enterprises, whose Forest City Ratner arm is developing Atlantic Yards, reported positive earnings results yesterday, though the company's Brooklyn portfolio may not be as rosy as some of the rest of the business.
...

The most significant driver of results: $42.6 million from the sale of land and air rights to Rock Ohio Caesars Cleveland LLC for construction of a casino in downtown Cleveland, where FCE is headquartered. (Here's the Plain Dealer coverage.)
...

AY update

In both the press release and the conference call, FCE officials said that approximately 55% of the forecasted contractually obligated revenues for the arena are currently under contract.

Three months ago, FCE reported the same percentage. In September 2010, the figure was 51%.

"We are also in the process of initial planning, design, and engineering for work on the first residential multifamily building at Atlantic Yards," [incoming CEO David] LaRue added.

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Related coverage...

Cleveland Plain Dealer, Forest City reports Q1 profit, sees $42.6 million boost to pre-tax EBDT from Cleveland casino deal

Monday's earnings call was the last with a member of the Ratner family at the company's helm. At Forest City's annual meeting Friday, longtime CEO Charles Ratner will become chairman of the board. He will be succeeded by David LaRue, the company's chief operating officer.
...

Shares of Forest City's stock (NYSE: FCE-A) closed trading Monday at $18.71, down 21 cents or 1.1 percent.

Posted by eric at 12:39 PM

June 6, 2011

FCE PRESS RELEASE: Forest City Reports Fiscal 2011 First-Quarter Results

via PR Newswire

Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) today announced EBDT, net earnings and revenues for the first quarter ended April 30, 2011.

EBDT

First-quarter EBDT (earnings before depreciation, amortization and deferred taxes) was $127.4 million, an increase of $56.9 million compared with 2010 first-quarter EBDT of $70.5 million. On a fully diluted, per-share basis, first-quarter 2011 EBDT was $0.63, a 70.3 percent increase compared with 2010 first quarter EBDT of $0.37.

For an explanation of EBDT variances, see the section titled "Review of Results" in this news release. EBDT and EBDT per share are non-Generally Accepted Accounting Principle (GAAP) measures. A reconciliation of net earnings (the most directly comparable GAAP measure to EBDT) to EBDT is provided in the Financial Highlights table in this news release.

Net Earnings/Loss

First-quarter net earnings attributable to Forest City Enterprises, Inc. were $47.6 million, or $0.25 per share, compared with a net loss of $15.6 million, or $0.10 per share, in the first quarter of 2010. After preferred dividends, net earnings attributable to Forest City Enterprises, Inc. common shareholders was $43.7 million, or $0.24 per share, for the quarter ended April 30, 2011.

Revenues

First-quarter 2011 consolidated revenues were $316.9 million compared with $271.5 million last year. The year-over-year revenue variance was impacted primarily by the same factors impacting EBDT, as described below under "Review of Results."

Review of Results

An exhibit illustrating factors impacting first-quarter 2011 EBDT results, compared with results for the comparable period in 2010, is available on the Investor Relations page of the Company's web site: www.forestcity.net, and is included in the company's first-quarter 2011 Supplemental Package furnished to the Securities and Exchange Commission.

For the three months ended April 30, 2011, the Company's combined Commercial and Residential Segments (also referred to as the rental properties portfolio) provided a pre-tax EBDT increase of $55.7 million, compared with the first quarter of 2010. The year-over-year increase was primarily the result of initial proceeds of $42.6 million from the previously announced sale of land and air rights to Rock Ohio Caesars Cleveland LLC for construction of a casino in downtown Cleveland, increased income of $7.7 million from tax credits, the ramp-up of new properties of $2.6 million, and decreased interest expense on the mature portfolio of $2.2 million. These increases in the portfolio were partially offset by reduced EBDT from properties sold of $4.6 million.

link

Related...

PR Newswire, REMINDER: Forest City Enterprises Fiscal 2011 First-Quarter Earnings Conference Call

Forest City Enterprises, Inc., (NYSE:FCE-A) has released its first-quarter 2011 financial results and will hold a conference call today at 11:00 a.m. ET to discuss these results. Investors are invited to dial into the conference call hosted by Charles A. Ratner, president and chief executive officer, or to listen to a live webcast of the call through www.forestcity.net.

Posted by eric at 10:21 AM

June 2, 2011

Ratner Seeking $100 Million for Apartment Tower at Atlantic Yards Site

Bloomberg
by David M. Levitt and Betty Liu

The developer of the Atlantic Yards project in New York’s Brooklyn borough plans to borrow about $100 million to construct an apartment tower near the basketball arena now going up on Flatbush Avenue.

Work should start on the apartment building in December or January, Bruce Ratner, Forest City Ratner Cos. chairman and chief executive officer, said today in an interview on Bloomberg Television. The tower would join the Barclays Center sports arena as the second structure at the $4.9 billion, 22-acre project in downtown Brooklyn.

“We’ve already talked to banks and we will be able to get a loan,” Ratner said.

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NoLandGrab: We'll believe construction of any Atlantic Yards housing when we see it, not when Bruce predicts it. And for the millionth time, the project is not in downtown Brooklyn.

Posted by eric at 8:54 AM

May 30, 2011

Goldman Sachs buys Google ads to promote its role in getting Louisville arena built; what about Brooklyn?

Atlantic Yards Report

Attached to a 5/7/11 Boston Globe review of sportswriter Robert Lipsyte's new memoir was the advertisement at right, in which financial behemoth Goldman Sachs promotes its role in the new arena in Louisville, KY.

Presumably such Google ads are being bought wholesale, attached to other sports coverage.

"See how the construction of a new arena helps businesses downtown," states Goldman, pointing to a web page and film, with the summary:

Now, new businesses are opening, new jobs have been created and downtown Louisville is more vibrant than ever, with new restaurants and services available to local residents and visitors.

What about Brooklyn?

Will Goldman, which arranged the bond financing for the Atlantic Yards arena (aka Barclays Center), promote its role in the new facility? Likely.

But the promotion will have to be more subtle. New businesses? Sports bars, sure, but local residents surely have enough restaurants and services.

New jobs? Surely not nearly as many as promised during the heady days of "Jobs, Housing, and Hoops."

New housing? Not Goldman's problem.

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Posted by eric at 10:46 AM

May 26, 2011

Forest City Enterprises gets one-third off loan due Cleveland; will subsidary FCR pursue similar discounts regarding Atlantic Yards?

Atlantic Yards Report

Is a discount on a Forest City Enterprises loan from the city of Cleveland a harbinger of further requests to adjust Forest City Ratner's public obligations regarding Atlantic Yards?

Well, we can't be sure, but the Forest City modus operandi, it's clear, is to play hardball, taking advantage of what public agencies allow.

(FCR doesn't have any loans to pay back, but it is supposed to create new public infrastructure, and already renegotiated a discount on the development rights to the Vanderbilt Yard and got permission to build a replacement yard smaller than promised.)

The discount in Cleveland

From the Cleveland Plain Dealer's blog, a post headlined Forest City paying $10.3 million to close out $15 million in city loans:

Forest City Enterprises will pay Cleveland $10.3 million of $15.4 million owed on three development loans, and the city will call it even.

About half the money will replenish a "rainy day" fund that is to run out this year, and $3.9 million will go to economic development. The City Council has set aside $1.4 million for neighborhood projects, with each of the 19 members receiving $75,000.

The deal, initiated by the city, involves loans made to the real estate and development company with federal Urban Development Action Grant money in the late 1980s and early 1990s. Forest City used the low- and no-interest loans to develop The Avenue at Tower City Center.

Forest City had faced balloon payments totaling about $15.4 million due in 2016 or 2020, depending on the loan.

Ken Silliman, Mayor Frank Jackson's chief of staff, said the deal ensures the city will collect two-thirds of a debt that would be hard to recover if Forest City defaulted. He and Economic Development Director Tracey Nichols said it also makes money available for economic development at a time when private financing remains tight.

(Emphasis added)

Making the deal

Why should Forest City default? They can afford to pay back the loan. They just don't want to.

The question is why Cleveland let them get away with it.

article

Related content...

Cleveland.com, Forest City paying $10.3 million to close out $15 million in city loans

Silliman acknowledged that the city is unlikely to recoup the full value of the three Forest City loans.

Posted by eric at 11:01 AM

May 20, 2011

SQUARE FEET | THE 30-MINUTE INTERVIEW: Ronald Dickerman

The New York Times
by Vivian Marino

Mr. Dickerman, 47, is the founder and president of Madison International Realty, a real estate private equity firm, which through its investment funds holds ownership stakes in buildings around the world, including several in the New York area, among them the Chrysler East Building and 520 Madison Avenue. The company has also had investments in the Seagram Building over the years.

Q Tell me about your business.

A I think we do something very unusual in the world of commercial real estate and investing: we acquire ownership interests in Class A assets from existing investors looking for an early exit strategy. Our objective is not to seek control of the properties — it’s to provide liquidity, which means buy their interest. We’re not a loan-to-own shop.
...

Q You recently announced a deal to acquire a 49 percent interest in 15 retail and entertainment properties owned by Forest City Ratner.

A They came to us, I think, in September 2010 to fund their go-forward investments. You may know that the Atlantic Yards development is something like $4 billion.

These properties are as core as core can be. They’re 99 percent occupied; the average lease term is over eight years.

article

Related coverage...

Atlantic Yards Report, Why did Forest City Ratner sell a 49 percent stake in its malls? To help pay for Atlantic Yards, and to combat investor "fatigue"

In a "Square Feet" interview in the upcoming Sunday New York Times Real Estate section, Ronald Dickerman, founder and president of the private equity firm Madison International Realty, explains his business and talks about the deal announced at the end of March to acquire a 49 percent interest in 15 retail and entertainment properties owned by Forest City Ratner.

So what do companies like Forest City do with the cash?

"To redeploy into other investment opportunities, to fund other liabilities within their portfolio," responded Dickerman.

In other words, to help pay for Atlantic Yards.
...

Madison investors see a rate of return "between 17 and 18 percent gross," so that suggests Forest City Ratner gave up something significant.

Asked if his firm adds value to its holdings, Dickerman said no:

We invest in core Class A assets where the building itself is relatively stable and the deal is not distressed. What’s distressed about the transaction is the fatigue of the underlying investor.

Posted by eric at 11:38 AM

April 28, 2011

FCR may raise $40M more from immigrant investors; document confirms that EB-5 loans can be used to pay off mortgages, says nothing about job creation

Atlantic Yards Report

We would call this unbelievable, but Atlantic Yards is so crooked that nothing is unbelievable.

An Empire State Development Corporation (ESDC) document reveals that developer Forest City Ratner, which already has signed up 498 immigrant investors to offer a $249 million low-interest loan, may seek another 80 investors for a $40 million loan.

The agreement between the ESDC and a Forest City Ratner affiliate was acquired via a Freedom of Information Law request. Though it offers much detail on how the money might be spent--Forest City has wide latitude--it says nothing about the ostensible purpose of the funding under the federal government's EB-5 immigration program: job creation.

The issue of job creation must be addressed in documents submitted to a federal agency, United States Citizenship and Immigration Services. The investors park their money for perhaps five years, and can get green cards for themselves and their families, assuming the claims of job creation pass muster.
...

[T]he loan proceeds could be used to reimburse Forest City Ratner for its costs on the Arena, the Subway Entrance, the public plaza, the upgrade railyard, demolition of project structures, utility work, the construction of the Carlton Avenue Bridge, the creation of arena parking, and preparation of development sites.

Essentially it's a piggy bank for whatever Forest City Ratner wants, including the final category, which I highlighted: paying off any liens and encumbrances, such as the existing land loan from Gramercy Warehouse Funding.

Does any of this create or retain jobs? That's what they may say on paper, but it seems clear that the developer is substituting lower-cost capital for higher-cost capital.

Take for example the Carlton Avenue Bridge; the developer is obligated to reconstruct it, whatever the source of the capital. So the use of immigrant investor funds for the bridge doesn't add jobs.

article

NoLandGrab: As some people are fond of saying, "f**k the bridge." And the jobs, and the investors, and the taxpayers, and....

Posted by eric at 10:32 AM

April 27, 2011

Numbers up: The New York Times Is Counting Wealthy Chinese, In A Too-Short Story

Noticing New York

This week it was impossible not to notice that the New York Times was prominently featuring the number “585" for a short little blurb of a story featured in its "News of the Week in Review" section. Turns out they were counting wealthy Chinese. (See: Prime Number, Published: April 23, 2011.) The Times was taking note that 585 is the estimated number, in the thousands, of people in China who this year will have investable assets of $1.5 million or more. This was according to a study by Bain & Company, a Mitt Romney connected consulting firm.

The number, the subject and the calculation couldn’t help but remind us all of another number, “498" which is the number of Chinese that Forest City Ratner is soliciting to “invest” $538,000 in order get American government issued green cards that Forest City Ratner is being allowed to sell more or less exclusively for its own private benefit. After some time (five years), the Chinese are supposed to get back less money ($500,000) which, other than their green cards, constitutes the return on their investment provided the deal Forest City Ratner has structured for them doesn’t tank. This all has to do with something known as the federal EB5 program, a program Congress created supposedly to produce jobs in the U.S. but which Forest City Ratner is taking advantage of in a non-job producing way. Essentially, the Ratner firm is abusing the EB-5 program in a way that Congress is now letting it be abused: Ratner is selling United States green cards to rake in cheap capital without producing jobs.

In other words, if, as reported in the Times, there are 585,000 Chinese who have $1.5 million or more to invest, 498 of them, or one out of every 1,197 of them are expected to pony up $538,000 of that available $1.5 million to pay Forest City Ratner for green cards.

article

Posted by eric at 9:33 AM

April 25, 2011

Kunpeng, consultancy promoting AY to immigrant investors in China, among firms willing to deceive regulators, according to newspaper investigation

Atlantic Yards Report

There's new evidence that consultants helping Chinese millionaires immigrate, as in the program involving the "Brooklyn Arena and Infrastructure Project," are skating toward fraud.

In this case, the evidence does not involve the EB-5 program, in which investors park $500,000 for a purportedly job-creating project in exchange for green cards for themselves and their family, but rather a similar Canadian program.

Kunpeng International, a consultant prominent in promoting the Brooklyn project as an associate of the New York City Regional Center (NYCRC), an investment pool working with Forest City Ratner, has been identified as one willing to deceive Canadian regulators.

(Kunpeng's head is at right in the photo with the Empire State Development Corporation's Peter Davidson, who provided a certificate during a roadshow in China last October. That proclamation, as I wrote, elides the difference between the Brooklyn Arena and Infrastructure Project before the potential investors--purportedly the arena, infrastructure, and railyard--and the Atlantic Yards project as a whole, which would produce many more jobs and potential benefits.)

Helping a fictitious applicant

In a 4/22/11 article headlined How China’s ‘crooked consultants’ help the rich enter Canada, the Globe and Mail reports that a fictitious potential immigrant created for the purposes of the article--who has the required minimum $1.6 million CAD in assets but not the required documentation providing the wealth is legitimate--was offered help in sugarcoating his past by 18 of the 22 China-based immigration consultants approached.

Of the 22, 12 said that even a criminal record--jail time for stabbing someone in a fight--could be overcome:

If the relative were to persuade – bribe, if necessary – someone at his local police station to issue such a certificate, explained an agent at Kunpeng International, a Beijing-based firm, Canadian officials “can’t come to China to check the archives” in person.

John Ryan, chief executive officer of the Canadian Society of Immigration Consultants, a former consultant in China, told the newspaper that business ethics in China are flexible:

“In Chinese culture, they feel that, in dealing with governments, they need an edge. They don’t really understand that, in our Canadian system, they can deal openly and honestly with the government and be dealt with fairly.”

article

NoLandGrab: Is it us, or does our system sound much closer to China's than to Canada's?

Posted by eric at 11:00 AM

April 1, 2011

Cash-Strapped Forest City Ratner Sells 49% Stake in Atlantic Center and Atlantic Terminal Malls

The L Magazine
by Mark Asch

Bruce Ratner's company has sold a 49% interest in 15 NYC shopping centers, the Wall Street Journal reported yesterday. This includes the Atlantic Center and Atlantic Terminal malls, those two monstrosities across Flatbush from the project which has put Ratner into such dire financial straits.

As if the implications of the sale—the largest possible non-controlling stake in privately owned, healthy income-generating retail developments—weren't clear enough, graf 2 of the WSJ article notes, with killing objectivity, "The sale... comes as Forest City has been hobbled by major development projects that were started at the market's peak, when prices and expectations were far higher than they are today." (One thing they don't mention: this isn't the first time Ratner's sold off assets to keep Atlantic Yards moving. Remember that time he sold his basketball team to the richest man in Russia?)
...

Ratner, you may recall, had several blocks of Prospect Heights declared "blighted" so that the state could claim eminent domain to hand them over to him. Ratner and the state's urban renewal project apparently consists of letting huge swaths of the neighborhood remain vacant and undeveloped indefinitely, or at least until he can find a few million more pennies under the couch.

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Related coverage...

Park Slope Patch, Ratner Sells Big Stake in Atlantic Terminal Mall

Madison International, a real estate private equity firm, will pay the developer’s company, Forest City Ratner, $172 million for properties that include both Atlantic Center and Atlantic Terminal. Madison will also take on $499.9 million of debt.

Ratner will retain the majority share and continue to manage the properties, including the Atlantic Terminal Mall.

Ratner’s plans for 16-tower mini-city and basketball arena at Atlantic and Flatbush avenues was on the brink of financial ruin in 2008 when the economy tanked. Since then, the original architect of the project, Frank Gehry, has been fired, and the developer has said the project could be completed in 25 years, rather than the original 10 years.

Posted by eric at 11:01 AM

March 31, 2011

FCE PRESS RELEASE: Forest City Reports Fiscal 2010 Full-Year and Fourth-Quarter Results

Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) today announced EBDT, net earnings and revenues for the fourth quarter and full year ended January31, 2011.

EBDT

EBDT (Earnings Before Depreciation, Amortization and Deferred Taxes) for the full year ended January 31, 2011, was $309.9 million, a new record for the company and a 2.9 percent increase compared with last year's $301.1 million. EBDT for the fourth quarter was $43.1 million, a 45 percent decrease compared with last year's fourth-quarter EBDT of $78.4 million.

EBDT for the fourth quarter and full year 2010 were impacted by a loss on early extinguishment of debt of $31.7 million ($0.16 on a fully diluted, per-share basis), related to inducement payments for the early exchange of a portion of the company's 2016 Senior Notes for Class A common stock, which occurred in the final week of the fiscal year.

On a fully diluted, per-share basis, full-year 2010 EBDT was $1.59, a 20.5 percent decrease from the prior year's $2.00 per share. Per-share EBDT for the fourth quarter of 2010 was $0.23, compared with $0.43 per share in the fourth quarter of 2009. Per-share data reflects new Class A common shares and the "if-converted" effect of convertible debt and convertible preferred stock issued in 2009 and 2010.
...

Net Earnings/Loss

For the full year, net earnings attributable to Forest City Enterprises, Inc., were $58.7 million, or $0.34 per share, compared with a net loss of $30.7 million, or $0.22 per share, in 2009. For the fourth quarter of 2010, net loss attributable to Forest City Enterprises, Inc. was $1.8 million, or $0.01 per share, compared with net earnings of $6.2 million, or $0.04 per share in the fourth quarter of 2009.
...

Work continues at the Barclays Center arena at Atlantic Yards, with steel now rising several stories above ground level at the site. With the building taking shape, the reality of major league sports returning to Brooklyn has helped generate additional momentum and enthusiasm for the project. Approximately 55 percent of forecasted contractually obligated revenues are currently under contract for the arena, which is expected to open in late summer 2012.

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Posted by eric at 11:32 AM

March 30, 2011

Federal agency stonewalls Freedom of Information Act requests on Forest City's EB-5 green card scheme, waits four-plus months to send denial letters

Atlantic Yards Report

Are the Feds in on this crooked deal, too?

Will we ever find out how exactly federal authorities gave preliminary approval--and more--to the astounding efforts to get Chinese millionaires to invest in Atlantic Yards in exchange for green cards?

Not that likely.

During a crucial four-month period when developer Forest City Ratner and the New York City Regional Center successfully recruited immigrant investors in China and South Korea, the United States Citizenship and Immigration Service (USCIS) stonewalled my Freedom of Information Act requests in a very odd fashion.

The USCIS responded to me in letters dated 10/22/10 and 11/2/10, as well as two undated letters.

However, it did not mail those letters until early March, some four months later, and gave no explanation for the delay.

Moreover, the explanation given for three denials of my FOIA requests--that they were not of journalistic and public interest--seems belied by another letter that granted a request for expedited treatment, apparently because my request was of journalistic and public interest.

While that request was granted, I have not received the records at issue.

Read on for more of Norman Oder's back and forth with the USCIS. No word as to when, or if, he's going to start meeting shadowy Hal Holbrook-looking dudes in the bowels of parking garages. All we know is, follow the money.

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Posted by eric at 12:53 PM

Ratner Sells Shopping-Center Stake

The Wall Street Journal
by Eliot Brown

Since more traditional means of raising money didn't work out, Forest City Ratner has turned to an asset sale.

Forest City Ratner, one of New York's largest developers, has sold a 49% stake in 15 shopping centers scattered throughout the metropolitan area in a deal that values the retail portfolio at $852 million, the company said Tuesday.

The sale to Madison International Realty comes as Forest City has been hobbled by major development projects that were started at the market's peak, when prices and expectations were far higher than they are today.

Madison, a firm that owns noncontrolling equity stakes in properties, is paying $172 million to Forest City, which holds the remaining equity and will still manage the properties. The portfolio has $500 million in debt connected with it.

The malls tend to be well-trafficked properties, with a list that includes the Atlantic Center at the edge of Fort Greene in Brooklyn, a property in the Times Square area and a mall on 125th Street in Harlem.

"This is probably the largest portfolio of retail properties owned by a single landlord in the New York area," Ronald Dickerman, Madison's president, said in an interview Tuesday.
...

The Brooklyn-based Forest City Ratner subsidiary, led by Bruce Ratner, is in the process of developing three major projects, including a new Nets basketball arena and housing complex in Brooklyn, a 76-story apartment tower in Lower Manhattan and a large mall in Yonkers.

The Brooklyn arena has seen costs rise by hundreds of millions of dollars since it was initially planned, and the company is having difficulty starting the housing component. The mall in Yonkers envisioned a high-end retail tenant base that has proved difficult to attract because of the economic downturn.

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NoLandGrab: No word as to whether the "colorful characters" (aka shoplifters, pickpockets and purse-snatchers) who frequent the Atlantic Center and Atlantic Terminal malls were included in the deal.

Related coverage...

Atlantic Yards Report, Seeking cash, Forest City Ratner sells 49 percent of Atlantic Terminal/Center malls, other retail and entertainment properties

In an effort to "create liquidity" (aka raise cash), Forest City Ratner has sold a a 49% stake in "15 mature retail and entertainment properties" in the New York City area, including the Atlantic Terminal and Atlantic Center malls in Brooklyn.

The buyer, Madison International Realty, will invest $172.3 million in cash. The properties are valued by this transaction at $851.5 million, including $499.9 million of debt. Forest City will continue to own a majority 51% stake, and manage the properties.

Is that a good deal for Forest City? Did Madison get a bargain? The only context I see is from the Wall Street Journal, in a short article today headlined Ratner Sells Shopping-Center Stake:

The sale to Madison International Realty comes as Forest City has been hobbled by major development projects that were started at the market's peak, when prices and expectations were far higher than they are today.

Those "major" projects include Atlantic Yards, the Ridge Hill project in Yonkers, and the Beekman Tower in Lower Manhattan.

Forest City Enterprises Press Release, Forest City Announces Joint Ventures with Madison International Realty for 15 New York City Area Retail Centers

The properties included in the transaction are: the 42nd Street Retail and Entertainment Complex and Harlem Center (retail component) in Manhattan; Atlantic Center, Atlantic Terminal (retail component) and The Heights in Brooklyn; Queens Place, Steinway Street Theatres and Shops at Northern Boulevard in Queens; Shops at Bruckner Boulevard, Castle Center and Shops at Gun Hill Road in the Bronx; Shops at Richmond Avenue and Forest Avenue Cinemas on Staten Island; and Columbia Park in North Bergen, New Jersey.

Posted by eric at 12:09 PM

March 29, 2011

Believable? Feds told $249M in immigrant investor (EB-5) funds would create 3705 construction jobs, 350 in retail, 1786 in art/entertainment

Atlantic Yards Report

How can Forest City Ratner and its partner, an investment pool called the New York City Regional Center (NYCRC), claim that 498 Chinese (and Korean) millionaires seeking green cards would create 7696 jobs by investing a half-million dollars each ($249 million total) in the Atlantic Yards project?

It's one of the most preposterous claims in the entire saga of Forest City Ratner's effort to gain a low-interest loan, saving perhaps $191 million, via the federal government's EB-5 program. Under the program, investors and their families gain green cards in exchange for purportedly job-creating investments, ten per investor.

Now there's new evidence undermining the claim, given that the claimed job total--including jobs in construction and entertainment--can't reflect how the money would be used.

A graphic on the web site of Kookmin, a South Korean immigration agency working with the NYCRC, suggests, for example, that the investment would create 3705 construction jobs and 1786.5 jobs in "art, entertainment."

Those numbers defy common sense--the entertainment jobs, for example, would have to be tied to the arena.

But the money isn't needed for the arena.

Read on [that means YOU, U.S. Citizenship & Immigration Services!] for Norman Oder's thorough dismantling of the Atlantic Yards EB-5 house of [green] cards.

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NoLandGrab: We just emailed a link to this story to uscis.immigrantinvestorprogram@dhs.gov urging the Citizenship & Immigration Services to dig into this shady deal. We suggest you do the same.

Posted by eric at 11:16 AM

March 27, 2011

Noticing New York on "fictional job creation" and Atlantic Yards

Atlantic Yards Report

Drawing on some of my reporting, Noticing New York's Michael D. D. White takes off from a story about fictional job creation nationally to dissect claims of job creation with Atlantic Yards:

In the case of Atlantic Yards we have two levels of AWOL government, each level with its own fictional job creation program that is not fulfilling its ostensible purpose: At the state level the ESDC (the “New York State Urban Development Corporation” doing business as the “New York State Urban Development Corporation”) does not monitor or pay attention to how many jobs are created at the megadevelopment and on the federal level (Congress again neglecting the declared core of a program) we have the non-job-creating EB5 program that we will get to in a minute. Perhaps what mightily facilitates the ease with which the EB-5 program is abused is that it is not known by any formal title, like the American Jobs Creation Act, leaving the New York Times to struggle as it refers to Ratner’s 'enrollment’ of “498 Asian investors” in “an obscure federal program that grants [“sells” is a better word] green cards in exchange for a $500,000 investment in a job-producing American project,” thereby stumbling compliantly into having referred to `job-production’ which is, as discussed, actually nonexistent.

More here, including a list of six specific problems.

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Posted by steve at 10:33 PM

March 14, 2011

Time for an update? Markowitz, on video, praised Forest City to potential investors: "I can assure you that their reputation is unbelievably reliable"

Atlantic Yards Report

In December, I first wrote about Brooklyn Borough President Marty Markowitz's hyperbolic praise for Forest City Ratner, assisting the developer's effort to raise low-cost capital from Chinese (and Korean) investors seeking green cards.

Now that Forest City executive Bruce Bender has been caught on government wiretap trying to get government help to fulfill the obligation to rebuild the Carlton Avenue Bridge, and also saying, "I don't mind fucking the bridge," maybe Markowitz's claims of FCR reliability deserve a rethink.

"The largest company in Brooklyn is Forest City development, and I can assure you that their reputation is unbelievably reliable," he declared on the video produced to pitch the project to the investors. "They're a great company to work with; they've worked very closely with government. And the most important thing: they make a promise, they keep it."

Right.

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Posted by eric at 11:48 AM

March 9, 2011

Is the EB-5 money Plan B for infrastructure funding (after bonds plan was scotched)? Maybe, but maybe they're just winging it

Atlantic Yards Report

Is Forest City Ratner aiming to use $249 million from foreign millionaires under the EB-5 immigration program to make up for an infrastructure gap? There are some hints that's so, but also some counter-evidence.

In 2009, the Brooklyn Arena Local Development Corporation (BALDC), set up to issue tax-exempt bonds for Atlantic Yards arena construction, was also considering the issuance of up to $400 million in bonds for Atlantic Yards infrastructure.

That didn't happen. As I wrote 11/30/09, the Empire State Development Corporation (ESDC) stated, somewhat cryptically:

ESDC was at one time considering additional tax exempt bonds for infrastructure financing. Ultimately ESDC decided not to pursue that type of financing.

The gap

The ESDC's 2009 Modified General Project Plan budgeted $717 million for project infrastructure, with $100 million from the state for infrastructure and under $100 million--the amount is debatable--from the city.

The bonds presumably would have filled some of the gap.

Forest City Ratner executive MaryAnne Gilmartin once said the $249 million would be used for a new railyard (infrastructure) and perhaps to pay off a land loan.

I pointed to evidence that the latter--the loan repayment--was a more likely priority. Then another Forest City executive said last month they hadn't decided how to use the EB-5 funding.

So maybe they're just winging it, and when the numbers "pencil out," as Gilmartin likes to say, they will proceed.

link

Posted by eric at 12:44 PM

BP Markowitz Makes Video to Lure Asian Investors to Atlantic Yards

mcbrooklyn

Brooklyn Borough President Marty Markowitz made a video recently to lure Asian investors to the Atlantic Yards Project, telling them that "Brooklyn is 1000 percent behind Atlantic Yards."

There should be no language problem: "Land grab" is a term familiar to millions of Chinese farmers.

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Posted by eric at 12:38 PM

If Cuomo's seeking to expand fight against financial fraud, maybe he should look at Forest City Ratner's EB-5 effort

Atlantic Yards Report

A front-age New York Times article February 16 headlined online Cuomo’s Deep Reach Into Regulatory Territory Could Provoke Clash in Albany and, in print, "Cuomo Seeking to Expand Grip to Fight Fraud," stated:

Buried in the governor’s new budget are provisions that would grant the executive branch sweeping new powers to investigate Wall Street banks, hedge funds and insurance companies, alarming some industry officials and raising the prospect of a major clash with his successor as attorney general, Eric T. Schneiderman, and local prosecutors over high-profile securities and investment cases.

The provisions accompany Mr. Cuomo’s proposed merger of the state’s Insurance and Banking Departments, along with the Consumer Protection Board, into a new Department of Financial Regulation. Mr. Cuomo has argued that those changes are necessary to create a more efficient and modern regulatory framework for businesses and better protection for consumers.

But the budget language would also empower the new agency to issue subpoenas, compel testimony and seek damages and penalties from anyone committing “financial fraud,” a term defined broadly to encompass investments, securities and derivatives marketed and sold by Wall Street investment houses, as well as financial services, life insurance and more.

Wouldn't it be worth looking into the potential "financial fraud" involved in Forest City Ratner's quest for $249 million from immigrant investors under the federal government's EB-5 immigration program?

After all, potential investors are clearly being misled, and the spirit--if not the letter--of the federal program is being violated.

And the Empire State Development Corporation, Cuomo's economic development agency, is helping.

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Posted by eric at 12:15 PM

March 7, 2011

Brooklyn BP Markowitz's Atlantic Yards Falsehood (Video)

The Huffington Post
by Norman Oder

Even New Yorkers who've barely heard of Atlantic Yards, the Brooklyn mega-project with an under-construction arena for the basketball Nets plus 16 planned towers, know that it's been highly controversial since it was announced in December 2003.

(Why? Eminent domain based on dubious "blight," an arena encroaching on a residential neighborhood, significant government help and subsidies, and a process that bypassed local elected officials, just for a start.)

However, in lying blatantly to dismiss such division--"Brooklyn is 1000 percent behind Atlantic Yards"--Brooklyn Borough President Marty Markowitz has taken a quantum leap beyond his usual quota of boosterism.

Markowitz, who's endured jeers over the years for his fervent Atlantic Yards support, didn't make that claim in Brooklyn, or even in front of any American audience. Rather, he made it on a video aimed to recruit Chinese investors to the project, an effort that would save developer Forest City Ratner big bucks, perhaps $191 million.

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Posted by eric at 11:38 AM

March 6, 2011

US cash for visas scheme targets China

Tom Spender

Tom Spender was instrumental in covering a campaign in China that included Gregg Hayden, general manager of the New York City Regional Center, along with Peter Davidson of the ESDC, the tool of developer Bruce Ratner, to help raise capital for Atlantic Yards. The vehicle used was the federal EB-5 program, which supplies green cards to investors on the basis of job creation. Claims of job creation for the Atlantic Yards project are dubious at best, and Spender is suspicious of claims guaranteeing green cards for the investors.

Dodgy dealings between developers and the authorities – sounds just like China! And there is a Chinese angle – under what’s known as an “EB-5” programme, foreigners invest $500,000 into America at almost zero interest rates, theoretically in return for Green Cards, for themselves and their families.

In credit-crunched times, a cheap cash for visas scheme appeals to developers. And it appeals to the Chinese too, who typically want Green Cards so their kids can go to university in the US, which they consider to have a superior education system.

...

I was asked to go along to an EB-5 roadshow in Beijing at which officials from the New York City Regional Center – one of many companies across the US dedicated to encouraging rich foreigners to invest in US projects – presented the Atlantic Yards scheme to rich Chinese.

...

Anyway, the roadshow – which ran for a gruelling 6 months – was due to end last month. According to a Wall Street Journal article, Hayden and his colleagues got the commitments they were looking for. The investors also include a small number of South Koreans.

That means 498 Chinese (and Koreans) have signed up to hand over half a million dollars each, having had assurances from Hayden and others that they are “100% sure” to get their Green Cards. It would be interesting to know what kind of background these investors have and how sanguine they are about the risk involved. From what I can see, China is a high-risk business environment where little can be taken for granted, so people here may be more familiar with risk than many westerners. The rich are spectacularly rich – for them, chucking half a million at the chance of a Green Card may not be a big deal – but some investors may have raised the money from family members and friends. In the past, some EB-5 investors have not only not got the Green Cards but have actually lost their investment. The current crop might do well not to take Hayden’s assurances too literally.

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Posted by steve at 9:54 PM

March 2, 2011

Brooklyn is behind Atlantic Yards project, says Marty Markowitz

The Sports ITeam Blog [NYDaiyNews.com]
by Michael O'Keeffe

That's the story, Marty? That's the story!

Brooklyn Borough President and Atlantic Yards cheerleader Marty Markowitz lets loose his inner "Crazy Eddie" in this video posted this week by Atlantic Yards Report blogger Norman Oder. In the video, shown to Chinese investors interested in putting money into Nets' minority owner Bruce Ratner's massive development, Markowitz excitedly claims that Brooklyn is "1,000 percent" behind the project. I guess all those protests and lawsuits must have been organized by people from Queens.

The video was produced to promote a federal program that grants green cards to foreign investors whose money saves or creates jobs. But Elizabeth Mitchell, a spokeswoman for the Empire State Development Corporation, told the Daily News last year that AY developer and Nets minority owner Bruce Ratner turned to the program because it will save a ton of money on Atlantic Yards financing, not because the project was in danger.

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Posted by eric at 12:29 PM

March 1, 2011

Since no one in America fell for it...

Queens Crap

These videos created to market the Atlantic Yards project to foreign investors - or should I say people who are being bribed with green cards in return for investing in this debacle - are really something else...

Meanwhile, the City apparently lured Caribbean teachers here with promises of green cards and never delivered on it.

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Posted by eric at 10:03 AM

February 28, 2011

Video (finally) of Marty Markowitz's outrageous claim to potential immigrant investors: "Brooklyn is 1000 percent behind Atlantic Yards"

Atlantic Yards Report

OK, I posted the audio 12/8/10 and a link to the video on February 2.

But Brooklyn Borough President Marty Markowitz's performance in a video presented to potential immigrant investors in Atlantic Yards is so spectacular that it deserves its own video excerpt, below.

Markowitz claims, incredibly, "Brooklyn is 1000 percent, 1000 percent behind Atlantic Yards."

He knows that's false. But it could help save Forest City Ratner some $191 million under the dubious exploitation of a federal program in which immigrant investors get green cards for themselves and their families in exchange for purportedly job-creating investments.

The original video, produced by the New York City Regional Center, an investment pool, is made available by a South Korean video-sharing site. It is hard to download, so the excerpt was created the old-fashioned way, by filming the screen.

Markowitz closes by asserting that "there's nothing better than China and Brooklyn together."

There's some irony there, given that the version shown here is subtitled in Korean. Forest City Ratner and the New York City Regional Center have sought 498 investors, 40 from South Korea.

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Posted by eric at 11:32 AM

February 18, 2011

Winning the lottery: The speculator who damned Ratner, got $3 million for his Pacific Street property, and then gushed about the developer

Atlantic Yards Report

Norman Oder tells the tale of a lucky (former) Atlantic Yards footprint property owner.

So, here's a story credulous Daily News columnist Denis Hamill somehow missed: a speculator (like the guys who bought the building housing Freddy's), who slammed Forest City Ratner when it was strategic, then, after he cashed in for $3 million, praised Bruce Ratner to the skies.

Crown Heights resident Menachem Friedfertig bought this empty garage, at 622 Pacific Street, in May 2003, for $382,000, as noted in the document embedded below. That was two months before any mention of Atlantic Yards surfaced in the press, and six months before the plan was announced.

According to the New York Sun, whose 9/2/04 article was headlined "Message to Ratner: ‘I Want My $4M’: Brooklyn Developer Looks To Cash In," Friedfertig planned a new building, with medical offices on the first floor, and five stories of condos, all permitted by current zoning, and got approval from the Department of Buildings.

He clearly felt he had lucked out, telling the Sun, "I have the winning lottery ticket and I want my $4 million."

When I wrote about this 1/20/06, I didn't know what kind of deal Friedfertig made. ACRIS as of 5/2/06 says it was $3 million, an enormous profit.

A better deal than Goldstein

That's a far better deal for Friedfertig than the $3 million Forest City Ratner paid in 2010 to get Daniel Goldstein to leave 636 Pacific Street condo he'd already lost to eminent domain, given the higher initial cost of Goldstein's property, taxes, the now-inflated cost of replacement, and attorney's fees. (The latter two push $2 million.)

Oh, and the fact that Goldstein lived there seven years, enduring demolition and other construction activities.

But Forest City Ratner did not orchestrate a media crusade against Friedfertig, as it's done with Goldstein.

Why not? Because Friedfertig changed his tune, very conveniently.
...

As I reported, Friedfertig, was effusive [at the 9/12/06 community forum (a not-quite public hearing) sponsored by the Empire State Development Corporation]. “It was the most amazing thing,” Friedfertig said. “Mr. Ratner, he was so fair. He was such a mensch.”

Friedfertig, an Orthodox, Hasidic Jew, unveiled a shofar—the ram’s horn used in Jewish ritual—as a gift to Bruce Ratner and proposed that the developer “should blow it on opening day at Ratner arena."

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NoLandGrab: We have another thought as to what Bruce Ratner should blow on the arena's opening day.

Posted by eric at 11:02 AM

Ratner: I thought Nets arena was dead in '08

Field of Schemes
by Neil deMause

Hey, remember this blast from the past?

With the economy in freefall a wee pickle and bank credit nearly impossible to get, people are starting to consider what this will mean for the sports-stadium biz. On the hot seat today: the New Jersey Nets' planned Atlantic Yards arena project in Brooklyn, for which Goldman Sachs had promised that $950 million in financing would be in place by today. Yesterday, asked by the Newark Star-Ledger about the status of the Nets financing, the former investment bank issued a terse "no comment."

It turns out the Star-Ledger and I weren't the only ones wondering about this at the time: Nets part-owner Bruce Ratner tells the Daily News today that there was a time he doubted the arena would ever get built: "Yeah, in October of '08. Like a lot of people, I didn't know if we'd all be on breadlines. Goldman Sachs and Barclays Bank were always our underwriters. Greg Carey at Goldman, always a very optimistic guy, told me in October and November there was no financing available at all."

Of course, as I also wrote back then, "It's things like this [the collapsing real estate market] that are more likely to have a lasting impact on stadium and arena projects: Banks will start lending money again eventually, but the lousy economy is likely to last for years." The banks eventually started lending again, Ratner found a guy who was more interested in owning a basketball team than making money on a real-estate deal, and as of today the arena is taking shape, with about half the main vertical support girders in place. (More or less—I last walked past it on Monday.) Still, it's a reminder of how narrow the margin of victory (or defeat) can be in sports construction deals.

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Posted by eric at 10:54 AM

February 16, 2011

Stern: Ratner Group Lost "Several Hundred Million" Selling Nets

NetsDaily

In defending his and owners' hardline in labor talks, David Stern told Bloomberg News that the Nets old ownership group, headed by Bruce Ratner, took a serious hit when they sold the franchise to Mikhail Prokhorov.

While discussing the NBA negotiations --and the owners' hardline, Woodruff asked, "Is it a contradiction to say that the current model does not work, and yet, franchises are being bought for huge sums by billionaires like Mikhail Prokhorov who just bought the Nets?"

"Stop there," said Stern, interrupting. "He just did [buy the Nets], and the previous ownership lost several hundred million dollars on that transaction".

While Ratner, his partners and parent group, Forest City Enterprises, did lose more than $200 million, Prokhorov assumed 80% of team debt as part of his purchase. He also agreed to eat up to $60 million in losses while the team is still in New Jersey, bringing the price tag for the team and part ownership of Barclays Center to nearly a half billion dollars.

David Stern Interview (Video) - Judy Woodruff - Bloomberg Television

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NoLandGrab: Boo hoo. Ask Jay-Z, it's a business, man. But let's be clear. Bruce Ratner didn't really lose anything, when you factor in the full deal — Atlantic Yards. So who is left holding the bag? Residents in and around Prospect Heights, and New York's taxpayers.

Posted by eric at 9:57 AM

February 15, 2011

Flashback, 2005: “We don’t know when this [Vanderbilt Yard] sale will close," warned one dissenter on MTA board

Atlantic Yards Report

The Brooklyn Paper, in a 9/17/05 article headlined RATNER GETS SITE: With MTA’s blessing, Bruce leaves $10 million deposit on rail yards, reported on the Metropolitan Transportation Authority's acceptance of Forest City Ratner's $100 million cash bid--double the original, though less than the $150 million cash offered by rival bidder Extell--for the Vanderbilt Yard:

The vote followed hours of public testimony at the Sept. 14 hearing in Manhattan, both for and against Ratner’s plan. The only MTA board member to question the deal at the hearing was Mitchell Pally, a Suffolk county appointee.

Pally said he was baffled that the board didn’t insist on getting more money, or arrange a deal whereby Ratner had to pay the full price up front.

...Pally also questioned why the MTA was making its own transaction contingent upon the actions of other state authorities.

“Why is the MTA making closing contingent on these other bodies?” asked Pally. “We don’t know when this sale will close. It could be two years, it could be five years, it could be 10 years,” he said, pointing out that the MTA faces incredible demands in their current capital budget.

Indeed, four years later, Forest City Ratner renegotiated the deal and put down only $20 million for the segment of land needed for the arena block.

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Posted by eric at 12:10 PM

February 14, 2011

Bait-and-switch on EB-5: FCR may use immigrant investor funds for housing, not arena, but says "we don't know" where money would go (Is this legit?)

Atlantic Yards Report

Forest City Ratner is playing "who's on first?" when it comes to the funds it's trying to raise via the hawking of green cards.

The saga of Forest City Ratner's attempt to raise $249 million from green card-seeking Chinese (and Korean) millionaires under the EB-5 program has reached a new level of absurdity, in which the developer and its allies have offered three separate explanations of how the money might be spent on Atlantic Yards.

This casts further doubt on the logic that each $500,000 investment would create ten jobs, as required under the federal immigration program.

And it suggests a bait-and-switch presented to the potential investors and possibly to the federal government.

Where would it go?

The destination for the funding keeps changing.

Remember, potential investors in the "Brooklyn Arena and Infrastructure Project" were promised glitz: they were told they were investing in an arena, infrastructure, and a railyard, even though the New York City Regional Center admitted to Reuters that the pitch was misleading.

FCR executive MaryAnne Gilmartin told the Wall Street Journal that the money would be used for the railyard, and maybe to pay off a land loan. I pointed to evidence that suggests the $153 million land loan would take precedence.

For housing?

At the Atlantic Yards District Service Cabinet meeting last Thursday, another explanation surfaced.

City Council Member Letitia James asked if the proceeds from the EB-5 program would be used for the financing of Building 2, the first planned (but stalled) tower, or for something else.

"We don’t know where those proceeds are going to go," Forest City executive Bruce Bender responded. "It’s a big project.”

article

Posted by eric at 10:35 AM

February 12, 2011

Ratner Hopes To Break Ground on First Tower, But Doesn't Have the Cash

Prospect Heights Patch
By Stephen Brown

The architects of the Barclays Center will also design the first residential tower of the Atlantic Yards project, though officials with the developer, Forest City Ratner, conceded the company still lacks the funding to start building.

A Ratner executive revealed that the company does not have the money in hand to start building the tower on Thursday during an unpublicized meeting called by the Empire State Development Corporation, the state agency overseeing the project. The news was first reported by The New York Post.

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Posted by steve at 5:26 PM

February 3, 2011

FCR's Gilmartin slightly queasy about selling green cards, but not about misrepresentations made to potential investors

Atlantic Yards Report

The New York Observer catches up on news that Forest City Ratner has been trying to raise $249 million by "letting foreigners basically buy green cards":

The new-old program came to light this fall, when it turned out that Atlantic Yards' developer Forest City Ratner was using the program to help finance its Atlantic Yards project. But even Forest City VP MaryAnne Gilmarten [sic] seems a little queasy about the program.

"As citizen Gilmarten, I'm not sure how I feel about it," Ms. Gilmarten said at a New York Commerical [sic] Real Estate Women event attended by The Observer a couple of months back. But she continued that with conventional financing channels frozen, the project might otherwise never get built. "This is not your cleaning lady's green card program," she said.

It's curious that Gilmartin--whose name the Observer couldn't get right--feels queasy about the fundamental nature of the program, which, however questionable, at least was a response to similar programs in countries like Canada and Australia.

Misrepresentations and omissions

After all, she apparently doesn't feel queasy about the misrepresentations and lies used to pitch the project to unwary potential investors.

link

Related coverage...

Develop Don't Destroy Brooklyn, Ratner Exec Says What? "This is not your cleaning lady's green card program."

You gotta hand it to those Ratner folks, they are all about integrity!

Posted by eric at 11:15 AM

February 2, 2011

'Not Your Cleaning Lady's Green Card Program:' $500K Visas Finance U.S. Construction

NY Observer
by Laura Kusisto

Desparate times in the construction industry call for desperate measures. Like letting foreigners basically buy green cards, for example.
...

The new-old program came to light this fall, when it turned out that Atlantic Yards developer Forest City Ratner was using the program to help finance its Brooklyn project. But even Forest City VP MaryAnne Gilmarten Gilmartin seems a little queasy about the program.

"As citizen Gilmarten Gilmartin, I'm not sure how I feel about it," Ms. Gilmarten Gilmartin said at a New York Commerical Real Estate Women event attended by The Observer a couple of months back. But she continued that with conventional financing channels frozen, the project might otherwise never get built. "This is not your cleaning lady's green card program," she said.

link

NoLandGrab: Not your what? We don't even know where to begin with how wrong this whole quote is, but the bottom line appears to be this: all's fair when it comes to Bruce Ratner's profit.

And believe it or not, some of us don't even have cleaning ladies.

Posted by eric at 8:58 PM

FCR, according to Wall Street Journal, has gotten $249M commitment in EB-5 funds; video of project pitch shows more lies, Markowitz mugging for camera

Atlantic Yards Report

Some four months after planting news in the Wall Street Journal regarding efforts raise $249 million from immigrant investors seeking green cards, developer Forest City today tells the Journal--well, it's sourced to "people familiar with the effort," who won't go on record--that 498 investors have committed the $249 million sought.

The news is slipped in an overview of the recent popularity of EB-5, headlined Help Fund a Project, and Get a Green Card: Once-Obscure U.S. Program Provides Alternative Financing for Developers, but New Flood of Interest Raises Concerns.

FCR's success is not surprising, given the popularity of basketball in China, the number of Chinese millionaires seeking green cards and the tendency in China, apparently, of doing little due diligence on such EB-5 immigration programs.

Failure of oversight

What is surprising is the failure of the Wall Street Journal, and the U.S. Citizenship and Immigraiton Services, the federal agency that oversees EB-5, to look closely.

After all, Reuters in December nailed the New York City Regional Center (NYCRC), the private investment fund pitching the project, on several misrepresentations:

  • that investors need not worry about getting green cards
  • that investors would be financing a new arena in Brooklyn for the National Basketball Association's Nets
  • that the government of New York State is involved in the project being presented

And while the NYCRC blamed its foreign agents, I pointed out that such lies, and other misrepresentations, were at the heart of the pitch presented in an NYCRC video and by NYCRC staffers.

Click thru for much, much more.

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Posted by eric at 11:18 AM

Help Fund a Project, and Get a Green Card

Once-Obscure U.S. Program Provides Alternative Financing for Developers, but New Flood of Interest Raises Concerns

The Wall Street Journal
by Eliot Brown

With bank financing for new construction in short supply, real-estate developers are turning to a federal program that grants green cards to foreign nationals who invest at least $500,000 in a project.

The new attention has turned a once-obscure alternative source of funds into a viable route toward development. Use of the 20-year-old program nearly doubled last year, to 1,995 investor applicants in the fiscal year ended last September from 1,031 in the prior year.

In 2006, when the economy was still roaring, there were just 486 applicants, according to the U.S. Citizenship and Immigration Services. The program is named EB-5 because it represents a fifth category of employment-based immigration.
...

But amid the downturn, real-estate developers in particular have flocked to it. Perhaps the highest profile user is New York's Forest City Ratner, which is tapping the program for its Nets basketball arena under construction in Brooklyn, part of a larger residential project.

The developers, who have said they are looking to help refinance a loan and build out infrastructure, in recent weeks received final commitments for $249 million from 498 investors, according to people familiar with the effort. Such a sum, which comes at a lower cost than traditional financing, would have been difficult to receive from a bank or other standard lender.

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NoLandGrab: If Bruce Ratner has indeed secured commitments, he has pulled off yet another in a series of successful Atlantic Yards-related scams.

Posted by eric at 11:09 AM

More details on the curious valuation of future AY development sites for potential immigrant investors

Atlantic Yards Report

Thanks to the website of a South Korean migration consulting firm working with the New York City Regional Center, we now have a few more details on the surprising valuation of the collateral offered to immigrant investors for the Brooklyn Arena and Infrastructure Project.

As I wrote in December, the $542.4 million valuation for the seven development sites, which averages about $179 per buildable square foot, seems overvalued, at least when compared to what Forest City Ratner paid the Metropolitan Transportation Authority for similar (and partly overlapping) development rights over the Vanderbilt Yard.

It may be that Forest City Ratner got a good deal, and that the estimates presented to the potential immigrant investors, given the cost of actually turning that value into cash, were overblown. I queried the real estate firm Massey Knakal, which produced the official estimate of value, but got no response.

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Related coverage...

Atlantic Yards Report, How Bloomberg went to bat for Ratner's effort to gain $249 million in immigrant investor funding

Thanks to the website of an immigration broker in South Korea, we now have some of the documents used to promote the legitimacy of the effort to raise $249 million in EB-5 funds, mainly from Chinese investors, but partly from Korean ones, for Forest City Ratner's Atlantic Yards project.

Most of the documents are boilerplate recitations of money committed, though presumably presented as impressive signs of government and corporate commitment to so-called Brooklyn Arena and Infrastructure Project, a curious subset of Atlantic Yards as presented via the EB-5 program for immigrant investors.

Notably, however, one letter, from Mayor Mike Bloomberg, shows how much the city has gone to bat for such a questionable effort.
...

Bloomberg calls the $249 million sought "vital to the initial stages" of Atlantic Yards. However, as state officials admit, the project would go forward with or without the new funding.

Atlantic Yards Report, In South Korea, unlike China, NYCRC promises a dollop of interest to sweeten the Brooklyn Arena and Infrastructure Project

Maybe potential immigrant investors from China really are seen to be dumber, or more desperate.

Remember, the New York City Regional Center (NYCRC) promises them zero interest on the $500,000 they would park in the Brooklyn Arena and Infrastructure Project, which is supposed to get them and their families green cards.
...

In South Korea, however, the web site of the Kookmin migration consulting firm shows that investors would earn an annual .25% dividend rate, less than the 1% and 2.5% on two other projects represented by the firm, but at least something.

That would cut slightly into Forest City Ratner's savings on the $249 million loan, which I've estimated at $191 million.

While the NYCRC's efforts have been concentrated in China--a promotional video has Borough President Marty Markowitz claiming "there's nothing better than China and Brooklyn together"--the chart indicates that the firm is seeking 40 of 498 investors from Korea.

Posted by eric at 10:54 AM

January 31, 2011

Gramercy Recognition Agreement emerges, with hint that immigrant investor funds would mainly be used to pay off FCR's land loan

Atlantic Yards Report

There are two Atlantic Yards Recognition Agreements after all, both of which allow those loaning money to developer Forest City Ratner to gain development rights for part of the Atlantic Yards site, and also allow the minimum square footage of Phase 1 to be delayed.

And the earlier Recognition Agreement, which is the second to be released, offers hints that the money sought from immigrant investors, subject of the later Recognition Agreement, would be used mainly to pay off Forest City Ratner's land loan, not to build a new railyard, as the developer has said.

Background

As I wrote 12/16/10, the Recognition Agreement that the Empire State Development Corporation (ESDC) signed last October allowed potential immigrant investors development rights to part of the future Atlantic Yards site. And a previous Recognition Agreement did something very similar.

That latter agreement, embedded below and dated December 2009, allows at least 2.25 years of additional time, to February 2012, to reset the clock should FCR default on its obligation to Gramercy Warehouse Funding, which "holds a leasehold mortgage on certain Project parcels."

That would mean at least a 14-year deadline for Phase 1, rather than 12 years. The second Recognition Agreement offers a seven-year extension, meaning a 19-year deadline.

The loan at issue

The Gramercy mortgage, the balance of which was $153.9 million when the Recognition Agreement was signed in December 2009, expires in February 2012.

FCR seeks $249 million from immigrant investors via the New York City Regional Center under the EB-5 program--green cards for purportedly job-creating investments.

FCR executive MaryAnne Gilmartin told the Wall Street Journal that the money would be used for a railyard, but could be used, in part to pay off that land loan.

Given that some 60 percent of the $249 million could be used for the loan, my bet is that's the priority. After all, the railyard doesn't have to be completed until 2016.

That suggests that the developer how has a 13-month window of opportunity to get a no-interest (or low-interest) loan from the immigrant investors to repay Gramercy.

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Posted by eric at 9:55 AM

January 25, 2011

Still waiting for some answers from the USCIS on EB-5 and the Brooklyn arena project

Atlantic Yards Report

So, the federal government's EB-5 immigration program, in which investors in purportedly job-creating projects can get green cards for themselves and their families, has been the subject of a broad investigation by Reuters and an Atlantic Yards-focused investigation by this blog, both concluding last month.

Three weeks ago, I posed the following query to the United States Citizenship and Immigration Services (USCIS), the federal agency overseeing the program:

I recognize that you may be unable to comment on specific procedures or projects, so not all my questions may be answered, but they include:
--what has been the reaction, from external and internal stakeholders, to the Reuters article?
--has the Reuters article prompted any changes, or consideration of any changes?
--can/should/will USCIS crack down on apparent abuses in the marketing of EB-5 projects?
--is USCIS satisfied with the guidance/rules on crediting immigrant investors with job creation based on money already committed by other sources, especially for a project that would move forward with or without the immigrant investor funds?
--does USCIS have any new concerns about the Brooklyn Arena and Infrastructure project, marketed by the NYC Regional Center?

I'm still waiting for a response.

And yes, the second-to-last question points to the Brooklyn Arena and Infrastructure Project, given that Atlantic Yards would move ahead with or without immigrant investor funds, according to the state.

link

Posted by eric at 10:32 AM

China high court cracks down on illegal fundraising, said to be warning to EB-5 marketers

Atlantic Yards Report

It's not exactly clear how it applies to marketing of EB-5 investment projects like the one involving Atlantic Yards, but a new legal interpretation (translation, shorter version) by the Supreme People's Court of China should be considered a warning for EB-5 marketers, according to consultant Brian Su:

The detailed legal interpretation specifically target various illegal fundraising and PE [private equity] activities conducted by various unlicensed and unregistered agents without proper licence, including brokers and entities from foreign countries. It also addresses the issues of misinformation, mis-representation, and misuse of public media to illegally attract investors in China. The interpretation will have great implications and impacts on EB-5 regional center that are seeking Chinese investments through marketing activities in China.

Some of the provisions in the interpretation involve blatant fraud, such as promising a refund. It's unclear to me whether and how it extends to projects, for example, where investors are told they're investing in an arena that's already funded.

link

Posted by eric at 10:27 AM

January 19, 2011

Great moments in euphemistic coverage: the Wall Street Journal reports on Steiner Studios expansion, ignores EB-5

Atlantic Yards Report

From the Wall Street Journal yesterday, regarding the expansion of Steiner Studios at the Brooklyn Navy Yard, Take Two for a Brooklyn Film and TV Studio:

Doug Steiner, chairman of Steiner Studios, says about $65 million will come from private investors, $10 million to $20 million will come from Steiner and the rest will come from government programs.

Those private investors are immigrant investors trading $500,000 for green cards for themselves and their family under the federal government's EB-5 program, as the New York City Regional Center (NYCRC) reminds us.

The NYRCR is promoting another, more controversial effort to trade green cards for investments, involving Atlantic Yards.

link

Posted by eric at 11:12 PM

January 12, 2011

Atlantic Yards cited in Competitive Enterprise Institute report as example of bad public-private partnerships

Atlantic Yards Report

On the heels of state Comptroller Thomas DiNapoli's cautions on public-private partnerships comes The Limitations of Public-Private Partnerships: Recent Lessons from the Surface Transportation and Real Estate Sectors, by Marc Scribner of the libertarian Competitive Enterprise Institute.

Notably, Scribner suggests that the two categories are very different beasts, and that real estate projects should be avoided. Atlantic Yards is one of five examples in that sector.

His summary:

One has long been dominated by government monopolies and the other has been largely free of political forces. In the case of surface transportation infrastructure, innovative new private-sector financing, management, and ownership regimes have much to offer in terms of minimizing taxpayer exposure to risk, capturing user revenues, and creating an efficient transport network. In contrast, government’s recently expanded role in real estate development has increased taxpayer exposure to risk, socialized costs, and concentrated the benefits into the hands of select private developers and special interests.

He recommends that partnerships in the real estate sector be avoided, "[o]utside of limited instances such as the Department of Defense’s Base Realignment and Closure (BRAC) program."

The examples, including AY

The 30-page report cites five examples of dubious real estate deals, including:

  • downtown Minneapolis’ Block E
  • downtown Pittsburgh's Fifth and Forbes corridor
  • New Jersey's Xanadu (recently renamed The Meadowlands) megamall
  • Navy Yard development, including a new stadium, in Southeast Washington, DC

The fifth is Atlantic Yards, which "required extensive use of eminent domain—both the threat of condemnation and condemnation itself," relied on "hired-gun" Smith College economist Andrew Zimbalist, and involved “community activists” Al Sharpton and Bertha Lewis.

Whether the taxpayers will be "on the hook for at least $1.6 billion" is hard to ascertain, but the developer will be saving a bunch. (And that's before Chinese money for green cards, even.)

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Posted by eric at 10:19 AM

January 11, 2011

Comptroller DiNapoli issues report on public-private partnerships: needed are full and fair value, realistic agreements

Atlantic Yards Report

State Comptroller Thomas DiNapoli has released a new report, Controlling Risk Without Gimmicks: New York’s Infrastructure Crisis and Public-Private Partnerships [PDF], an effort to evaluate both the opportunities and risks with turning infrastructure over to partnership with the private sector.

The report notes that the state faces an estimated $250 billion in infrastructure needs over the next 20 years, notably transportation ($175 billion), municipal wastewater ($36 billion) and clean water ($39 billion). (Here's coverage from City Hall News.)

The Atlantic Yards example is not mentioned, but is at least partly on point: the main issue was the marketing of public land without a fair process, and secondary issues involved the packaging and valuation of public infrastructure such as a new railyard and transit entrance.

Essential principles

So DiNapoli's conclusions are worth noting:

There are four essential principles that New York must adopt in order to mitigate the financial risks inherent in public-private partnerships:

Full and Fair Value: Identify and use the best practices for the valuation of public assets to ensure that the public receives the full, fair value for the use of its property.

Reasonable Pricing: Keep private sector profits within reason to ensure that P3 agreements do not burden the public with unwarranted expenses, excessive fees, or high toll increases.

Realistic Agreements: Carefully draft P3 agreements to ensure that they do not include unrealistic expectations or inaccurate financial calculations.

Responsible Budgeting: Avoid budget gimmickry by adopting financing rules that prevent a disproportionate shift of current capital costs onto future taxpayers. This must be based on a comprehensive reform of the State’s debt and capital financing practices.

What about AY?

Given the history of Atlantic Yards, I'd argue that public assets were not fairly valued, nor have costs and benefits been accurately assessed.

Meanwhile, developer Forest City Ratner's efforts to renegotiate the Vanderbilt Yard deal with the MTA suggests that private sector profits--bolstered by a mayor and governor firmly on board with the Atlantic Yards project-- held sway over public value.

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Posted by eric at 11:23 AM

January 9, 2011

As China begins to crack down on EB-5 marketing, the Brooklyn arena roadshow continues; will it violate emerging standards?

Atlantic Yards Report

The recent Reuters investigation of the EB-5 program turned up several examples of immigration brokers in the Far East misleading those seeking green cards via investment immigration--though, as I've argued, the article gave a pass to the New York City Regional Center's framing and presentation of the Brooklyn Arena and Infrastructure Project.

Now several authorities in China are cracking down on abuses, as detailed in several examples within the last month from the EB-5 News Blog run by Brian Su, president of the EB-5 China Market Council and an EB-5 consultant in Illinois.

Report from China: Beijing Police Crack Down on Unlicensed EB-5 Immigration Intermediary Operations:

Beijing has 77 legitimate and licensed immigration agencies, however due to US EB-5 program and other foreign immigration business boom in last two years, many unlicensed immigration intermediary firms are operating without required licenses.

Report from China: City of Chongqing Cleans up Local Exit-Entry Market:

Municipal Public Security Bureau Assistant Commissioner Yang Jian pointed out that this cleaning up motion's goal is to set the standards for foreign immigration intermediary business.

Report from China: Shanghai Exit-Entry Services Association Issues Warning to Members:

On December 27, 2010, Shanghai Exit-Entry Services Association issued a warning notice to all association members that the association will prohibit members to participate in any un-authorized exit-entry industry competition or award events organized by un-authorized entities and organizations. The association has received numerous complaints that a newspaper publisher was hosting a so called "The Most Trustworthy Exit-Entry Service Agency 2011 Award" event.

Report from China: Guangzhou Exit-Entry Administration Sets New Rules for EB-5 Brokers:

In a recent conference with Guangzhou area immigration service providers, Guangzhou Exit-Entry Administration also set new requests to the Guangzhou immigration industry. 1) Set new mechanism for monitoring promotional activities and restrict excessive exaggerations; 2) Publicize risks on overseas investment projects; 3) Each exit-entry service agency must file annual compliance review documentation by the end of December every year; and 4) When handling U.S. EB-5 immigrant investors program, exit-entry service agencies must inform consumers and fully disclose risk factors associated with the program.

Report from China: Role Change of the Beijing Municipal Public Security Bureau Exit-Entry Administration:

As many EB-5 regional centers enter China market, the Beijing government is definitely nervous and closely watching.

And what about the NYCRC?

The basketball push continues. Report from China: New York City Regional Center Continues NETS EB-5 Project Promotion:

A promotional event for New York City Regional Center is to be hosted by a local migration agency in Guangzhou on January 15, 2011. The seminar will be held at 2:00 pm at Westin Hotel, 6 Lin He Zhong Road, Guangzhou. Mr. Gregg Hayden will be attending and entertaining questions. Two NYCRC seminars will take place in Beijing on January 8-9, 2011.

Will the local migration agency "restrict excessive exaggerations" and "fully disclose risk factors"?

Hayden has said the "EB-5 funding, the $249 million we are seeking to raise in the China market, is only 17%, the safest, most secure portion of the capital structure, 17%... portion of the capital structure is the EB-5 portion."

How exactly is that explained and disclosed?

link

Posted by steve at 4:27 PM

December 31, 2010

Arena pitch in China: ESDC's Davidson shares a laugh with FCR executives; long-departed Net Vince Carter portrayed as part of the attraction

Atlantic Yards Report

You didn't think a 16-part series was all Norman Oder had to say about Forest City Ratner's green card-selling adventure in China, did you?

Who are these happy Americans? They're Forest City Ratner executives, in China in October, along with a few others, trying to sell would-be immigrant investors on the questionable Brooklyn Arena and Infrastructure Project, a project of FCR and the New York City Regional Center (NYCRC).

(Photo from web page of Wailian immigration consultancy, which is still promoting events in January. Click on graphics to enlarge.)

From right: FCR's David Berliner, Christopher Clayton [I believe], and MaryAnne Gilmartin; the Empire State Development Corporation's Peter Davidson; the NYCRC's Paul Levinsohn; and Miller Mayer attorney Nicolai Hinrichsen.

link

Posted by eric at 10:10 AM

December 27, 2010

Reuters Nails Promoters of Green Cards for Investments as Liars, Gets Dubious Excuses on Brooklyn Arena

The Huffington Post
by Norman Oder

Norman Oder repackages some recent Atlantic Yards Report coverage of Bruce Ratner's green cards-for-dollars scheme, including a key player's dubious "hey, we're the victims here" claim about sales pitches packed with lies.

A couple of astonishing things happened last week in coverage of the EB-5 immigration visa program--green cards for investments--the dubious use of which I've investigated for months regarding Atlantic Yards, the controversial arena-plus-towers megaproject in Brooklyn.

Reuters, in "Special report: Overselling the American dream overseas," pointed to numerous problems in this essentially unregulated program, in which businesses and developers seeking cheap capital compete to recruit immigrant investors, who must park $500,000 in a purportedly job-creating investment in exchange for green cards for themselves and their families.

Many would-be immigrants don't get their green cards. Many don't get their money back. And many are misled by immigration brokers pimping the investment projects. And some of the regional centers--the federally-authorized investment pools that market the projects--are quite shady.

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Posted by eric at 3:48 PM

Exclusive: New audio of arena project presentation shows NYCRC principals making same deceptive claims they admit their Asian affiliates should avoid

Atlantic Yards Report

On this citywide snow day, can you guess which blog is still open for business? Yup.

It's stunning how George Olsen, managing principal of the New York City Regional Center (NYCRC), could profess to be shocked, shocked that the firm's affiliates in Asia are deceptively marketing green cards in exchange for investments in Atlantic Yards.

As Reuters reported last week:

At a recent seminar in Seoul, an agent for the Kookmin Migration Consulting Co., working on behalf of the New York City Regional Center, told would-be investors if they invested in the company's latest project their permanent green cards were "guaranteed." He also implied the investors would be financing the construction of the new home for the New Jersey Nets NBA basketball team.

In a subsequent interview with Reuters, George Olsen, managing principal of the New York City Regional Center acknowledged the claims were "not accurate" - the investors will finance the rebuilding of a rail yard and some related infrastructure near the new basketball court -- and promised he would jump on Kookmin "with two feet."

"But that's what's frustrating," Olsen said. "You can't be at every seminar, you can't be at every meeting, you can't be in the room when one of these people is talking. To raise $100 million, you have to get 200 investors. That's a lot of people. So there's a certain amount of mass marketing that has to go on.

Nah. As I pointed out December 23, those same claims were made by Olsen's own point man in China, Gregg D. Hayden.

And those same claims were made in the official project video as presented to investors in China, the audio of which I reproduce below, with annotations.

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NoLandGrab: Why is it that no one involved officially in promoting the Atlantic Yards project ever tells the truth about it?

Posted by eric at 9:45 AM

December 23, 2010

In Reuters investigation of EB-5 program, NYC Regional Center principal admits lies in arena project pitch, but blames affiliates. That's not so.

Atlantic Yards Report

Norman Oder's EB-5 series appears to have caught the eye of the folks at Reuters.

A major investigation of the EB-5 immigration visa program by Reuters, Special report: Overselling the American dream overseas, turns up numerous reasons for skepticism and an admission by a principal of the New York City Regional Center (NYCRC) that potential investors have been lied to about the Brooklyn Arena and Infrastructure project.

Astonishingly, however, the NYCRC's George Olsen gets away with blaming immigration brokers in foreign lands--in this case, Korea, not China--rather than acknowledging, or being forced to acknowledge, that the same statements have been made, in documents and on video, by the NYCRC itself.

In South Korea

Reuters reports:

At a recent seminar in Seoul, an agent for the Kookmin Migration Consulting Co., working on behalf of the New York City Regional Center, told would-be investors if they invested in the company's latest project their permanent green cards were "guaranteed." He also implied the investors would be financing the construction of the new home for the New Jersey Nets NBA basketball team.

In a subsequent interview with Reuters, George Olsen, managing principal of the New York City Regional Center acknowledged the claims were "not accurate" - the investors will finance the rebuilding of a rail yard and some related infrastructure near the new basketball court -- and promised he would jump on Kookmin "with two feet."

"But that's what's frustrating," Olsen said. "You can't be at every seminar, you can't be at every meeting, you can't be in the room when one of these people is talking. To raise $100 million, you have to get 200 investors. That's a lot of people. So there's a certain amount of mass marketing that has to go on. And once you get into that realm, it's hard to control."

Oh, come now. The same statements have been made by the NYCRC's Gregg D. Hayden in China, as I've documented. Here's my FAQ, and here's a report, with video.

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NoLandGrab: Oh, please. Yes, we got caught, but it's "these people" [read: untrustworthy yellow people] who are the problem. Except it's your own right-hand man doing the lying — ON TAPE! HELLO?!

Posted by eric at 11:00 PM

December 21, 2010

Ratner's Green-Card Fundraising Scheme: Is This a Scandal, or What?

Runnin' Scared
by Neil deMause

​The ever-epic Norman Oder of Atlantic Yards Report today closes out his epic series on Bruce Ratner's bizarre green-cards-for-financing scheme with a (wait for it) epic FAQ on exactly how the New Jersey Nets Brooklyn New Yorkers co-owner plans to take advantage of an obscure federal job-promotion program to save himself a jabillion dollars.

It's a great read if you're an economic development policy wonk; not so much if you're looking for something you can read on your phone during your morning commute and then convert into a Facebook status update. So, without further ado, here's the considerably-less-epic "The Great Ratner Green Card Fiasco: Who, If Anyone, Is Getting Screwed and How?"

Click through for deMause's three-bullet-point summary.

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Related coverage...

Field of Schemes, Ratner's green card funding scheme explained (in brief, and in briefer)

If you were wondering what was up with that plan to trade green cards for Atlantic Yards arena development loans, Atlantic Yards Report just finished a 16-part series (no, seriously) on all the ins and outs of the proposed deal. And if you can't be bothered to read a 16-part series, AYR today sums it all up in a 2,400-word FAQ.

And if you can't even be bothered with a FAQ, there's my still-shorter "We read Atlantic Yards Report so you don't have to" summary for the Village Voice news blog.

NoLandGrab: Wait, we thought we were the "we read Atlantic Yards Report so you don't have to" guys.

Posted by eric at 12:14 PM

December 20, 2010

Anatomy of a Shady Deal: an FAQ and restrospective on the effort to recruit EB-5 investors in China for the Brooklyn Arena and Infrastructure Project

Atlantic Yards Report

After two weeks, this series (list of stories at bottom) deserves a retrospective and FAQ.

This is a complicated story. Can't you summarize it briefly?

Private interests win, the public interest loses. Not unlike much of the Atlantic Yards saga.

That's too brief.

Taking advantage of a federal immigration program known as EB-5 that's supposed to trade green cards for job-creating investments, developer Forest City Ratner (FCR) would get a no-interest (or low-interest) $249 million loan and save perhaps $191 million; the New York City Regional Center (NYCRC), a federally-authorized investment pool, would earn big bucks; and 498 Chinese millionaires would gain green cards for themselves and their families by parking $500,000 each for at least five years.

But no new jobs beyond those long forecast would be created thanks to that loan the immigrant investors would give to FCR via the NYCRC. Moreover, those investors are being told their money would go to the Atlantic Yards arena, which is already funded. And the process could delay Phase 1 of Atlantic Yards by another seven years, meaning it could take 19 years for the minimum square footage on the arena block to be built.

Is this legit? Doesn't anybody examine it?

Good question. We'll get to that below.

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What's the "Brooklyn Arena and Infrastructure Project"?

That's what they're calling it in China. It's a curious, $1.448 billion subset of the $4.9 billion Atlantic Yards project, said to involve the Atlantic Yards arena, associated infrastructure, and a new railyard. No official body has ever approved or segmented Atlantic Yards in that way.

How can investors be investing in the arena--isn't it already funded? Does it need new money to go forward?

It is funded, state officials acknowledge, so new money isn't needed. (It is, however, wanted by the developer.)

According to available evidence, including statements from Atlantic Yards point woman MaryAnne Gilmartin, it looks like Forest City would substitute new, low-cost capital for at least part of an existing $161.9 million land loan at a much higher cost. (And, in 2012, use some money for the railyard, which should cost $147 million.)

Then why are they pushing the arena and the team in China?

Basketball is the most popular sport in China, silly. So a new arena is glamorous. Hoopsters are gods.

Don't developers try to refinance whenever they can?

Sure, but in this case, the only way they can get a cheap loan from green card-seeking investors is if the loan serves to create jobs. Should they really get credit for job creation simply by refinancing?

Well, how does job creation work?

Under the EB-5 program, you don't need to count employees to calculate job creation based on investments made through regional centers. Rather, a report by an economist--which applies a multiplier to the total amount of money spent--is used to calculate the jobs.

That's plausible, right?

Yes, if not uncontroversial. The problem is the total amount of money--in this case, $1.448 billion--is used as the base for the multiplier, not simply the $249 million in new money from immigrant investors. They're claiming 7696 jobs, far more than the 4980 required--ten per investor--and far more than we'll see on the Atlantic Yards site.

Should immigrant investors get credit for job creation based on the entire $1.448 billion, which is money already committed and already spent by private investors and government entities?

That's the big, unanswered question. It's plausible that EB-5 investors might get credit for job creation based on the whole pot of money--as long as their investment served as seed money or "last mile" funding, thus crucial to a project having enough to actually moving forward.

In this case, the project would go forward with or without EB-5 funding.

Are there any rules on this?

Well, there are, but they're very, very murky. I asked the federal agency that oversees this program, the United States Citizenship and Immigration Services (USCIS), if they could clarify the rules regarding whether and how immigrant investor capital gets credit for jobs created by the total amount of capital.

I was pointed to a vague portion of the Code of Federal Regulations.

Is that a loophole?

It looks that way to me. Proponents obviously believe what they're doing is legit, based on past practices. However, if this passes muster, what's to stop any developer from refinancing with immigrant investor capital and claiming job creation based on both the new capital and previously committed capital?

But the spirit of the law regards the creation of a new commercial enterprise. This episode just might prompt the USCIS into clarifying its rules. Though regional centers have until recently faced little oversight, the USCIS recognizes there may be a need for more scrutiny.

In an October 14, 2010 quarterly presentation to stakeholders, the agency stated: "Many USCIS External Stakeholders have expressed concerns regarding the potential for fraud and misrepresentation within the EB-5 program."

(According to that presentation, members of the public may report instances of fraud or misrepresentation to the EB-5 mailbox at Uscis.immigrantinvestorprogram@dhs.gov.)

NYCRC reps are telling potential investors immigration risk is eliminated--true?

Nope. That's not what the USCIS says.

Step back--why does a program like this exist in the first place? Isn't the U.S. just selling green cards?

So it seems, at least to some, but there's a logic to it. Twenty years ago, when the program emerged, countries like Canada and Australia were offering similar programs. The U.S. has to compete.

The regional center program, which allows investments into investment pools rather than directly into businesses, has gotten enormously popular lately, as domestic capital has become scarce. Of 10,000 EB-5 visas a year, 3000 are reserved for regional center-based investments, according to the trade group IIUSA.

Didn't the economics editor at Yahoo say it was a good idea to market green cards to investors?

He did. And, on a superficial level, there's a logic to it. But as we see, the program is run so loosely, at least for now, that dubious projects can move forward. Canada, by contrast, puts the money into public works.

Is this a lock for investors?

No. Their green cards are not a certainty, despite what the NYCRC is assuring them.

What about getting their money back?

That's also a question mark. There's no publicly stated plan for cash flow dedicated to repaying this loan.

Is this really senior-most debt, only 17% of the project?

Only if you think that immigrant investors get priority for repayment ahead of bond investors. The latter bought debt that was publicly rated, and for which specific arena cash flows have been identified for repayment.

What if Forest City Ratner defaults?

Then the immigrant investors would gain development rights to seven towers, appraised at $542 million.

Would they really double their money?

No way. The rights would have to be marketed to a buyer. And it takes subsidies and other investments to turn the development rights into an ongoing project. The fungible value of the collateral is pretty fuzzy--the appraisal isn't public--but it's likely much lower than the appraisal figure.

Has Congress done much oversight of this program?

Not really. A Senate hearing last year was a lovefest, with both Republicans and Democrats citing home state programs they like. The focus has been on streamlining the program to make it work better, not to look into possible abuses.

According to David North of the Center for Immigration Studies, one of the few people to look critically at EB-5, the USCIS does not keep statistics on such basic information as how many EB-5 investments are still in place after four years.

Is there any self-policing?

Not too much, it seems. The trade group Association to Invest in the USA (IIUSA) offers a list of Best Ethics Practices, including avoidance of "dishonesty, fraud, or deceit." There's evidence, at least, of dishonesty by the NYCRC and those supporting this effort.

Will Forest City Ratner really save $191 million? Are they getting a no-interest loan? Don't they have to pay something?

Well, it's clearly a no-interest loan in that the investors won't get any interest. It's not clear whether the NYCRC is charging FCR interest, or a fee, or nothing.

Still, my $191 million estimate was based on a conservative interest rate of 8.3%, so even a moderate interest rate charged by the NYCRC--in comparison with a more likely interest rate (such as 12%) FCR would have to pay for a non-recourse loan--might still provide savings of about $200 million.

What about that seven-year delay?

It's part of a Recognition Agreement that the Empire State Development Corporation (ESDC) signed with the NYCRC and FCR. The developer's supposed to pay back the loan in five years. They have two more years to "cure" the default.

If not, there's a complex process to market the collateral to another buyer. And that would re-set the clock on Phase 1, meaning that only after the loan is bought would the 12-year deadline kick in. That would add up to 19 years.

Isn't Phase 1 supposed to take four years and the entire project ten years?

Uh-huh. But no one believes that's going to happen. The question is whether delays in Phase 1 will make it into the legal arguments regarding the timetable in a pending case in New York Supreme Court.

So far they haven't, since the judge focused on the discrepancy between the official ten-year timetable and the 25 years allowed by the Development Agreement. But the Phase 1 gap is also significant.

That's not the first Recognition Agreement?

Right. Just last week we learned that a similar agreement was signed last December, as part of the master closing, with Gramercy Warehouse Funding, Forest City's lender for land in Phase 1.

The ESDC won't release the Recognition Agreement without a Freedom of Information Law (FOIL) request), but I'd bet that the collateral is similar, and so too is the delay.

How did you miss that part of the master closing documents?

Last January, the ESDC made the master closing documents available in response to FOIL requests in a massive set of hard copies, so anyone curious had to visit agency office and slog through literally dozens of binders.

I found the highlights in the Development Agreement, but missed the Recognition Agreement. Or maybe it wasn't there. If they'd provided the documents on disc, or online, I and others would have had more of a chance to peruse it. Maybe that was the plan.

Were these Recognition Agreements approved by the ESDC board?

No, just by staff.

So staff has been renegotiating the Atlantic Yards deal? Who's in charge?

Good question.

Why is the NYCRC pitching this project in China? Don't immigrant investors come from around the world?

That's where the money is, and the desire for green cards. It's also where marketers of EB-5 projects push the envelope on credibility.

Why are the city, state, and borough playing along?

They want to see the project get done, and Forest City Ratner has apparently convinced them, or threatened them, that without cheap capital it won't move ahead.

The ESDC even used taxpayer money--presumably--to send an executive, Peter Davidson, to China and present the NYCRC's Chinese partners with proclamations and to tell potential investors how great the deal is.

Did Davidson really say this would be the largest job-creating project in the past 20 years?

Yes. But I bet he wouldn't say so under oath.

Did Brooklyn Borough President Marty Markowitz, in an appearance taped for a project video, really say the people of Brooklyn support Atlantic Yards "1000 percent" and that Forest City Ratner's "reputation is unbelievably reliable"?

He did. And to think, when he campaigned in 2001, he vowed, "Real estate money will never control me."

Are potential investors told what the role of the city, state and borough is?

Unclear. They're told that this project is "in conjunction with" city and state governments. Presumably the fine print in project documents is more precise.

Public and elected officials have enthusiastically talked about the jobs and housing.

That's part of the problem. They keep pitching the entire Atlantic Yards project. That's not what immigrant investors have in front of them.

What's the role of retired hoopsters like Darryl (Chocolate Thunder) Dawkins at investment seminars in China?

Exotic window dressing, it seems.

As I wrote, it's a magical moment of international arbitrage, as slick marketing and basketball fever aim to sell investors on their green card dreams, perhaps distracting them from due diligence.

Is the misleading promotion unique to this project?

Apparently not. In September, Florida immigration attorney Jose Latour, who serves as one of the few EB-5 watchdogs, wrote (without reference to this or any specific project):

"Yes, we are not investment advisers, but as immigration counsel we are bound to reasonable care, and it doesn’t take Gordon Gekko to see the obvious scams and failures which characterize the majority of the Regional Center projects being shopped overseas."

Does it matter that NYCRC principal Paul Levinsohn was one of the "billboard boys" involved in getting rich from a dubious project in New Jersey?

Well, he wasn't charged with anything, but even his former boss, ex-Governor Jim McGreevey, thought it unseemly. Past practices at least hint at his willingness to push the envelope.

Does the law firm Miller, Mayer, working for the NYCRC and also representing investors recruited by the NYCRC, have a conflict of interest?

It may look like a conflict, but conflicts can be waived by clients. The question is: how much do clients actually know?

Who is the spiritual cousin of Gregg D. Hayden, the NYCRC's main pitchman in China?

Brett Yormark, the Nets' uber-marketer. Hayden, literally, is selling the Chinese an arena he doesn't--or shouldn't--have to sell. Then again, Hayden also spoke gibberish when asked about Nets majority owner Mikhail Prokhorov. They're trying hard to avoid talking about Prokhorov.

The list of articles

Part 1 of this series concerned the seven-year extension available on Phase 1 of the project should Forest City Ratner not repay the EB-5 loan. Part 2 estimated the developer could save at least $191 million. Part 3 examined the sales effort in China, with the arena front and center, even though it's already funded.

Part 4 reported on claims made in China, on video and in person, by public officials supporting the project. Part 5 concerned the value of the development rights, contrasted with those in last year's deal for the Vanderbilt Yard. Part 6 described reasons to think the development rights are overvalued.

Part 7 explained why China is such a popular target for those seeking EB-5 investors. Part 8 provided another reason why the Nets played exhibition games in China in October. Part 9 cited the curious avoidance of Mikhail Prokhorov during the pitch in China.

Part 10 noted NYCRC's belated announcement of the project in a newsletter. Part 11 described misleading promotion in the Chinese media and by Chinese firms working with the NYCRC. Part 12 covered the proclamations that are part of the pageantry in China.

Part 13 concerned the role of the NYCRC's preferred law firm. Part 14 linked the land loan to a previous one from Gramercy Capital. Part 15 analyzed the use of weasel words and ambiguous language. Part 16 took another look at a web video pitching the project.

Posted by eric at 10:39 AM

December 19, 2010

Flowers, champagne, and hoops: on web video from China, the EB-5 pitch

Atlantic Yards Report

Part 16 of a series

I already in Part 3 embedded the video below, excerpted from a video by the Wailan immigration consultancy, showing how the "Brooklyn Arena and Infrastructure Project" is being pitched to potential investors from China seeking green cards.

You don't need to understand that actual statements--about the value, importance, and alleged uniqueness of the project--to get the subtext.

The tower of champagne glasses says it all. So does the portrayal of Westerners as the generous heroes and exotic hoopsters. So does the continuing backdrop of basketball, the NBA, and the Nets.

Actually, some of the people in the crowd look a little glum, or skeptical. But they don't speak, so it doesn't matter.

The Nets are in action! Important men in suits travel across the ocean! There's a raffle! Winners get basketballs!

By the way, the same soaring soundtrack is used on another Wailan EB-5 video.

link

Posted by steve at 10:28 AM

December 18, 2010

Weasel words and ambiguous language: selling the Brooklyn Arena and Infrastructure Project to immigrant investors whose English may be shaky

Atlantic Yards Report

Part 15 of a series

One technique of salesmanship is deception. Presentations trying to convince Chinese to invest in the Atlantic Yards project obscure the nature of the project, One example is the way New York City Regional Center's Gregg D. Hayden says that the project will produce "abundant job creation" precisely because the project's job creation will be quite anemic.

What is abundant job creation?

According to NYCRC's Hayden, in a webcast (at 2:48), there's "abundant job creation that we are producing with this project." That refers to the Brooklyn Arena and Infrastructure Project--the arena, infrastructure, and railyard--not the entire Atlantic Yards project.

Jobs are calculated via an economist's report. There's no reason to think that the jobs calculated--7696, far more than the 4980 needed, ten per investor--have anything to do with the number of people who might be seen at the Atlantic Yards site, or even the number for the project as a whole in official estimates by the Empire State Development Corporation.

Why it matters: The phrase is used to convince potential investors that they will meet the requirements of federal immigration law: ten jobs per investor.

But the calculation seems to make a mockery of the immigration program, which aims to generate investment that actually creates jobs. This investment, in significant part, likely would substitute lower-cost funding for higher-cost capital rather than serve as seed money or matching funds.

Click on the link below to read more and watch the weasel words flow.

link

Posted by steve at 10:30 AM

December 17, 2010

What investing in the "Brooklyn Arena and Infrastructure Project" likely means: "Extend, pretend, and find some Chinese friends"

Part 14 of a series

Atlantic Yards Report

Where would the $249 million in EB-5 funding go?

In an unskeptical 9/21/10 article, Ratner Mulls Visa Financing, the Wall Street Journal nonetheless provided this important detail, one that seems contradicted by the project's promotion in China:

[Forest City Ratner executive MaryAnne] Gilmartin said she expects much of the money raised through the program would go toward financing the construction of a new rail yard for the Long Island Rail Road to replace the one that occupied a large portion of the site. Some may also be used to help pay off land loans on the project, she said.

(Emphasis added)

That last sentence is key. As I wrote in Part 3, Forest City Ratner need not begin to build the railyard until June 2012. The EB-5 loan would arrive next year.

Rather, new evidence suggests that a primary goal would be paying off land loans, thus arresting a cycle known in the real estate industry as "extend and pretend" (or sometimes "pretend and extend"), in which borrowers are simply given more time under the hope that the situation will improve.

"Extend and pretend" at Atlantic Yards

The developer's land loan from Gramercy Capital was reported 3/31/10 to be $161.9 million, and was refinanced earlier this year.

Earlier that month, Bruce Ratner suggested at the arena groundbreaking, Gramercy progressed from "our land lender" to "our partner." Apparently Gramercy, having already extended the loan, was given a piece of the Atlantic Yards project.

Yesterday, as I reported, an ESDC response to the State Supreme Court's 11/9/10 order regarding the failure to study a 25-year buildout confirmed that suggestion.

Read on to find out who all the winners are in this shell game — but before you do, see if you can guess who the big loser is.

article

Posted by eric at 11:17 AM

December 16, 2010

Before signing Recognition Agreement to allow immigrant investors more time for Phase 1, ESDC signed similar document with Gramercy, FCR's lender

Atlantic Yards Report

Documents released today by the Empire State Development Corporation (ESDC) indicate that the agency was willing to allow extended delay of the project's Phase 1 even as it signed Master Closing documents in December 2009.

An ESDC response (also embedded below) to the State Supreme Court's 11/9/10 order regarding the failure to study a 25-year buildout reveals that, while the Recognition Agreement the ESDC signed in October allowed potential immigrant investors development rights to part of the future Atlantic Yards site, a previous Recognition Agreement did something very similar.

In that case, additional time was allowed if Forest City Ratner defaulted on its obligation to Gramercy Warehouse Funding, which "holds a leasehold mortgage on certain Project parcels."

Neither the additional time nor the parcels were specified.

Phase 1 has an outside date of 12 years for a minimum amount of square footage, but the immigrant investors were given an additional seven years, for a potential 19-year outside date.

The new document suggests that Forest City Ratner, as it indicated to the Wall Street Journal, would at least in part use the $249 million no-interest loan from immigrant investors, via the EB-5 program, to replace higher-cost funding. The developer's land loan from Gramercy Capital was last reported to be $161.9 million.

article

Posted by eric at 3:11 PM

Conflict of interest? A law firm works for NYCRC, promotes "very exciting NBA arena project" in China, represents investors, won't answer questions

Part 13 of a series

Atlantic Yards Report

Crucial to the "Brooklyn Arena and Infrastructure Project" is Ithaca, NY, law firm Miller Mayer, a leading law firm in the narrow field of immigration investment.

Miller Mayer wears multiple hats regarding the project. It works directly for the New York City Regional Center (NYCRC), filing paperwork with the United States Citizenship and Immigration Services (USCIS), the federal agency overseeing the immigrant investor program.

Miller Mayer lawyers have helped the NYCRC recruit investor clients in China, while a NYCRC rep has called the firm "our preferred immigration attorney." It also represents such NYCRC clients in their applications to the USCIS.

While that could pose a conflict of interest, as described below, the firm wouldn't respond to my questions about how it safeguards against such a conflict.

I suspect that firm avoids conflict, following State Bar rules, by informing its clients of its roles and having them sign consent statements.

But the firm's performance still poses questions, especially since overseas clients likely have trouble getting independent information about the Brooklyn Arena and Infrastructure Project.

article

Posted by eric at 11:10 AM

December 15, 2010

Pageantry and puffery: doing EB-5 business in China involves proclamations stressing job creation, quality of local partners

Part 12 of a series

Atlantic Yards Report

Doing business in China involves pageantry and ceremony, and Chinese immigration consultancies--responsible in no small part for exaggerations regarding the Brooklyn Arena and Infrastructure Project--nevertheless can proudly display proclamations from governmental agencies and law firms honoring them.

In China, there's "a love of ceremony and ostentation and obsession with brands," as Christina Larson wrote in the November/December 2010 issue of the Washington Monthly. That plays into the elaborate seminars presented to potential investors.

The proclamations (in English) in the certificates below are piffle, but the form may impress some unsophisticated potential clients.

The first two proclamations, as noted below, were likely drafted by the New York City Regional Center (NYCRC).

article

Posted by eric at 10:04 AM

December 14, 2010

Lost in translation: Chinese promotional videos, web pages, and media reports present misleading account of the EB-5 "arena project"

Part 11 of a series

Atlantic Yards Report

Like a game of telephone in which the message gets mangled at each node, so has the story of the Atlantic Yards EB-5 deal been distorted in the Chinese media, due to the deceptive promotion of the project and sloppy and/or misleading reporting.

Compounding that are exaggerated promotional statements by Chinese immigration consultancies working with the New York City Regional Center (NYCRC).

A promotional video

Consider a promotional video produced by the Wailan consulting firm after a meeting for EB-5 investors in China in October 2010.

In the excerpts below, recorded with upbeat, triumphant music, the montage aims to convey luxury and inspire confidence. Flower arrangements and cascading champagne, as well as a raffle, help turn a hotel ballroom into launching pad for a new life.

Among people pictured, developer Bruce Ratner shakes hands with ex-NBA player Darryl Dawkins (aka "Chocolate Thunder") with Forest City Ratner executive MaryAnne Gilmartin looking on; a Chinese speaker is heard using the terms "NBA" and "Barclays;" the NYCRC's Paul Levinsohn turns to salute the crowd; the Empire State Development Corporation's Peter Davidson appears at the podium; and lucky raffle winners pose with Nicolai Hinrichsen of the law firm Miller Mayer.

But the message was quite misleading.

article

Posted by eric at 11:20 AM

December 13, 2010

In newsletter, NYCRC finally announces Brooklyn Arena and Infrastructure Project, "in conjunction with" city and state governments

Part 10 of a series

Atlantic Yards Report

The New York City Regional Center (NYCRC), as noted in Part 3, has not announced the Brooklyn Arena and Infrastructure Project on its current projects page.

However, the NYCRC's November 2010 newsletter, made available on the NYCRC's web site recently and embedded below, finally offers this announcement:

UPCOMING PROJECTS FOR THE NYCRC
Brooklyn Arena and Infrastructure Project
The NYCRC is pleased to announce another project in conjunction with the governments of both the City of New York and State of New York. Located at the Atlantic Yards development site in Brooklyn, this $1.4 billion Brooklyn Arena and Infrastructure Project is a subset of the $4.9 billion Atlantic Yards Project and is one of the most important development initiatives underway in New York City today and one of the largest job-creating projects in over a decade. EB-5 funding will be combined with significant funding from the City of New York, the State of New York, and the developer of the Project, Forest City. On September 23, 2010, all components and documents of the Brooklyn Arena and Infrastructure Project were fully approved by the United States Citizenship and Immigration Services (“USCIS”).

(Emphases added)

Misleading the reader

As I suggested on Part 3, the phrasing here is misleading.

Despite the statement "in conjunction with," neither the city nor the state are formally involved in the Brooklyn Arena and Infrastructure Project beyond a finder's fee for the New York City Economic Development Corporation and a Recognition Agreement for a first mortgage, signed by the Empire State Development Corporation.

None of the above-mentioned contributors--city, state, developer--made their investments in a project purported to create jobs for immigrant investors at the time.

As described in Part 3, it's questionable to credit the latter for jobs created by funding committed long before.

After all, as state officials admit, the arena would be built with or without this funding.

Beyond that, the NYCRC's reference to "fully approved" does not mean potential investors face no risk their immigration petition would be denied, USCIS officials told me.

link

Posted by eric at 10:49 AM

The missing billionaire: Why nobody pitching EB-5 investments to Chinese millionaires wants to talk about Mikhail Prokhorov

Part 9 of a series

Atlantic Yards Report

Does Russian billionaire Mikhail Prokhorov, majority owner (80%) of the New Jersey Nets and minority owner (45%) of the arena, have anything to do with the "Brooklyn Arena & Infrastructure Project" for which immigrant investor funding is sought?

Of course.

However, when asked during a webcast in September why Chinese investment was needed if Prokhorov was the owner of the Nets, the New York City Regional Center's (NYRC) Gregg D. Hayden simply punted, deflecting the question with a nonsense answer.

Since then, he and colleagues, in presentations to potential investors, have assiduously avoided the suggestion that Prokhorov has a key role in the arena. That's part of the misdirection that characterizes the EB-5 sales job.
...

That significant, strategic omission seems aimed to avoid this question: Why couldn't Prokhorov be asked to pick up the slack?

Answer: Presumably, in exchange for contributing more money, he'd ask for a greater share of the arena itself, rather than accept some murky collateral. And that would lower Forest City Ratner's return.

article

Posted by eric at 10:41 AM

Forest City nears selling stake in NYC retail portfolio

Forest City executives said the sale would involve a 49% stake in a portfolio that includes 15 New York properties; the portfolio is 96% leased and executives declined to name the buyer.

CrainsCleveland.com via Crain's NY Business
by Stan Bullard

Looks like money is still a little tight at Forest City.

Executives at Forest City Enterprises Inc. said in a conference call today that the company is close to selling a minority interest in its New York City retail properties and will exit the hotel market.

The measures are the latest to surface in the two-year odyssey by the Cleveland-based real estate developer to increase liquidity and to reduce debt to clean up its balance sheet. Forest City Ratner, a wholly owned subsidiary, currently owns and operates 11 million square feet of commercial property in the New York metro area.
...

Charles Ratner, Forest City's chief executive, described the prospective investors as retail-oriented real estate investment trusts and real estate funds. However, he said the company would not disclose a prospective price, nor would it identify the properties or the prospective joint venture partners by name. Unlike a sale, a joint venture allows a company to continue to reap management and leasing fees on properties and to enjoy future gains from the properties if their fortunes improve.

Forest City developed its retail portfolio in New York over the last two decades by introducing large-format stores such as OfficeMax, Staples, Old Navy and H&M to the boroughs.

We commonly call those "big-box retailers."

“We remain cautious, but also very confident,” Mr. Ratner said, though he noted problems remain in the economy.

Indeed, the company in its earnings report issued Thursday, Dec. 9, reported impairment charges totaling $77 million that soured the improved performance of its properties and revenues in the quarter that ended Oct. 31.

article

NoLandGrab: Let's see, they've already partnered up with a billionaire Russian oligarch and they're trying to sell green cards to wealthy Chinese investors. How about a Middle Eastern sultan or an African dictator?

Posted by eric at 10:32 AM

December 10, 2010

Why seek immigrant investors in China? Much new (& dumb) money, bball fever, little transparency or tough reporting, flexible attitude toward truth

Part 7 of a series

Atlantic Yards Report

Under the EB-5 program, investment pools known as regional centers--an increasingly popular way to raise cheap financing--can solicit immigrant investors from around the world to park $500,000 each in a job-creating investment.

However, the New York City Regional Center (NYCRC), in the case of the "Brooklyn Arena and Infrastructure Project," has focused on China, a country that offers a particular set of advantages to EB-5 promoters, and an even greater set of advantages for this project.

For the NYCRC and Forest City Ratner, China presents a valuable, unique opportunity, given the confluence of basketball fever, plentiful new money, the desire to get children educated (and other opportunities) in the United States, a language barrier, limited watchdog reporting on this issue, little emphasis on transparency, variable amounts of business sophistication, and flexible business ethics.

It's the new Wild Wild West.

Road shows

Even before a series of high-profile sales sessions in major cities in October, involving developer Bruce Ratner and the Empire State Development Corporation's Peter Davidson (but not, as once billed, Brooklyn Borough President Marty Markowitz), the NYCRC was hustling.

As the NYCRC's Gregg Hayden said during a webcast produced by the Kunpeng immigration consultancy (excerpts) in mid-October, "Myself and my assistant General Manager, Zachary Woods, from Shanghai, have just finished a 45-day, 23-city tour, of the China market, raising preliminary interest and pre-sales for this project, and they're going extremely well, we have a lot of strong interest, because of the safety and security of this program, and the abundant job creation that we are producing with this project."

(Well, that's their story. This series challenges the claims of safety, security, and "abundant job creation.")

article

NoLandGrab: Why, Gregg Hayden sounds like the Brett Yormark of green-card sales.

Posted by eric at 11:27 AM

December 9, 2010

Anatomy of a Green Card Pitch: In China, Atlantic Yards Backers Rely on the Distraction of Basketball

The Huffington Post
by Norman Oder

Norman Oder somehow finds the time to repackage his EB-5 series for The Huffington Post.

The controversial Atlantic Yards megaproject in Brooklyn, involving a basketball arena for the relocating New Jersey Nets plus 16 planned towers, has already gotten a boost from Russian billionaire Mikhail Prokhorov, who last year bought 80% of the team and 45% of the arena, known as the Barclays Center.

But the next astounding step for Brooklyn developer Forest City Ratner (FCR)--which has already benefited from eminent domain, significant subsidies, a naming rights giveaway, and tax breaks--involves raising a $249 million interest-free loan from 498 Chinese millionaires seeking green cards.

The effort tests the spirit, and perhaps the letter, of an obscure federal immigration program known as EB-5, which trades immigration benefits for purportedly job-creating investments--as little as $500,000 per family.

In October, I wrote here about the emerging plan to use the program. Now, as suggested in the ongoing Anatomy of a Shady Deal series on my Atlantic Yards Report blog, it seems the benefit would tilt significantly to the developer rather than to the public or even the investors.

article

Posted by eric at 5:28 PM

Claimed value of collateral for immigrant investors lowered by lack of timetable for office tower; no announced publicly announced plan for revenue

Part 6 of a series

Atlantic Yards Report

Exactly how valuable is the collateral offered to 249 prospective Chinese investors seeking green cards in exchange for each parking $500,000 in an investment pool that would support the Brooklyn Arena and Infrastructure Project under the EB-5 program?

There are several reasons to think that a new appraisal that calculates $542,375,000 for 3,025,654 square feet--seven towers on both the arena block and Block 1129, the southeast block--may have overvalued the development rights.

First, as noted, the MTA in 2005 appraised development rights over the Vanderbilt Yard at $75 a square foot and said in 2009 that it would be dangerous to get a new appraisal because of the bad economy. The new appraisal, which includes some land over the railyard, values development rights at more than $179 a square foot.

Also, as noted, even if the actual value is closer to $179 a square foot, it would be tough for the creditors to unlock the stated value of the collateral without a series of transactions that likely would reduce the value.

Unknown timetable for office tower

Third, included in the collateral is the value of development rights for the tower known as B-1, currently slated to be an office building--for which no market is expected soon.

The new appraisal, by the real estate firm Massey Knakal, has not been made public, but the conclusions have been outlined in both a promotional brochure (excerpt at right) and public presentations by the New York City Regional Center (NYCRC), which is working with Forest City Ratner to raise $249 million from Chinese investors.

There's no demand for office space in Brooklyn. Manhattan already has an over-capacity of office space, plus an additional projected surplus, should the current office space now on the drawing board come to fruition.

B-1 requires both a boost in the economy and an anchor tenant. In November 2009, Forest City Ratner CEO Bruce Ratner asked Crain's rhetorically, “Can you tell me when we are going to need a new office tower?”

article

Posted by eric at 5:21 PM

Are Atlantic Yards development rights offered to Chinese overvalued as collateral, or should the MTA have gotten double from FCR for railyard?

Part 5 of a series

Atlantic Yards Report

Did the Metropolitan Transportation Authority (MTA) get snookered last year when it agreed to renegotiate the deal with Forest City Ratner (FCR) for Vanderbilt Yard development rights, giving the developer more generous terms than in 2005 because of the weakened real estate market?

Or are prospective Chinese investors seeking green cards in exchange for parking $500,000 each in an Atlantic Yards-related investment pool being misled about the value of the development rights on the site used as collateral?

One or the other seems likely, because a new appraisal of development rights on the site is more than double the 2005 appraisal. That appraisal was never re-done and last year was seen by the MTA as overvaluing the site.

And both may be true--that public transit is losing out on tens of millions of dollars, and the potential investors are being offered a shakier deal than billed--if the real value is somewhere in the middle.

The two parcels do not fully overlap--the Vanderbilt Yard (8.5 acres) occupies the northern portion of the 22-acre site, while the collateral offered to the immigrant investors involves two development parcels on that northern portion and five on the southern segment.

However, the value per square foot of development rights should be fairly constant across the site. (Development costs, such as the cost of a platform for the railyard, would serve as downward adjustments, as described below.)

Value per square foot: $75 vs. $179

The MTA in 2005 appraised railyard development rights at $75 a square foot--and said in 2009 that it would be dangerous to get a new appraisal because land values had undoubtedly declined.

However, the NYCRC and its Chinese agents, promoting Atlantic Yards to immigrant investors under the EB-5 program, tout a new appraisal that calculates the value of the seven parcels at more than $179 a square foot.

article

NoLandGrab: To be fair, the MTA's appraisal was just "some guy's idea of what it's worth."

Posted by eric at 5:12 PM

The Week Atlantic Yards Report Caused a Stir

Reports about Forest City Ratner's use of an immigration program to raise funding has also raised a few eyebrows.

Prospect Heights Patch
by Graydon Gordian

Norman Oder, ever-vigilant observer of the Atlantic Yards development, has created quite the buzz with his reports on Forest City Ratner's use of the EB-5 immigration program to raise money from Chinese investors interested in the Atlantic Yards project.

article

NoLandGrab: Well, a bit of a buzz, which hasn't quite reached The New York Times yet, among other media outlets.

Posted by eric at 4:20 PM

December 8, 2010

Forest City Enterprises reports third-quarter results; sale of Nets, smaller share of team losses help boost bottom line

Atlantic Yards Report

Forest City Enterprises announced, in a press release, Forest City Reports Fiscal 2010 Third-Quarter and Year-to-Date Results, results for the third-quarter that ended October 31, 2010.

This is the only reference to Atlantic Yards:

Work continues at the Barclays Center arena at Atlantic Yards in Brooklyn, where vertical steel erection began in mid-November. Since the beginning of the third quarter, the Company, together with its partners, has continued to add to a growing list of premier corporate sponsors and further increase the level of contracted revenue for the arena.
...

For the third quarter, the "Nets provided a pre-tax EBDT increase of $10.4 million, compared with the same period in 2009, due to the decrease in Forest City's allocated share of team losses."

For the year to date, the increased EBDT was $31.4 million, "from the gain on disposition of a partial interest in the Nets."

link

NoLandGrab: In other words, the Nets are Proko's problem now.

Posted by eric at 10:39 PM

Anatomy of a Shady Deal: Norman Oder Takes A Close Look At Ratner's Quest for Money in China

Develop Don't Destroy Brooklyn

While The New York Times publishes its third article about The Civilians' extraordinary production of "In The Footprint: The Battle Over Atlantic Yards" (and we congratulate The Civilians for this deserved accomplishment and the rave reviews the play has been receiving) Norman Oder has been running an extensive series on Bruce Ratner's shady cash for green cards scheme otherwise known as the EB-5 program. The Times has not once made mention of this highly questionable use of the little-known immigration program.
...

It is a complicated issue which boils down to this: The Ratner crew and its public and private enablers are gaming this federal EB-5 immigration program by making stuff up, deceiving potential Chinese investors, double counting and wildly exaggerating job numbers all to pump up the developer's bottom line rather than benefit the public.

In other words: The usual, only overseas.

article

Posted by eric at 10:02 PM

Pitching potential EB-5 investors, Markowitz shills on video ("BK is 1000% behind AY"); ESDC's Davidson stretches jobs claim; Bloomberg misleads

Part 4 of a series

Atlantic Yards Report

The New York City Regional Center's (NYCRC) misleading effort, in partnership with developer Forest City Ratner, to market the "Brooklyn Arena and Infrastructure Project" to Chinese investors seeking green cards, relies significantly on statements from public officials aimed at bolstering investor confidence.

Thus, Brooklyn Borough President Marty Markowitz, Empire State Development Corporation President Peter Davidson, and New York City Mayor Mike Bloomberg, on video and in person, have promoted the project to potential investors in misleading and even ridiculously dishonest ways.

The statements, which praise the overall Atlantic Yards project rather than the Brooklyn Arena and Infrastructure Project at hand, may distract potential investors from due diligence, despite reasons to question the job creation claims and the solidity of the investment.

Thus, the three officials help convince potential investors to commit their $500,000 to the project, benefiting Forest City Ratner and the New York City Regional Center but not necessarily the public: the loan process could delay the Atlantic Yards arena block another seven years and otherwise reduce public benefits.

Misleading the audience

Markowitz claimed that Brooklyn is "1000 percent" behind Atlantic Yards.

No way.

Davidson asserted that Atlantic Yards "will be the largest job-creating project in New York City in the last 20 years.”

Unbelievable.

article

NoLandGrab: Hey, that's only fair — why should Chinese investors get the truth when we've been getting lie after lie for the past seven years?

Posted by eric at 11:12 AM

Bruce Ratner Seducing Atlantic Yards Investors With Green Cards

New York Magazine

Norman Oder recently began his sixth year of reporting on the Atlantic Yards saga at his website, Atlantic Yards Report, and his best work may have just begun. This week he’s posted a fascinating series of stories about how developer Bruce Ratner, the city, and the state are dangling green cards in front of Chinese investors in order to lower Ratner’s funding costs and save him an estimated minimum of $191 million. The pieces are long and dense — though the sight of former Net Daryl “Chocolate Thunder” Dawkins signing autographs in Guangzho is entertaining — but they contain a bunch of intriguing and maddening insights, including how the deadline for building the first phase of the behemoth arena-and-skyscraper project may have been quietly extended to 2029, which could further stall the purported “community benefit” from subsidized housing. The green-card scheme, while apparently legal, is borderline sleazy; it’s supposed to swap immigration help for the creation of American jobs, but the economic worth of the program is highly dubious. But a Brooklyn NBA team owned by a Russian billionaire playing in a tax-break-larded arena surrounded by Chinese-backed buildings … hey, only in America, as the great hustler Don King would say.

link

Related coverage...

The Sports ITeam Blog [NY Daily News], Shady dealings surround Atlantic Yards project

Atlantic Yards Report blogger Norman Oder has posted "Anatomy of a Shady Deal," an exhaustive series that looks at Forest City Ratner and the EB-5 program, the federal program that provides green cards to foreign investors to obtain no-interest loans for its massive Atlantic Yards project.
...

Oder notes that the pitch aimed at potential investors in China is questionable. The Barclays Center, the future home of the Nets, is featured in materials provided to the potential investors even though it is already funded. The chance of not getting the green cards is dismissed, and the risk of the investment is downplayed.
...

The Daily News reported in October that the Empire State Development Corporation doesn't expect money raised through the EB-5 program to create any new jobs beyond those already forecast for the $4.9 billion project.

Posted by eric at 10:35 AM

December 7, 2010

As FCR pitches Chinese investors seeking green cards, ESDC admits EB-5 arena funds not needed; is this legit if money's supposed to create jobs?

Part 3 of a series

Atlantic Yards Report

Nearly 500 Chinese millionaires, hoping for green cards and starry-eyed at the thought of pro basketball, may hold the key to developer Forest City Ratner's (FCR) progress with the Atlantic Yards project. Potential investors have been attending investment seminars in China like the one October 19 (promoted below); such sessions continue through December 19.

However, as detailed below, the effort to raise $249 million tests the spirit and perhaps the letter of an obscure but newly popular federal law that grants fast-track green cards in exchange for job-creating investments.

Rather than use investors' money as seed money or matching funds, as in some other EB-5 projects, it seems that Forest City Ratner would in large part simply be trading higher-cost financing for a no-interest loan.

Thus, it wouldn't create new jobs, even if it may fit within the loose strictures of the federal law, in which the total sum of money must generate 4980 jobs, ten per investor.

Should such tactics--essentially endorsed by the state, city, and Borough President, who have joined in project promotion--pass muster, they invite an absurd process: any developer might save hundreds of millions of dollars, substituting cheaper capital for existing capital, claiming it creates jobs because it's tied to a project with existing, committed investment.

That would help monopolize a limited federal resource--visas for job creation--while skirting the goals of the immigration program.

The "Brooklyn Arena and Infrastructure Project," a $1.448 billion subset--the arena, plus infrastructure and a new railyard--of the $4.9 billion Atlantic Yards project, has never been approved by any official body nor previously announced before the effort to solicit immigrant investors.

It is apparently formulated to generate--at least on paper--the necessary number of jobs.

It prominently features the Barclays Center arena, as in the graphics above and below, but the pitch involves some dodges:

  • the arena, though the prime attraction, is already funded
  • the role of government is exaggerated
  • the chance of not getting green cards is dismissed
  • the risk regarding the investment is downplayed

And the public officials promoting the effort may be helping Forest City Ratner above all else.

article

Posted by eric at 11:27 AM

December 6, 2010

The savings on the $249 million no-interest loan sought by Forest City Ratner? Likely $191 million (at least) to $314 million over seven years

Part 2 of a series

Atlantic Yards Report

On October 11, I did some very imprecise math, trying to estimate the savings on a $249 million no-interest loan that Forest City Ratner seeks from immigrant investors under the EB-5 program, which trades green cards for supposedly job-creating investments.

I estimated the developer would save nearly $100 million over five years. Actually, the savings would likely be double that, at least, so it's no wonder the developer is pushing very hard to get this deal done.

My estimate needs an update because the loan could last seven years, not five, according to a Recognition Agreement signed by the state; the impact of compounding was not calculated; and a wider range of interest rates should be considered.

Savings: likely $191 million (at least)

A reader more versed in finance has produced the charts below. (Click to enlarge.) The bottom line: over seven years, at a conservative 8.3% interest rate, Forest City Ratner could save nearly $191 million.

At a somewhat more likely 10% interest rate, FCR could save $244 million--nearly the value of the loan.

At the plausible interest rate of 12%, the developer could save $314 million.

article

NoLandGrab: Did we mention that this series is a must-read?

Posted by eric at 9:12 AM

Arena block could take 19 years, as ESDC grants seven-year extension, enabling FCR's plan to recruit Chinese investors under EB-5 program

Part 1 of a series

Atlantic Yards Report

The effort by the New York City Regional Center (NYCRC), the private investment pool federally authorized to accept immigrant investor funds, and developer Forest City Ratner (FCR) to raise $249 million from 498 Chinese millionaires under the EB-5 immigration program may be legal, but there is ample reason to question whether it will serve the public interest. I called it "the most audacious quest for government assistance" in the Atlantic Yards saga.

Here's brief and extensive background on the "Brooklyn Arena and Infrastructure Project," an ad hoc name for the project as presented to immigrant investors. FCR likely would save at least $191 million with a no-interest loan, while the NYCRC, along with immigration attorneys, would reap substantial fees. Additional coverage will include the marketing effort in China, the role of public officials, and the collateral at issue.

The Empire State Development Corporation (ESDC), the state agency with oversight over Atlantic Yards, has again extended the deadlines to get the project built, allowing seven additional years for Phase 1.

Why? Because Forest City Ratner wants a valuable, no-interest loan from immigrant investors looking for green cards.

The beneficiaries? The developer, and the Chinese investors who might end up owning nearly half of the non-arena project site, development rights to seven of 16 towers, as shown in the screenshot below right.

The losers? The public, since expected project benefits such as affordable housing and new tax revenues could be delayed, while burdens like an interim surface parking lot could be extended.

Under the scenario--in a Recognition Agreement for the loan approved by ESDC staff, with no need for board action--the 12-year timetable for Phase 1 would be suspended for seven years.

Thus, the minimum square footage required for Phase 1 could take 19 years, nearly twice as long as the entire project was supposed to take.

Is such a delay likely? We can't be sure, but considering the extensive provisions documented in case Forest City Ratner defaults on the loan, the state and the developer seem to take a default scenario seriously.

Indeed, the scenario casts huge doubts on FCR's public rhetoric, via executive MaryAnne Gilmartin (video below) that it is "100 percent committed to delivering the Atlantic Yards project and all of its benefits to the borough of Brooklyn."

And it suggests that the ESDC, rather than protecting the public interest, is more concerned with saving the developer money.

article

Posted by eric at 9:04 AM

December 5, 2010

The worth of Wall Street, Goldman Sachs, and the arena bonds

Atlantic Yards Report

John Cassidy's much-remarked 11/29/10 New Yorker article, What Good Is Wall Street? Much of what investment bankers do is socially worthless, is worth a look:

In effect, many of the big banks have turned themselves from businesses whose profits rose and fell with the capital-raising needs of their clients into immense trading houses whose fortunes depend on their ability to exploit day-to-day movements in the markets. Because trading has become so central to their business, the big banks are forever trying to invent new financial products that they can sell but that their competitors, at least for the moment, cannot. Some recent innovations, such as tradable pollution rights and catastrophe bonds, have provided a public benefit. But it’s easy to point to other innovations that serve little purpose or that blew up and caused a lot of collateral damage, such as auction-rate securities and collateralized debt obligations. Testifying earlier this year before the Financial Crisis Inquiry Commission, Ben Bernanke, the chairman of the Federal Reserve, said that financial innovation “isn’t always a good thing,” adding that some innovations amplify risk and others are used primarily “to take unfair advantage rather than create a more efficient market.”

What does the tax-exempt bond issuance for the Atlantic Yards arena do? It allows the developer to save money, for New York state to poach local taxes from New Jersey, and represents a subsidy of perhaps $150 million from federal taxpayers.

Social purpose?

"Useless activity"

Cassidy writes:

Other regulators have gone further. Lord Adair Turner, the chairman of Britain’s top financial watchdog, the Financial Services Authority, has described much of what happens on Wall Street and in other financial centers as “socially useless activity”—a comment that suggests it could be eliminated without doing any damage to the economy. In a recent article titled “What Do Banks Do?,” which appeared in a collection of essays devoted to the future of finance, Turner pointed out that although certain financial activities were genuinely valuable, others generated revenues and profits without delivering anything of real worth—payments that economists refer to as rents. “It is possible for financial activity to extract rents from the real economy rather than to deliver economic value,” Turner wrote. “Financial innovation . . . may in some ways and under some circumstances foster economic value creation, but that needs to be illustrated at the level of specific effects: it cannot be asserted a priori.”

Turner’s viewpoint caused consternation in the City of London, the world’s largest financial market. A clear implication of his argument is that many people in the City and on Wall Street are the financial equivalent of slumlords or toll collectors in pin-striped suits. If they retired to their beach houses en masse, the rest of the economy would be fine, or perhaps even healthier.

What would Forest City Ratner have to have done? Paid for the arena itself.

...

As I wrote 1/25/10, there's much momentum for deals like the $511 million arena bond issuance because all parties involved get paid. As part of the Atlantic Yards master closing documents, there's a list of the funds paid various participants in the transaction...As I wrote 1/25/10, there's much momentum for deals like the $511 million arena bond issuance because all parties involved get paid. As part of the Atlantic Yards master closing documents, there's a list of the funds paid various participants in the transaction...

Mintz Levin, the bond counsel, earned $2,726,633
Fried Frank, the counsel to Forest City Ratner, earned $626,684
Nixon Peabody, the counsel to the underwriters (Goldman Sachs), earned $2,325,000
Ratings agency Moody's earned $360,000
Ratings agency Standard & Poor's earned $388,080
Auditor Price Watershouse earned $60,000
Printer Bowne & Co. earned $76,618.63

Goldman Sachs presumably earned much, much more.

link

Posted by steve at 9:02 AM

November 22, 2010

NYC Regional Center feeling the heat? Lawyer for firm recruiting immigrant investors for AY project launches shallow attack on unnamed "blogger" (AYR)

Atlantic Yards Report

Looks like someone is unhappy that Norman Oder turned over a rock, and the EB-5 visa program crawled out.

Apparently my criticism of the emerging effort by the New York City Regional Center (NYCRC) and Forest City Ratner to raise $249 million from 498 Chinese millionaires under the EB-5 immigration program has its backers concerned.

In an 11/11/10 post on EB5info.com, a web site devoted to EB-5 issues, an attorney for the NYCRC presents a tendentious, shallow attack on me.

In the post, headlined In Defense of the EB-5 Program, Miller Mayer attorney Carolyn S. Lee disserves readers by not pointing them to my original critique, as posted in the Huffington Post under the headline Green Cards for Sale? Atlantic Yards Backers Seek Chinese Investors.

That allows her to cherry-pick the evidence, evade full responses, and deny readers the opportunity to make evaluations on their own.

Notably, Lee ignores the rising tide of concern, well beyond my alleged "false and ill-informed statements," regarding the EB-5 program, which allows immigrant investors parking $500,000 in job-creating investments to get green cards for themselves and their families.

Broad dismissal

Lee begins:

When there is misinformation in the public about the EB-5 program, attorneys in the trenches of this area have a duty to set the record straight. To permit otherwise leaves our clients – investors and regional centers – having to defend themselves against individuals and organizations maligning the EB-5 program for other ends.

I have an individual in mind. The Internet has given this person a wide-reaching forum to vent his ire against a large urban development project. His medium is his blog. As with many projects of this scale, this one involves a partnership of private and public funds. EB-5 capital is a component. In a down economy hostile to immigration, the EB-5 program has become an easy target for this individual, who is dedicated to the downfall of the overall project and who has latched onto the EB-5 part of the project for his latest criticism.

Lee, without using my name, suggests that I'm an venting amateur, rather than a journalist who's covered Atlantic Yards for a blog for more than five years and has been a critic credible enough to write for the New York Times and to co-write a law review article.

So too does the pointer blog on EB-5 Visa News, headlined New York Regional Center Coming Under Unfair Attack:

It’s one thing to have a discussion, but propaganda by a lone blogger is unfair.

Rather than focus on my arguments, they prefer to attack me. Meanwhile, lawyers representing the immigrant investors stand to earn $14,750 per client, while the NYCRC would earn a project issue fee of $38,000 per client.

That means Miller Mayer and the NYCRC have no small incentive to ensure the project succeeds. (Miller Mayer represents the NYCRC and immigrant investors.)

Oder's full post is well worth a read.

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NoLandGrab: Carolyn Lee is so upset that she won't utter the name Norman Oder, nor link to his criticism — for fear that more people might discover the truth about the Atlantic Yards EB-5 scam.

Posted by eric at 10:17 AM

November 17, 2010

Over the 38-year term for arena bonds, lots of unknowns: continuing revenue, cost of renovations

Atlantic Yards Report

In ratings reports regarding the Atlantic Yards arena, Standard & Poor's assessed both the strengths and weaknesses of the project, justifying a rating of BBB-, or the lowest run of investment grade.

One weakness:

The 38-year debt term is longer than most comparable rated projects.

Well, it's true that the comparably rated bonds for the Yankees' and Mets' new stadiums have 40-year terms, but baseball stadiums generally endure longer than arenas and the two baseball teams have established track records in New York City.

The unknowns: who pays for renovation?

But there are two unknowns that I haven't seen addressed in the bond materials and ratings.

First, the arena would inevitably have to be renovated, given the track record of numerous arenas, as detailed below.

Second, the analyzed revenue--e.g., from naming rights and sponsorship deals--covers a term far shorter than 38 years.
...

Short life spans for some arenas

In Seattle, the Washington State Pavilion (1962) was remodeled as the Washington State Coliseum, which in 1967 became home to the Seattle SuperSonics and was rebuilt 27 years later as Key Arena. Some 13 years after that, team owners were unsuccessful in getting public funding for a renovation or new arena, and the team moved to Oklahoma City for the 2008-09 season.

The Miami arena, completed in 1988, lost the Miami Heat in 2000 to the American Airlines Arena. The Florida Panthers left, as did concerts. The arena was sold via an auction in 2004 and demolished in 2008.

The Orlando arena opened in 1989 and, within eleven years, was deemed obsolete. A new arena will open later this year, 21 years later.

The Nets' most recent home, the Izod Center at the Meadowlands, opened in 1981 and lost the team just this year, 29 years later.

None of the four arenas noted above had the luxury suites and premium seating that are now standard.

Still, new bells and whistles surely will become standard. The Atlantic Yards arena won't last 38 years without a major renovation, or becoming obsolete. Who's going to pay?

article

NoLandGrab: "Who's going to pay?" That's obviously a rhetorical question, because we all know the answer, and it ain't Bruce Ratner.

Posted by eric at 12:37 PM

October 27, 2010

Why would EB-5 investors in Atlantic Yards earn no interest? Because it's such "a safe, secure position"

Atlantic Yards Report

From The National (published in the United Arab Emirates), an article headlined Green Card scheme a slam dunk in China covers one of the investment seminars put on by the New York City Regional Center (NYCRC) for its Atlantic Yards EB-5 investment project:

So keen are some Chinese to gain entry to America that they value the assurance of a Green Card over any financial return.

Most EB-5 schemes pay interest of between 2.5 and 2.75 per cent. But not this one, according to Gregg Hayden, the general manager of NYRC.

"The investor on this particular project, to simplify the process, is not getting paid any interest," says Mr Hayden. "We have put them in such a safe, secure position that they're not earning any interest. If you look at the spectrum of EB-5 projects, interest rates are paid according to risk."

To simplify the process? How about to maximize return to the New York City Regional Center and Forest City Ratner?

As for the security of the the position, well, that's a matter for continued debate.

Buying green cards

The report in The National shows a NYCRC rep pretty much contradicting what his boss said six weeks ago.

article

Posted by eric at 4:04 PM

Green Card scheme a slam dunk in China

The National
by Tom Spender

A UAE-based publication covers Bruce Ratner's green card-hawking magical mystery tour.

Some were dressed in suits, some in casual and even worn-out clothing, but all of the Chinese in the banqueting hall had one thing in common - money, or access to it.

About 200 potential investors had streamed into the west Beijing hotel to hear about an opportunity in New York that seems well-calibrated to a changing world: Green Cards in return for interest-free credit.

The roadshow was showcasing the biggest-ever use of the US government's EB-5 scheme, which offers Green Cards to foreigners who invest US$500,000 (Dh1.8 million) in America for two years, thereby creating at least 10 new jobs.

Officials from the New York City Regional Centre (NYCRC) are touring China to drum up 498 investors with the aim of contributing $249m to the city's biggest property project outside Ground Zero.
...

Critics say reaching out to the Chinese is simply a way to save cash. If developers borrowed the same amount of money from a bank they would face tens of millions of dollars in interest repayments.

article

Additional coverage...

NetsDaily, Did Ratner Enlist Ex-Nets in Money-for-Visas Program?

Darryl Dawkins and Otis Birdsong were in China last week not just to watch the Nets play the Rockets but to attend an investment "roadshow" where Bruce Ratner sought to raise nearly a quarter billion dollars through a controversial money-for-visas program, an Abu Dhabi newspaper reports.

According to a reporter who was at one of the "roadshows" in Beijing, the two were on hand to mix with about 200 prospects Ratner and advisors had invited to invest in the Atlantic Yards project. Under the EB-5 visa program, those who invest $500,000 or more can receive US green cards in return.

Posted by eric at 3:43 PM

Moody's lifts rating on Forest City Enterprises from "negative" to "stable"

Atlantic Yards Report

According to an AP article yesterday headlined Moody's revises Forest City outlook to 'stable', the ratings firm has lifted Forest City Enterprises from "negative" to "stable," citing improved results and stable liquidity.

The AP reported:

Last month, Cleveland-based Forest City reported a second-quarter profit of $122.8 million. The results bested the company's prior-year quarter performance - a loss of $1.8 million.

Moody's noted Forest City has been addressing its mortgage debt maturities, refinanced its credit facility and significantly reduced its development exposure. Wonder if Moody's factored in an expected $249 million in immigrant investor funding, at low or no interest?

Morningstar, by the way, is a bit more cautious:

While we like Forest City's use of nonrecourse property debt and its geographically diverse footprint, we believe its extensive exposure to the volatile retail industry as well as its high degree of financial leverage warrant an extreme fair value uncertainty rating.

link

Related coverage...

AP via Forbes.com, Moody's revises Forest City outlook to 'stable'

Posted by eric at 11:23 AM

Citizenship for sale? Yahoo says yes, and endorses it (without looking closely at the Atlantic Yards deal)

Atlantic Yards Report

Would you believe that the brief mention in a Wall Street Journal article about Forest City Ratner's to raise $249 million via immigrant investors inspired an Oct. 25 analysis (Citizenship For Sale?) by Daniel Gross, economics editor and columnist at Yahoo! Finance, that concluded that not only is the EB-5 program a good idea, but it should be vastly expanded.

In other words, superficial journalism by the Wall Street Journal is compounded by superficial journalism by Yahoo!
...

The problem is that, with Atlantic Yards, the signal example Gross chooses (and touts on the video accompanying his piece), no new jobs would be created, the Empire State Development Corporation acknowledges, but Forest City Ratner could save perhaps $100 million over five years on $249 million in low- or no-cost financing.

Would they be "created" according to the federal government's loose regulations? That's what proponents say. Still, there are several reasons to be skeptical about the project, as I've written.

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NoLandGrab: Mr. Oder was kind enough not to put "journalism" in quotes.

Posted by eric at 11:17 AM

October 26, 2010

Citizenship For Sale?

Yahoo! Finance
by Daniel Gross

Some organizations, professional service firms, and companies promote the program as a whole, or market investment in particular projects as appropriate for EB5 aspirants, such as a ski resort in Vermont. Other entrepreneurs having a tough time raising cash are now seeking to use the program to tap into new sources of financing. The Wall Street Journal reported last week that developer Bruce Ratner is seeking to use the program to help raise funds in China for his massive, controversial Atlantic Yards development in Brooklyn, N.Y.

Now, many may view the prospect of giving favorable immigration treatment to investors as problematic. The phrase "bring us your moneyed investors yearning to breathe free" doesn't have the same poetic heft as the inscription about the tired, poor, huddled masses etched on the Statue of Liberty. From its inception, the price of citizenship has traditionally been a willingness to leave behind the old world and work hard -- not write a check to support the construction of a bunch of ski-in, ski-out condos.

Don't count Daniel Gross among those who view the EB-5 program as "problematic," however.

I happen to think this is a very good thing. If it were fully utilized, the EB5 program would bring at least $7 billion annually and create or preserve 100,000 jobs per year.

Someone needs to tell Gross that, based on the Atlantic Yards model, EB5 would bring in at least $7 billion annually and possibly create or preserve ZERO jobs per year.

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Posted by eric at 12:04 PM

October 17, 2010

Times dispatches Beijing bureau chief to write Sports story about Nets (but not EB-5)

Atlantic Yards Report

In a Sports section article today headlined For the Nets, the Journey Has Just Begun, the New York Times dispatches its Beijing Bureau Chief, Michael Wines, to cover the marketing potential of Mikhail Prokhorov's New Jersey (and future Brooklyn) Nets.

(What hasn't the Times covered? The EB-5 story.)

The article begins with a nod to the team's marketing man:

Brett Yormark is talking about the incredible global marketing potential of the New Jersey Nets, a concept — New Jersey, the Nets and global marketing potential — that might seem unlikely until you hear his pitch, and remember that two years from now, they will probably be the New York Nets.

Probably the New York Nets, not the Brooklyn Nets? I doubt it, but, if so, Brooklyn Borough President Marty Markowitz will plotz.

Winner needed

Wines somehow grants newcomer Prokhorov credit for Yormark's global marketing, but offers a caution:

Like the Nets, a number of global corporate entities have bought into Prokhorov’s vision. Barclays Bank, a British company with operations in 50 nations but a low American profile, bought the naming rights to the new Brooklyn arena. Haier, a Chinese state-owned company that is the world’s fourth-biggest appliance maker but is relatively unknown outside China, is another sponsor. So is Willis & Company, an Irish insurance broker. So is Stolichnaya vodka, the arena’s official vodka.

The N.B.A. is a phenomenon here, and outside the Four Seasons this week, Chinese fans were eagerly seeking autographs from N.B.A. players. But here, at least, some people steeped in basketball doubted that the Nets’ global strategy, carefully bolted together as it might be, would work. Chinese fans, they said, do not care whether a team is beloved in Moscow or in East Orange, N.J. They just want it to win.

OK, so that's a balanced story, within the parameters of the story. It's just that there's another story to write.

link

NoLandGrab: The Times's refusal to cover the real story of Bruce Ratner's visit to China is like sending a reporter to cover a fire and then printing a story about the aesthetics of fire hydrants.

Posted by steve at 9:22 AM

October 14, 2010

The Story Behind the Atlantic Yards Green Card Controversy

NY Observer
by Matt Chaban

In The Observer's profile of Atlantic Yards watchdog Norman Oder, the master blogger laments how the mainstream media has ignored his biggest expose to date: plans by the state and developer Forest City Ratner to essentially sell green cards to Chinese investors in exchange for backing the arena-cum-condos project on the edge of brownstone Brooklyn.

If you are generous enough to lump The Observer in with the rest of the MSM, then — full disclosure — we have fallen short, too. But for two brief mentions, the Real Estate Desk has yet to take a serious look at the EB-5 saga. Perhaps it is time to address this "dereliction of duty," to quote Mr. Oder, and closely consider this latest twist in this most tangled of projects.
...

[I]t is not clear that Forest City Ratner or the state are doing anything illegal here. Just because Mayor Bloomberg, Marty Markowitz, Jay-Z and the Nets are shilling for this project (as hilarious graphics Mr. Oder turned up show) does not mean they are doing anything wrong. In fact, it tends to fit with the behind-the-scenes, bending-the-rules nature that has plagued the project from its inception.

Then again, his frustration with the media for ignoring the story is understandable. Illegal or not, the papers have written about far more minor infractions by developers, politicians and joe sixpacks all over the city. Why they continue to ignore this story is a mystery. Whether they can for much longer remains to be seen.

As Mr. Oder recently told The Observer, he has plenty more bombshells to come. "This story is far from over," he said.

article

Posted by eric at 10:09 PM

Some props from the Observer on the EB-5 story, but more reporting is needed

Atlantic Yards Report

While I appreciate that the New York Observer's Matt Chaban was willing to recount the high points of my EB-5 coverage, and I appreciate the observation that my "frustration with the media for ignoring the story is understandable," that's not quite enough.

The government agencies backing this plan, the developer, and the New York City Regional Center need to show their math regarding the ten jobs that each of 498 investors is supposed to create or save.

link

Posted by eric at 7:37 PM

October 12, 2010

Chinese EB-5 Website Reports Atlantic Yards Report on NYCRC NETS Project

EB-5 Blog: Regional Centers in the USA
by Brian Su

Hey Norman Oder! You're ruining our scam — and the Chinese are starting to notice!

Atlantic Yards Report's negative blogging on NYCRC NETS project also draws attention from Shanghai based EB-5 Internet portal "Come2USA.com" - a popular Chinese language website that serves Chinese audience and prospective EB-5 investors. The website has been reporting Atlantic Yards daily blogs and updates on the NYCRC project.

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Posted by eric at 10:19 AM

October 11, 2010

Green Cards for Sale? Atlantic Yards Backers Seek Chinese Investors

The Huffington Post
by Norman Oder

Atlantic Yards Report's Norman Oder brings the tale of Bruce Ratner's green cards-for-cash scam to The Huffington Post.

You don't have to favor restricting immigration to grow skeptical about a little-known federal program known as EB-5, which provides green cards to foreign millionaires if they park money here for a few years.

Not only does it look like the United States is selling visas, but the terms are easier than in other countries. The visa program was approved by Congress two decades ago as a job-creation effort (EB = "employment-based"), but today immigrant investors don't have to directly create jobs.

A look at the largest-ever EB-5 project, an attempt to raise $249 million for the uber-controversial Atlantic Yards project (arena plus skyscrapers) in Brooklyn, provokes more skepticism. After all, proponents admit that the funding won't create new jobs--and "jobs" were a justification for subsidies the project has already received.

So, if a seven-city promotional tour in China that kicks off this week is successful, here's what may happen: 498 millionaires, most of them Chinese, will each park $500,000 for five years in an investment fund, organized by the privately-owned New York City Regional Center (NYCRC) at the behest of developer Forest City Ratner (FCR).

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Posted by eric at 8:48 PM

Lots of winners (but not the public interest) in effort to raise $249M for Atlantic Yards via "green cards for investors"; FCR could save $100 million

Atlantic Yards Report

When you run the numbers, there seem to be a lot of winners in the effort to market green cards for investments totaling $249 million in the Atlantic Yards project.

Those benefiting include:

  • immigrant investors and their families
  • the operators of the New York City Regional Center (NYCRC)
  • immigration attorneys
  • developer Forest City Ratner (by far the largest beneficiary)

Missing? The public interest, especially if no new jobs are created (as admitted) and this new investment does not actually retain jobs (as I've argued).

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NoLandGrab: Bet you could've never guessed that Bruce Ratner would be the biggest winner in this government-sponsored scam, right?

Posted by eric at 11:48 AM

Noting One Oddity, The Times, in Another, Neglects Obvious Explanations: Ratner’s EB-5 Green Cards Sale; A Reason For the Nets To Go To China, And. . .

Noticing New York

Why are the Nets going, as the article reports, to China and Russia? Though the article pronounces it odd that they are going abroad and then spends most of its time tendering possible explanations, it passes up taking a crack at the possible explanations that would seem to be the most logical, but perhaps also the most impertinent to mention.

Norman Oder of Atlantic Yards Report specifically mentions this particular Times sports story (“The Sports section, however, is all over the Nets' trip to China.”) in writing about how the Times has avoided reporting on the scandalous sale of green cards in China by Ratner and Prokhorov to finance their nets arena.

The sports section may be “all over the Nets' trip to China” except that it isn't reporting that the likely explanation as to why the Nets owners have made it a priority for the Nets to go to China is the EB-5 green cards the owners are selling to the Chinese, something the Times apparently doesn’t want to report about. Also not mentioned is that New York state and local government officials have been expecting to tag along with Ratner to sell the U.S. issued green cards with him in China.
...

We have a question for the Times: If, in their estimation, now is not the time to report on the EB-5 green card selling scandal and the dark not-so-secret back stories relating to Prokhorov’s wealth, then when will those things be discussed in the gray lady’s pages? Maybe it is just that the Times reporters, sports reporters and others, are not able to read Chinese. The answer then would be to hire a Chinese translator which is what Mr. Oder did and the reason he has consequently been able to keep breaking new gripping stories in his series about the EB-5 scandal.

What are New Yorkers left to do when the Time sidelines itself this way? Here's one thing we can tell you: If, as the Times reports, “The Nets are creating a Russian-language Web site” then New Yorkers are all going to have to hope that Mr. Oder opens his wallet up one more time for another translator, a Russian one. If he doesn’t, with the Times asleep, we will probably miss out on some major news stories that matter a great deal to our city’s local politics.

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Posted by eric at 11:37 AM

October 10, 2010

For Chinese as well as English speakers, a summary of my prior reportage on EB-5 financing of the Atlantic Yards/Barclays Center Project

Atlantic Yards Report

Norman Oder recaps his coverage of Bruce Ratner's only-in-Atlantic Yards green cards-for-cash financing scheme, in the "traditional" English as well as Chinese.

For those who have not read my coverage of the EB-5 immigrant investor program run by the New York City Regional Center (NYCRC) and its pitch to prospective Chinese investors in the Atlantic Yards Project, here is a summary of issues:

1) Despite the promotional material (as in the graphic below), this EB-5 project has no direct connection to the Nets basketball or the National Basketball Association (NBA).

The developer in Brooklyn, Forest City Ratner (FCR), is seeking $249 million in additional financing principally to build a new railyard, which it must build as part of the concession granted by state and local government for FCR to build a basketball area and permitting it as well to develop adjacent lots for residential and commercial purposes.

(If FCR obtains EB-5 financing it will be saving tens of millions of dollars in interest that it would otherwise have to pay as a result of borrowing from the bond markets.)

The railyard is part of related infrastructure for the overall project, which would include 16 towers over 22 acres, along with the arena.

2) This EB-5 project has almost nothing to do with the Barclays Center, the planned arena (or stadium), which is intended to house an NBA team.

NYCRC says that the "project" for which it seeks investment consists of the arena, infrastructure, and the railyard. The costs of constructiing the arena and much of the infrastructure, however, were already funded through bonds and subsidies reserved to those purposes.

3) This EB-5 project is based on job-creation calculations justifying visas for participating Chinese investors, which are, at minimum, difficult to understand.

The project's proponents assert that the investment would create or retain 7696 jobs. It is unlikely that the proposed $249 million in financing could create or retain so many jobs, however.

Nor does it appear plausible that the cited job-creation number is based on the jobs created by adding the $249 million either to existing funding to build the arena or to future construction, which is not yet funded.

Jobs resulting from construction of the arena do not depend on FCR obtaining this new funding, only jobs resulting from construction of the railyard do. Jobs resulting from new residential or commercial development will require financing substantially above the $249 million sought through EB-5.

4) Since the "project" does not in fact appear to include the arena, the resulting share and to prospective immigrant investors would seem to be much higher than the 17% figure marketed by NYCRC. That would increase the net risk.

5) The developer likely has the means to proceed with the project without the additional low-cost financing sought from Chinese investors.

For example, FCR's parent company, Forest City Enterprises, has more than $467 million in cash and credit capacity, according to its 9/8/10 earnings release.

6) A representative of the NYCRC was unable to answer a simple, direct question from immigrant investors: why, if one of the partners in the project is the Russian billionaire Mikhail Prokhorov, is any new money needed?

FCR may not be seeking more money from Prokhorov because, like most major investors, he would do so only in exchange for an increased share of the project.

7) Even though he was supposed to attend NYCRC investment seminars in China, Brooklyn Borough President Marty Markowitz--essentially the "mayor" of one of New York City's five districts--will not be going.

He dropped out of the tour shortly after bad publicity circulated about the questionable assumptions underlying EB-5 financing of the Atlantic Yard project.

8) Websites promoting this project give incorrect figures about jobs. Consider this statement attributed to U.S. Senator Charles Schumer: "Brooklyn has already begun its renaissance, bringing a professional ball team into the district as well as 10,000 new jobs – all these are proofs of our achievements."

Schumer made that claim in 2004, when there was supposed to be space for 10,000 office jobs in four towers. Now, only one office tower is planned, and it's indefinitely postponed. And as noted above, the "project" as defined for Chinese investors does not include any of the towers.

9) Unlike some other EB-5 programs, there is no suggestion that investors would get a return on their investment. The promise is that investors would get their principal back, after paying $38,000.

10) If the principal is not returned, investors are supposed to be assured the safety of their investment because of collateral.

But despite suggestions that it consists of "land," that collateral is something more complex and much less liquid: a share of development rights in the remainder of the project.

Any group of immigrant investors would appear unlikely to develop the remainder of the Atlantic Yards project without a sophisticated local partner who has experience in development. That suggests that a partner like FCR itself would be needed; if so, it would take back some share of those development rights.

11) In the video below, Gregg D. Hayden promises that the "the Barclays Center is... the most significant project in the city and state of New York in the last 20 years" and "it generates well in excess of 10,000 jobs for years to come."

However, no government agency studying the project has claimed "it generates well in excess of 10,000 jobs for years to come." Moreover, many people believe that Ground Zero, the construction after the terrorist attacks of 9/11, is a more significant project.

12) One of the NYCRC's Managing Principals, Paul Levinsohn, was investigated (but not indicted) for a scheme in which he and a partner were able to place billboards on state land within cities that didn't want them.

Levinsohn's then-boss, New Jersey Governor James McGreevey, said "the whole thing looked atrocious."

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Posted by eric at 10:29 PM

October 9, 2010

Putting It Togther: Who Should Be Selling Green Cards?

Noticing New York

This blog post takes a new perspective on the recent relevations that Bruce Ratner will be using the EB-5 program to attract Chinese investors for Atlantic Yards.

It kept gnawing at us: Why should this be something a private individual gets to do rather than its being the responsibility of the government? . . . Why should Bruce Ratner (and his partner Mikhail Prokhorov, a bloody Russian oligarch of all people!) get to go out and sell U.S. government-issued green cards to 498 Chinese millionaires and their families? . . . Why isn’t the issuance of green cards a government responsibility?

...

So what can we afford? Here is the not-so-crazy idea we came up with when we put two and two together. Maybe we could afford a lot more if the government was the one out there handing out green cards to the high bidders. Did the MTA think they had cleverly accomplished something and squared away part of their capital budget needs when, in connection with the very low price Ratner is paying to acquire the Vanderbilt railyards from them for Atlantic Yards, they contractually obligated Mr. Ratner to build the replacement (albeit smaller and less adequate) railyard they were then going to need? By going to the Chinese Ratner isn’t the one paying to close that budget gap anymore; he’s simply passing his contractual obligation along to the Chinese. Gosh, Golly and Jumping Jehosaphat: The MTA could have gone to the Chinese directly, eliminating the middle man!

Let’s unprivatize the selling of green cards and put some money back in the government’s pocket by taking this function back! It could mean really big bucks.

The post goes on to speculate why any public officials should be part of a trip to China for that benefits a private developer (maybe it has to do with receiving a free trip with luxury accommodations).

The post ends questioning why public wealth is being transferred into private hands for no public benefit in a way that begins to mirror what happened in Russia when formerly government-owned industry was transferred into private hands under shady circumstances.

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Posted by steve at 9:01 AM

Brooklyn politician will not join EB-5 China trip

Exclusive Visas

Exclusive Visas is an enterprise that offers, via their red white and blue website, to guide foreign nationals through the EB-5 process. This particular item is a mention of Marty Markowitz's decision not to accompany ESDC, the tool of developer Bruce Ratner, to China to attract investors by using this program that sells green cards in return for an investment, in this case, of $500,000.

After it was indicated that he might be accompanying a businessman on a trip to China to drum up interest in the EB-5 visa program, the Brooklyn Borough President has decided to stay in New York.

Marty Markowitz has decided not to accompany developer Bruce Ratner on his EB-5 trip to China, where the businessman will try to draw investors for his ambitious Atlantic Yards project, reports the New York Post.

...

Ratner and his company, Forest City Ratner, is hoping to obtain $250 million in investments through the EB-5 visa program to help finance the $4.9 billion Atlantic Yards development, which includes a basketball arena that could be the potential home of the New Jersey Nets.

Under the EB-5 visa program, if a foreign national invests $1 million (or in some places $500,000) in an American business and that investment leads to the creation or preservation of 10 jobs, the investor becomes U.S. green card eligible.

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NoLandGrab: Keep in mind that, despite the EB-5 program's purpose to create or retain jobs, the ESDC has admitted that the investment sought by Ratner will produce no new jobs.

Posted by steve at 8:40 AM

October 8, 2010

The fundamental lie at the heart of the "green cards for investors" scheme (and why the Chinese investors face a higher risk than acknowledged)

Atlantic Yards Report

There's a fundamental lie at the heart of the attempt by Forest City Ratner and its partner, the New York City Regional Center (NYCRC), to raise $249 million in no-interest (or low-interest) financing under the EB-5 visa program from Chinese millionaires seeking green cards.

They've redefined the "project" as a $1.448 billion project that includes the Barclays Center arena, related infrastructure, and a new railyard that Forest City Ratner is required to build.

And only by defining the "project" anew, and thus tacking the railyard on to already funded components, does the risk to investors seem diminished.

Rather, investors likely face a much higher risk than acknowledged. And the collateral offered would not be easily convertible into cash but would require a sophisticated development partner.

(Why is New York State's Empire State Development Corporation playing along, accepting the claim of a $1.448 billion project and sending Executive Director Peter Davidson to China next week? He is the only government official on the trip.)

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Posted by eric at 11:07 AM

FCR's Gilmartin going to Beijing to meet with potential investors, but promoters erroneously claim Markowitz will be there

Atlantic Yards Report

Potential EB-5 investors, immigrants who would park $500,000 for a few years as a no-interest loan to Forest City Ratner through the New York City Regional Center (NYCRC), can attend two events next week in Beijing.

One is on Tuesday October 12, as previously reported, and one on Monday October 11.

Both promote the highly questionable figure of 7696 jobs associated with the $249 million investment sought--4980 are required, for $249 million aimed mainly at financing the railyard FCR's obligated to build--as well as the highly questionable collateral.

Below is the lineup, in the version from Google Translate.

Why is Markowitz there?

Note that Brooklyn Borough President Marty Markowitz (described as the "Brooklyn New York City Mayor") os described as a guest, but will not be there after all.

He withdrew from the trip after questions were raised about the legitimacy of the project and the role of the New York City Regional Center, which is paying his way.

Thus the only government official present will be Peter Davidson of the Empire State Development Corporation.

Note that Forest City Ratner executive MaryAnne Gilmartin will accompany CEO Bruce Ratner, along with another company executive and several representatives from the New York City Regional Center.

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NoLandGrab: Or maybe Markowitz is pulling a double-reverse, and is going to sneak off to China in a Bobby Valentine-esque disguise.

Posted by eric at 10:50 AM

The phantom 69.5 acres of collateral offered to Chinese investors in the "Brooklyn Stadium and Infrastructure Project" EB-5 funding scheme

Atlantic Yards Report

According to the English translation of a chart (below) given to green card-seeking Chinese investors by marketers for the New York City Regional Center, the "first collateral is the development rights to the 3,025,654 square-feet land the project will develop."

Nearly the same phrase (3,025,654 square feet of land) appears in the machine translation version of key facts provided to attendees at an October 11 investment seminar.

That could lead innocent investors to conclude that, should their investment not be returned in cash, they'd get a piece of about 69.5 acres.

Not at all.

The "land" is vertical, not horizontal

They would get a portion of 3,025,654 square feet of vertical development rights, achievable only by building residential and office towers over 15 or so acres.

That's a far more complicated proposition. To unlock the value of the development rights, such investors likely would have to partner with a sophisticated developer, like Forest City Ratner.

And Forest City Ratner would take a fee, thus diminishing the value of the collateral. As Michael D.D. White writes in Noticing New York:

If Ratner doesn’t return the their money the booby prize for the Chinese is that Ratner gets to keep their money!

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NoLandGrab: It's becoming a sad joke that, as Norman Oder dutifully peels away the layers of Bruce Ratner's increasingly rotten green cards-for-cash onion, the mainstream media and elected officials keep their heads planted firmly in the sand.

Posted by eric at 10:41 AM

October 7, 2010

Obfuscation in English, candor in Chinese: EB-5 transcript quotes NYCRC rep: "business is business, and we are in pursuit of profit maximization"

Atlantic Yards Report

Remember, as I reported October 4, how New York City Regional Center's (NYCRC) Gregg Hayden, when faced with a question about why exactly green card-seeking Chinese investors were needed for a project that included deep-pocketed Russian billionaire Mikhail Prokhorov, simply evaded the question?

Chinese investors reading the transcript were given an additional dose of candor, words not in Hayden's mouth but which elaborate on the logic and spirit of his statement:

The costs of using investment funds are relatively lower than the costs of bank loans. Although the NBA project funds are sufficient, business is business, and we are in pursuit of profit maximization.

(Emphasis added)

This blatant admission of the developer's true goals gives a lie to the official claim that the investment would create or save jobs, and provides more evidence that the plan violates the spirit, and perhaps the letter, of the EB-5 visa program.

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NoLandGrab: There's no small irony in the fact that Bruce Ratner has gone seeking investors in a Communist country that has fully embraced Capitalism, while back home, his Capitalist society practices Socialism for the super-rich.

Posted by eric at 10:10 AM

Translation: Bruce Ratner Wants To Swindle 498 Chinese Millionaires?

Noticing New York

The deal Ratner (with Prokhorov) is offering the Chinese millionaires is that they put up $538,000 apiece and, after five years, if they are lucky they will get $500,000 back. That’s right; they get back less money. So overall the Chinese lose and are out-of-pocket financially: They’re down that initial $38,000 difference; they’re down the presumed inflation loss on the money, perhaps another $55-60,000, and they are down the lost investment earnings on the original $538,000. At a mere 8.9% annually (not 17%, 11.7%, 11%, or 10.3%) the foregone annual investment earnings on $538,000 compounded annually for five years come to: $285,989. (A lower return or reduced final figure should probably be used to avoid double counting the inflation loss.)

(* It is also a pretty safe guess that the Chinese will not get any tax benefits from having their money finance the arena which is sometimes a compensating factor when taking a negligible or nonexistent investment return. Our guess is that any tax benefits, such as they may be, will all be assigned to other REAL investors.)

That means that, all tallied, each of these Chinese “investors” are walking away and leaving about $324,000 to $380,000 or more in the Ratner/Prokhorov pocket. It’s obviously not an “investment” at all and the Chinese are not “investors”; they are simply, merely, and nothing more than, the purchasers of green cards and if green cards are worth about $324,000 to $380,000 per each individual and their family then perhaps Mr. Ratner hasn’t swindled these Chinese millionaires . . . yet.

Click through for the "yet" explained — Bruce Ratner's "collateral" damage.

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Posted by eric at 9:54 AM

October 6, 2010

State agency says Bruce Ratner used federal program to finance Atlantic Yards project, Nets arena

NY Daily News
by Michael O'Keeffe

A state official says funds Nets minority owner Bruce Ratner raises for the Atlantic Yards through a federal program that grants green cards to foreign investors will not create any new jobs beyond those already forecast for the $4.9 billion project, which includes a $900 million arena for the Nets.

Elizabeth Mitchell, a spokeswoman for the Empire State Development Corporation, said Ratner turned to the EB-5 program because it will save money on Atlantic Yards financing.

"If this financing was not available - or if Forest City Ratner is not as successful as we hope in raising funds under this program - then Forest City Ratner will need to raise funds from other sources to facilitate build-out of the entire project," Mitchell said in an email.
...

"It's ridiculous to think that Forest City Ratner can't fulfill its obligation to build a new rail yard without this money," said blogger Norman Oder, whose Atlantic Yards Report serves as a clearinghouse for information about the Brooklyn project. "It looks like an effort to save money on financing. Parent Forest City Enterprises has more than $467 million in cash and credit capacity, according to its 9/8/10 earnings release. If it had to spend the money, it would."

[Center for Immigration Studies Fellow David] North said Ratner probably isn't breaking any rules by tapping into the pay-to-stay scheme for cut-rate financing because the program's rules are vague. But he does object to granting residency to anybody who can write a $500,000 check.

"It shows the artificiality of the program, since these jobs would be there anyway, no matter where the funding comes from," North said. "I think the whole program is a terrible idea."

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Related coverage...

Atlantic Yards Report, Daily News: ESDC admits "green cards for investors" program won't create any new jobs

Despite a phenomenally dull (and misleading) online headline, there's some important news in a Daily News article today headlined State agency says Bruce Ratner used federal program to finance Atlantic Yards project, Nets arena.

The headline in print is far more forceful: "Ratner plan Nets critics: Insist fund is about money grab, not jobs."

The news is not that, to finance a required new railyard, Ratner is trying to use a program that provides immigrants and their families green cards if they invest $500,000 to create or retain ten direct or indirect jobs.

The news is that the Empire State Development Corporation (ESDC) admits that the investment "will not create any new jobs beyond those already forecast."
...

I'm not so sure the rules aren't being broken. They sure look like they're being stretched.

After all, the whole effort is accompanied by astounding and misleading public relations, starting with the presentation of the project as coupled with the Nets and the NBA.

And it's clear that this is violating the spirit (if not the letter) of the law, given that Congressional backers all say it's about job creation, not job retention.
...

The role of the press

Credit the Daily News, in the person of Sports I-team reporter Michael O'Keeffe, for following up. It should be a big news story, but apparently no one else was interested.

The New York Post has written twice about the Marty Markowitz angle. The Wall Street Journal ran a softball story at the start, with no follow-up.

The Times has been silent. So has the Observer.

Develop Don't Destroy Brooklyn, Ratner's Attempt to Raise Cheap Atlantic Yards Cash Seems to Violate Federal Green Card Program

The Empire State Development Corporation admits that Bruce Ratner is misusing the federal EB-5 program which gives out green cards to foreign lenders in return for loans that create jobs or "retain jobs that would be lost without their money."

According to the ESDC, Ratner's attempt to use the program to raise nearly $250 million from Chinese lenders will not create any new jobs and is not needed to retain jobs.

NetsDaily, Controversy Continues to Roil Ratner Trip to China

Barclays Center, the first element in the project, is fully funded, but Ratner is seeking funds to finance the rebuilt railyard next door and pay off a loan on a piece of property outside the arena footprint. He's doing so under a controversial program that offers investors green cards in return for $500,000 in financing...and the middleman he's using to attract investors is using the Nets' visit to promote the effort.

The controversy has attracted so much attention that Brooklyn Boro President Marty Markowitz, an Atlantic Yards supporter, has decided not to accompany Ratner to Beijing.

NoLandGrab: Correction — the Barclays Center is allegedly fully funded.

Posted by eric at 9:47 AM

Markowitz Backs Out Of China Trip

Gothamist
by Jaya Saxena

Possibly due to quizzical looks over yet another all-expenses-paid trip, or possibly because the city Conflicts of Interest Board just said no, Brooklyn BP Marty Markowitz will not be joining Bruce Ratner on a trip to China to lure investors to the Atlantic Yards project through the EB-5 visa program. A spokesman told the Post that Markowitz "supports the group’s mission, wishes it great success and is confident the project will excite even more investors as it moves forward. Markowitz is apparently so bummed out about it that he couldn't even turn the situation into one of his signature puns.

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Posted by eric at 9:01 AM

October 5, 2010

NYCRC third most active regional center in China; EB-5 program popularity there attributed to lack of "meaningful" requirements

Atlantic Yards Report

The New York City Regional Center (NYCRC), the firm soliciting investments (in a questionable way) in Atlantic Yards infrastructure in exchange for green cards, is the third most visible and active regional center in China, according to the blog EB-5 Blog: Regional Centers in the USA.

Popular in China

And why are EB-5 programs growing? And why are they so popular in China? According to a 3/16/10 Real Estate Channel article headlined EB-5 Visa Program Sparking Foreign Real Estate Investor Activity, it's because the program offers cheap money for real estate and few burdens for investors.

An excerpt:

The number of "regional centers" has more than doubled in the last year, often focusing on real estate projects, anything from office buildings to ski resorts in Vermont.

"It's very cheap money," said Chaim Katzap, chief executive of Lion's Property Development, which has offices in New York and China. "I think it is the best way today to raise equity."

Using the EB-5 program, Katzap helped raise $60 million from 100 foreign investors for the Brooklyn Navy Yards redevelopment in New York, which is a designated regional center.

EB-5 is particularly appealing to wealthy Chinese, who may already have family members working or living in the United States, Katzap says.

"EB-5 does not require language skills, does not require that you work here or that you live here full time," he said.

Or, to quote Gregg D. Hayden of the NYCRC, immigrant investor programs in other countries "have certain meaningful requirements that the U.S. program does not have."

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Posted by eric at 11:44 AM

Markowitz pulls out of controversial China trip to benefit Nets arena

NY Post
by Rich Calder

At least he can still hop on the subway and ride to Chinatown.

Bowing to pressure fueled in part by a Post story last week, Brooklyn Borough President Marty Markowitz confirmed today that he’s pulling out of an all-expenses-paid trip to China. He had planned to take the weeklong 7,000-mile trip this month to help his longtime pal -- developer Bruce Ratner -- peddle green cards to rich foreigners in exchange for investing in Ratner's cash-poor Atlantic Yards project.

The Beep won’t be accompanying Ratner, Peter Davidson, executive director of the Empire State Development Corp., and other officials on the trip -- even though the city Conflicts of Interest Board earlier today green-lighted the trip for Markowitz by ruling it wouldn’t violate city ethics laws.

Markowitz’s trip would have been paid for by New York City Regional Center LLC. The Manhattan company locally oversees the federal "EB-5" program, which gives green cards to investors of at least $500,000 in US job-creating projects. Ratner is seeking 498 such investors as he tries to raise $250 million for the $4.9 billion Prospect Heights development, which includes an arena for the NBA’s Nets.

Markowitz through a spokesman denied caving in to heavy criticism from project critics, including postings today by the blog Atlantic Yards Report claiming Ratner and his contingent have over-hyped the projects benefits -- such as job estimates -- to sway potential Chinese investors. The blog was also the first to report about the planned trip last week.

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Related coverage...

Atlantic Yards Report, Post: Feeling pressure (?), Markowitz pulls out of China trip, even though it was OK'd by the Conflicts of Interests Board

Surely the pressure was fueled in part by the Post, but I have to think Atlantic Yards Report had a larger impact. And, actually, the trip would not benefit the Nets arena--that's the hype--but rather developer Forest City Ratner's search for low-cost financing for the railyard it's obligated to build.
...

According to the Post, I am "claiming Ratner and his contingent have over-hyped the projects benefits -- such as job estimates -- to sway potential Chinese investors."

Actually, I'm not claiming that they've over-hyped benefits. I'm proving it. [Emphasis added by NLG.]

Any promotion that uses a 2004 quote from Sen. Chuck Schumer about 10,000 office jobs--office jobs destined for no-longer-planned office towers--is an over-hyped promotion. There's no debate about that.

Posted by eric at 11:36 AM

Who Is This Guy and Why Is He in China Making Stuff Up About Atlantic Yards?

Here's some coverage of yesterday's Atlantic Yards Report exposé of Bruce Ratner's green cards-for-dollars scheme.

Develop Don't Destroy Brooklyn, Who Is This Guy and Why Is He in China Making Stuff Up About Atlantic Yards

Norman Oder looks at the sales job the New York City Regional Center (NYCRC) is doing in China to scare up $249 million in loans (from Chinese lenders seeking green cards) for Bruce Ratner's Atlantic Yards project—specifically building a new rail yard. Lo and behold it is as overhyped and fudged as the sales job Ratner and partners laid on New Yorkers.

Field of Schemes, Ratner's green-cards-for-arena-development-funds swap raises eyebrows

Even on a normal day, Norman Oder's Atlantic Yards Report is a cornucopia of information about the Brooklyn Nets arena project, often more than you really want to know in one sitting. Today, however, Oder was en fuego, reporting on the growing controversy over Nets owner Bruce Ratner's plans to raise money for construction by offering green cards to Chinese investors, which he first broke news of last week.
...

While the whole mess mostly sheds light on the weirdness of U.S. immigration law — raise your hand if you had any idea that any foreigner with half a million dollars to throw around could buy their way out of waiting for resident alien status — it does indicate that Ratner and his partner Mikhail Prokhorov are looking for creative ways to find cheap money to finance development of the Atlantic Yards site. Whether that's because they're short of cash, or they just figure you can never have enough money, is anyone's guess.

Develop Don't Destroy Brooklyn, Atlantic Yards Con Job Being Replicated in China for Green Card Selling Scheme

Ratner, his government friends and something called the New York City Regional Center (NYCRC)—the private firm promoting the Atlantic Yards loans for green cards scam—are all over-hyping the project's benefits to the potential Chinese lenders, in precisely the same way they over-hyped (lied, fudged) the project's benefits to ram the project down Brooklyn's throat.

[Oder] sums up what he has found this way: "...project proponents have managed to rent government for private interests.

Oder's work, including professional translation of the program's promotional websites in China, should be a wake up call to the mainstream media to jump on what looks like a scandalous misuse of the EB-5 program to boost the developer.

Posted by eric at 10:21 AM

October 4, 2010

NYCRC misleads Chinese investors about project (erroneous, stale Schumer claim about jobs); also, investors would get no profit, just green cards

Atlantic Yards Report

Thanks to a professional translator, we can now understand much more how the New York City Regional Center (NYCRC) is misleadingly promoting the EB-5 investment into Atlantic Yards, overpromising the number of jobs, muddying the definition of the "project" at hand, and using (and misusing) quotes from dignitaries such as Mayor Mike Bloomberg and Senator Chuck Schumer.

The information comes from the web site set up by Kunpeng International Business Consulting, authorized agent for the NYCRC. (Here's another example of the NYCRC misleading investors.)

Also, we learn what collateral Forest City Ratner is offering: development rights to Phase 2 of the project, a highly problematic guarantee, given the complexity of development.

Misleading ties to NBA

Kunpeng International is promoting an October 12 conference for investors in Beijing as the "New York NBA Coliseum (Stadium) and Infrastructure Construction Project" and the "Brooklyn Stadium and Infrastructure Project." Nets stars Brook Lopez and Devin Harris are at the top.

But the investment sought has little or nothing to do with the arena.

Rather, the $249 million in low-cost (no-cost?) financing sought by Forest City Ratner--$500,000 from 498 millionaires, who each must create or retain ten direct or indirect jobs--would support a new railyard and perhaps help pay off a land loan, Ratner told the Wall Street Journal.

Financing and the buying of green cards

According to another Kunpeng page (translated), immigrant investors must put in $538,000 and, after five years, get the full return of the $500,000 principal and green cards for the entire family. There's no financial gain.

While investors in other EB-5 projects can get a financial return, this confirms the charge that the EB-5 program can allow the buying of a green card....

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NoLandGrab: Mainstream media, consider this your wake-up call! Norman Oder has done all the groundwork — how about a little follow-up?

Posted by eric at 12:07 PM

The abdication of government: BP Markowitz and the ESDC's Davidson will flack Ratner's project in China, but won't comment on job claims

Atlantic Yards Report

For all the evidence that Atlantic Yards is more a private-public development than a public-private one, the latest twist--the effort to trade green cards for 498 Chinese investors (and their families) in exchange for $500,000 each--amps up the evidence.

The willingness of Brooklyn Borough President Marty Markowitz and Empire State Development Corporation (ESDC) Executive Director to pitch the project in China next week without saying (or knowing?) anything about the promised jobs suggests that project proponents have managed to rent government for private interests.

It's ridiculous to think that, without $249 million in low-cost financing from Chinese investors to build a new railyard, 7606 jobs would be saved.

Similarly, it's ridiculous to think that Forest City Ratner can't fulfill its obligation to build a new railyard without this money. It's simply a business proposition-a deceptive one that relies on the arena and team to raise money for another part of the project--to save money on financing.

No transparency

Markowitz's spokespeople simply wouldn't answer questions about how many jobs would be associated with this investment and why this specific investment is needed to create jobs.

ESDC spokeswoman Elizabeth Mitchell said that I should pose my questions about job creation to the NYCRC.

The NYCRC has not responded to my queries. Nor is it obligated to do so. So any public oversight of this important immigration issue gets very, very difficult.

You can do your part to fight this outrageous abuse by contacting the government to express your concerns.

Raising questions with the USCIS

U.S. Citizenship and Immigration Services (part of the Department of Homeland Security, or DHS) spokeswoman Luz Irazabal told me that regional centers face annual oversight but questions can be raised by the public:

All petitions filed by a foreign entrepreneur connected to a regional center are reviewed individually as it pertains to the regional center.

To report your concern, feel free to send an email to USCIS.ImmigrantInvestorProgram@dhs.govUSCIS.ImmigrantInvestorProgram@dhs.gov. You can also contact the DHS Office of the Inspector General at 1-800-323-8603 (phone), 202-254-2392 (fax) or DHSOIGhotline@dhs.govDHSOIGhotline@dhs.gov (email).

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Posted by eric at 11:52 AM

Show the math: How would investors seeking green cards create or retain 7696 jobs by financing the railyard Forest City Ratner is obligated to build?

Atlantic Yards Report

Like everything else about Bruce Ratner's Atlantic Yards project, the numbers in his green cards-for-cash scheme just don't add up.

Here's what the press should be asking the New York City Regional Center (NYCRC) and any public or elected official supporting Forest City Ratner's effort (via the NYCRC) to raise $249 million from 498 Chinese investors:

Show us the math.

The investment would have to create or retain 4980 direct or indirect jobs--ten jobs per investor.

The NYCRC is claiming 7696 jobs would associated with this investment, as noted (right) on this website promoting an October 12 event for potential investors.

Show us the math.

Looking more closely

Extrapolate these job figures--for an investment about 5% of the entire $4.9 billion project--and Atlantic Yards should create or retain nearly 154,000 jobs.

Wow.

Yes, EB-5 investment monies can be used as "last-mile" funding and thus be credited for a project as a whole.

But let's test that against reality.

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NoLandGrab: Who wants to bet on how the reality check comes out?

Posted by eric at 11:44 AM

Video: in China, NYCRC rep pitching green cards in exchange for AY investment makes astounding claims (10,000 jobs, "most significant in 20 years")

Atlantic Yards Report

Norman Oder blows the lid off Bruce Ratner's crooked green cards-for-cash financing scheme, in today's four-part package of Atlantic Yards Report exclusives.

"Members shall not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflect adversely on the Member’s professional reputation or integrity."
--Best Ethics Practices for EB-5 Regional Centers, Association to Invest in the USA (IIUSA)

During a videotaped forum in China September 12 aimed at millionaires seeking green cards in exchange for an investment into the Atlantic Yards project, a representative of the New York City Regional Center (NYCRC), the private firm delegated to manage such investments, made some astounding claims.

Notably, Gregg D. Hayden on video (excerpts below) claimed that:

  • "the Barclays Center is... the most significant project in the city and state of New York in the last 20 years"
  • "it generates well in excess of 10,000 jobs for years to come"
  • "because we involve government and government investment, we create a very significant 54% surplus in job creation"

All of those claims are very dubious, as is the prominent effort to link the investment sought--$249 million to build the railyard and possibly to pay off a land loan--to the Barclays Center arena and Nets basketball. See for example the NBA banner in the screenshot above.

And Brooklyn Borough President Marty Markowitz wants to let the NYCRC pay his way to China to promote the project.

Evading the central question

Also, when Hayden was faced with a simple but challenging question--why, if Russian billionaire Mikhail Prokhorov is involved in the project, is new investment needed?--he evaded the question with a non sequitur.

The candid answer would have been: Forest City Ratner and parent Forest City Enterprises want to lower the cost of capital.

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Posted by eric at 11:14 AM

October 3, 2010

With Madoff, there were no checks and balances; same for Ratner's EB-5 visa scheme?

Atlantic Yards Report

In last Sunday's Op-Ed at 40 retrospective, the New York Times published Wall Street’s Fatal Blind Spot, by Michael Lewis and David Einhorn, originally published January 4, 2009.

A few excerpts seem relevant to the plan to raise Atlantic Yards funding from foreign investors via the EB-5 visa plan, specifically job-creation figures that are obscured and extremely questionable, and a lack of checks and balances:

Incredibly, intelligent people the world over remain willing to lend us money and even listen to our advice; they appear not to have realized the full extent of our madness. We have at least a brief chance to cure ourselves. But first we need to ask: of what?

To that end consider the strange story of Harry Markopolos. Mr. Markopolos is the former investment officer with Rampart Investment Management in Boston who, for nine years, tried to explain to the Securities and Exchange Commission that Bernard L. Madoff couldn’t be anything other than a fraud. Mr. Madoff’s investment performance, given his stated strategy, was not merely improbable but mathematically impossible. And so, Mr. Markopolos reasoned, Bernard Madoff must be doing something other than what he said he was doing.

No one else checked

The essay concludes:

What’s interesting about the Madoff scandal, in retrospect, is how little interest anyone inside the financial system had in exposing it. It wasn’t just Harry Markopolos who smelled a rat. As Mr. Markopolos explained in his letter, Goldman Sachs was refusing to do business with Mr. Madoff; many others doubted Mr. Madoff’s profits or assumed he was front-running his customers and steered clear of him.

Between the lines, Mr. Markopolos hinted that even some of Mr. Madoff’s investors may have suspected that they were the beneficiaries of a scam. After all, it wasn’t all that hard to see that the profits were too good to be true. Some of Mr. Madoff’s investors may have reasoned that the worst that could happen to them, if the authorities put a stop to the front-running, was that a good thing would come to an end.

The Madoff scandal echoes a deeper absence inside our financial system, which has been undermined not merely by bad behavior but by the lack of checks and balances to discourage it. “Greed” doesn’t cut it as a satisfying explanation for the current financial crisis. Greed was necessary but insufficient; in any case, we are as likely to eliminate greed from our national character as we are lust and envy. The fixable problem isn’t the greed of the few but the misaligned interests of the many.

The parallels are indirect, of course, but the structure of the EB-5 visa program apparently allows for promoters to make exaggerated claims, with no oversight.

link

Posted by steve at 9:03 AM

October 1, 2010

The math doesn't work: peak construction jobs would reach 1756, so how can 4980 new jobs be claimed (and how can they be attributed to EB-5 only)?

Atlantic Yards Report

You might not be able to believe this, but Bruce Ratner's greencards-for-cash funding scheme just doesn't seem to add up.

How can the $249 million investment into the Atlantic Yards project sought from green card-seeking Chinese investors create or retain nearly 5000 jobs, as is required under the guidelines of the EB-5 visa program?
...

Even during the peak construction period between 2011 and 2012, the number of construction jobs averages 1756 per year.

Yes, direct and indirect construction jobs created under the EB-5 program can be counted, but they must last two years.

Remember, the ESDC’s 2009 economic analysis suggested that “construction of the project will generate 12,568 new direct job years and 21,976 total job years (direct, indirect, and induced).”

So, if they generate 1756 construction jobs over two years, using the same ratio to add indirect and induced jobs, there would be 3070 jobs.

Where are the other 1928 jobs? There would be few permanent jobs, given the failure to construct an office tower.

More importantly, how can the sum total jobs be attributed to just this $249 million investment, when it's part of (as pitched in China) a $1.448 billion project or, as seen here, a $4.9 billion project?

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NoLandGrab: The next time Ratner does something legit will also be the first time Ratner does something legit.

Posted by eric at 9:34 AM

Marty Markowitz + China + Green Cards = Atlantic Yards Cash?

The Daily Politics
by Celeste Katz

Brooklyn Borough President Marty Markowitz could be headed to China to help developer Bruce Ratner trade green cards for cash for his Atlantic Yards project, our Erin Durkin reports:

Markowitz is waiting for the OK from the city Conflicts of Interest Board to accompany Ratner’s delegation on the trip, which kicks off Oct. 11.

The New York City Regional Center invited Markowitz on the trip and would pick up the tab, his spokeswoman said.

It’s part of the EB-5 visa program, which offers up green cards to foreigners who invest $500,000 in a project that creates or saves at least 10 jobs.

The federal government sets aside 3000 a year for such deep-pocketed investors.
...

The trip was first reported by prolific Atlantic Yards blogger Norman Oder, who has questioned whether raking in Chinese cash for the project, already under construction, should really count as creating or saving jobs.

Ratner executive MaryAnne Gilmartin acknowledged at a public meeting last night that only 100 people have been put to work at the site so far (the developer promises more than 16,000 construction jobs over the life of the project, which actually means 16,000 "job-years," or 1600 a year if it gets done in 10 years, which even Ratner now acknowledges is close to impossible.) But she promised that number would grow quickly as arena construction got further underway.

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Posted by eric at 9:27 AM

September 30, 2010

The question Marty Markowitz can't answer regarding the "green cards for Atlantic Yards"

Atlantic Yards Report

Brooklyn Borough President Marty Markowitz plans to join Bruce Ratner on a trip to China to help the developer gain low-cost financing in exchange for green cards: 498 of them.
...

My question to Markowitz's office, yet unanswered:

How will this investment create jobs?

I don't think it can.

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Posted by eric at 9:07 PM

Yes, Markowitz will go to China to flack green cards for Ratner's project (if he can get past Conflict of Interests Board)

Atlantic Yards Report

Brooklyn Borough President Marty Markowitz has often gone that extra mile for Atlantic Yards developer Bruce Ratner--who can forget Markowitz's praise of the Ellerbe Becket "hangar" arena design?--but now he's willing to fly to China.

Yes, even though Markowitz isn't talking, a spokeswoman confirmed that the Borough President plans to join the developer on a trip to China next month to sell Chinese investors on the EB-5 visa program, which offers green cards to investors who put $500,000 into a fund that creates ten direct or indirect jobs, or retains ten jobs.

(Markowitz's picture, along with that of other project principals, appears at right on a website flacking the project set up by Kunpeng International.)

COIB ruling

However, the trip is not certain, as a ruling from the city's Conflicts of Interests Board is awaited, spokeswoman Laura Sinagra told me tonight, after a meeting at Borough Hall regarding the Barclays Center arena plaza.

Who's paying Marty's way?

Would taxpayers pay Markowitz's way? Would Forest City Ratner? Would Markowitz's Best of Brooklyn charity? Sinagra couldn't offer any details.

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NoLandGrab: Why is MARTY MARKOWITZ's name the only in ALL CAPS? BECAUSE HE"S ALWAYS SHOUTING?

Posted by eric at 1:18 PM

While Ratner wants to use Chinese millionaires' money for railyard and land loan, in China, program portrayed as a piece of Nets/arena

Atlantic Yards Report

There's something very, very strange about the way the New York City Regional Center, the private company authorized to sign up green card-seeking investors, is marketing the Atlantic Yards project in China.

While developer Bruce Ratner told the Wall Street Journal that the $249 million sought from perhaps 498 foreign investors would be used to build a permanent railyard and perhaps pay off the company's refinanced land loan, in China, the investment is being portrayed as strongly connected to the Nets and the Barclays Center.

Another oddity: a graphic below regarding the investment adds $249 million in EB-5 investment funding to city, state, and public/private bond funding, for a total of $1.448 billion, a project figure not previously presented.
...

On the web site set up by Kunpeng International Business Consulting, authorized agent for the NYCRC, Nets stars Brook Lopez and Devin Harris are at the top.

Click through for numerous screen shots, and a bit more commentary from Norman Oder.

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Posted by eric at 1:08 PM

September 23, 2010

Forest City Ratner's green-cards-for-investments scheme is part of a pattern (MTA, Beekman), but job-saving claims demand scrutiny

Atlantic Yards Report

Forest City Ratner's green-cards-for-investments scheme is still pretty baffling. How exactly can they claim that using Chinese millionaires' money to pay off their land loan counts as creating or preserving jobs?

Sure, there has to be a document that makes that claim--and Forest City Ratner and partner the New York City Regional Center should make it public.

I suspect it essentially will say that by allowing the project to go forward it preserves jobs.

But that suggests that only this infusion of capital keeps the developer from moving ahead.

That can't be true. It's a business decision.

Parent Forest City Enterprises has more than $467 million in cash and credit capacity, according to its 9/8/10 earnings release. If it had to spend the money, it would.

It would rather not. That's understandable. Corporations are supposed to maximize value to their shareholders.

But the goal of the EB-5 program is economic development, not developer bailouts. So the press and the United States Citizenship and Immigration Services (USCIS) should take a close look.

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Posted by eric at 10:59 AM

September 21, 2010

Atlantic Yards to Bribe Foreign Investors With Green Cards

Curbed

Developer Bruce Ratner is flying to China next month, but he's not searching for the next Yao Ming. More like the next ch-ching! Now that the Barclays Center arena is under construction and the Nets are on their way, Ratner is onto the next phase of Brooklyn's beloved Atlantic Yards megaproject: Those 16 or so towers, the first of which is scheduled to break ground sometime in 2011. ...

With an arena built with Russian money and other parts of the project funded by the Chinese, Atlantic Yards is shaping up to be quite the international buffet!

link

Related coverage...

National Review Online, Green Card Sale — Half Off!

In the case of Atlantic Yards, the developers need $249 million, which means that 498 wealthy Chinese will be able to buy green cards for themselves, or for anyone else. As a Chinese businessman quoted in Oder’s story says, “It is time for me to buy a good future for my son.” Here, too, left and right should find common ground in opposing a policy that gives the rich an easy path to a green card, especially when no skills or knowledge are required and the recipient doesn’t even need to have a job or speak English.

If we’re going to sell residency permits, the honest way would be to simply auction them off to the highest bidder. But the EB-5 program is a bad idea for other reasons. First of all, when the government creates a non-economic incentive for investment, such as a green card, capital will be allocated less efficiently; and second, the calculations that show how your $500K bought ten jobs may be no more reliable than the “jobs created or saved” by the various stimulus bills. Still, real-estate developers love EB-5, and politicians love real-estate developers; so we can expect to see an ever-growing number of well-off Chinese immigrants who understand that if you have enough money, you can always advance to the front of the line.

Develop Don't Destroy Brooklyn, Get a Green Card for Less Than the Price of One Luxury Suite at Ratner's Barclays Center Arena

That's correct. Short on money for his Atlantic Yards megaproject, Bruce Ratner is, once again, questionably utilizing an obscure federal program for a bailout from (probably) Chinese investors.

How? By using the government to sell green cards. (Just like he used the government to steal people's homes and businesses.)

Gothamist, Bruce Ratner To Lure Atlantic Yards Investors With Green Cards

Used to boost investment in the Brooklyn Navy Yard, the EB-5 visa has been called an "interesting and clever way to provide financing." The program offers permanent residency to foreigners investing between $500,000 and $1 million in American businesses and projects, and now that the last holdout is gone, Atlantic Yards developer Bruce Ratner is looking to use it to his advantage.
...

What about using it to get kids off the damn mall?

Brownstoner, Atlantic Yards Milking Green Card Loophole to Attract Chinese Investors?

According to Atlantic Yards Report, Ratner's going to be headed out on a dog-and-pony show to China to get a few hundred wealthy Chinese to cough up a million bucks apiece to finance Atlantic Yards. What do they get in return? A green card!

Brooklynian, Chinese to get green cards for Atlantic Yards investment?

Image: Curbed

Posted by eric at 6:52 PM

Forest City Ratner seeks Chinese millionaires for capital bailout, with green cards as bait; job-creation math is dubious, but nobody's talking

Atlantic Yards Report

"Scooped" by The Wall Street Journal last night (more about that above), Norman Oder publishes an absolute must-read exposé of Forest City Ratner's efforts to raise nearly a quarter of a billion dollars in China through a federal program that essentially trades green cards for investments in U.S. real estate projects. Want proof that it's fishy? Just about no one will respond to Oder's inquiries.

“I have no debt. The only expense I have is the operation of it and the utilities to run it. I’m going to be successful. I’ve been able to defer and, in large part, eliminate the biggest cost of development, which is capital.”--Bill Stenger, developer of the Jay Peak resort in Vermont, Burlington Press, Turning green cards into gold, 11/23/08

“At the end of the day, it’s all about the cost of the capital. And if we can do it at a reasonable, affordable cost, we’ll do so. I think the opportunity exists to bring partners into some of our development projects."--Forest City Enterprises Executive VP Bob O’Brien, 9/13/10 conference call with investment analysts

Though some think the Atlantic Yards saga is over, it's simply hit a new phase. The most audacious quest for government assistance--after direct subsidies, tax breaks, eminent domain, and the giveaway of arena naming rights--awaits.

Just as Forest City Ratner found a sports-loving Russian billionaire to buy 80% of the Nets and 45% of the arena as part of his plan to make a splash in America, now the developer has targeted another group of foreigners whose motives go beyond economics.

Thanks to a little-known provision in immigration law known as EB-5, the developer--with green cards as the carrot--seeks 498 Chinese millionaires, to supply $249 million in low-cost financing for the project.

(For what exactly? While the graphic below cites the arena, or "Nets stadium," the Wall Street Journal last night reported that it could finance the rail yard, or pay off part of a land loan.)

In exchange for creating ten direct or indirect jobs or retaining ten direct ones--a formulation that offers enormous wiggle room--the investors would get permanent residency for themselves and their families, a chance to live anywhere in America, and an opportunity to get kids educated in the American system.

Thus the New York City Regional Center (NYCRC), a government-authorized private investment vehicle, is planning an eight-city roadshow through China, beginning October 11, as noted on this blog (graphic at right) that tracks EB-5 news. And, according to the Journal, Bruce Ratner will be on the trip.

(NYCRC is the source of graphics above and below left.)

Can they get away with it?

It looks like they might get away with it, thanks to the EB-5 visa program, which, beyond its philosophical flaws--more on that below--allows regional centers to demonstrate job-creation via economic models.

Thus, the NYCRC would have to:
1) suggest the project in the next few years could generate or save at least 4980 direct or indirect jobs
2) argue that, without this new investment of $249 million, those 4980 jobs would be lost.

It's likely the NYCRC, with the help of Forest City Ratner, will submit documents backing both claims.

Both, however, are ridiculous, as I'll detail below.

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NoLandGrab: When it comes to dubious subsidies, turn over a rock, and it's almost certain Bruce Ratner will slither out. But it's all about Brooklyn, right?

Posted by eric at 10:55 AM

September 20, 2010

Ratner Mulls Visa Financing

The Wall Street Journal
by Eliot Brown

Not content with raising money through "traditional" means, like below-market, backroom purchases of publicly owned railyards and investments from Russian billionaire oligarchs, Bruce Ratner is going to start selling green cards through an obscure, dubious, government-backed program, proving that no subsidized financing scheme is too wacky when it comes to Atlantic Yards.

Developer Bruce Ratner is eyeing a federal program that gives green cards to investors as a way of raising new financing for his massive Atlantic Yards project in Brooklyn.

Mr. Ratner is planning to fly to China next month hoping to use the program to raise about $250 million for the $4.9 billion development, which is slated to include a basketball arena, thousands of apartments and office space. While he had enough to begin construction this spring of Atlantic Yards' centerpiece $900 million arena for the Nets, he still is seeking financing for other pieces.

Enacted in 1990, the federal program has raised more than $1 billion by granting green cards to investors who lend at least $500,000 to job-creating projects in needy areas. Last year, 4,218 green cards were issued through the program.

The funds being sought by Mr. Ratner's company, Forest City Ratner would be among the largest amount borrowed for one project through the program, called EB-5 because it represents a fifth category of employment-based visas. The program had been rarely used in New York, but this spring the Brooklyn Navy Yard sought $125 million in financing through EB-5.

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NoLandGrab: Worried that the "coyotes" might shake you down or abandon you to drug lords when they're supposed to be sneaking you across the border from Tijuana? Just plunk down 500 large with Bruce Ratner, and you can stroll into the U-S-of-A like you were born here.

Posted by eric at 11:08 PM

June 10, 2010

Forest City Announces It Has Financing to Build Barclays Center

NetsDaily

Forest City Enterprises announced Tuesday that it now has all the money it needs to complete the billion dollar Barclays Center by 2012. It will be the most expensive arena ever built...anywhere.

In a statement of its quarterly earnings, FCE, Bruce Ratner's parent company, briefly noted, "All projected debt and equity needed to complete the construction has been fully funded and the Company expects the arena to open in 2012." FCE's New York subsidiary, Forest City Ratner, will build the arena, for a 5% development fee. In previous statements it reported Barclays Center should be open in time for the 2012-13 season, which will require construction to be complete by July. The NBA requires a four-month "qualification" period to test everything from security to heat and AC.

Much of the funding comes from the $511 million bond sale in December,. Mikhail Prokhorov's Onexim Group is providing several hundred million more while the state and city is funding infrastructure improvements at the site. Prokhorov will control 45% of the arena but under certain conditions, the stake can go up to 80%.

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Posted by eric at 9:14 AM

May 13, 2010

Prokhorov filled arena financing gap not by buying bonds but offering a loan; he could end up owning 80% of arena operating company

Atlantic Yards Report

Well, Russian billionaire Mikhail Prokhorov, who as of yesterday owns 80% of the Nets, also filled the financing gap for arena construction, thus leading ratings agency Standard & Poor's (S&P) to affirm its investment grade (BBB-) rating on $511 million in tax-free bonds and removing them from the potential downgrade announced in March.

Prokhorov offered a $75.8 million loan rather than, as reported, buying $106 million in taxable bonds.

And Prokhorov--who put down $200 million for 80% of the Nets and 45% of the arena, and agreed to fund some $220 million in losses and debt--apparently drove a hard bargain with Forest City Ratner and Forest City Enterprises.

With relatively little additional cash, Prokhorov, according to a report issued yesterday by S&P, could end up owning 80% of Brooklyn Arena LLC (BALLC), the company operating the Barclays Center.

If so--and S&P didn't call it likely--that would mean that the government assistance and eminent domain for the Atlantic Yards arena, the first building in the project, would have benefited most directly Russia's second-richest man.

Had that been announced during the approval process, it surely would have generated much more concern.

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Posted by eric at 12:03 PM

May 12, 2010

Ratings agency may downgrade tax-free arena bonds, cites uncertainty regarding taxable junk bonds; Prokhorov could still fill the gap

Atlantic Yards Report

Update: the Star-Ledger reports that Prokhorov is buying the bonds.

One day after the Atlantic Yards arena groundbreaking in March, ratings agency Standard & Poor’s (S&P), citing “uncertainty” about the plan for arena financing, withdrew its rating (of junk) for $106 million in taxable bonds needed for the arena financing structure. Because of that, S&P warned that it could lower the ratings on the tax-free bonds “in the next few months.”

Should that occur, that would push the $511 million tax-free bonds issued by the Brooklyn Arena Local Development Corporation (BALDC) into a rating below investment grade, the level that was needed to market the bonds in the first place.

However, that wouldn't scotch the deal; the bonds have already been sold to investors. And, given that Russian billionaire Mikhail Prokhorov now has bought 80% of the team and 45% of the arena, he surely has an incentive to fill the gap either with equity or by buying the taxable bonds, as he had been rumored to do months ago, thus restoring the rating.

Still, it's a curious situation--why haven't Prokhorov and Forest City Ratner resolved this?--and it was curious timing.
...

Rating withdrawn

The March 12 revision by S&P drew little attention, though Reuters reported the ratings agency's statement, "At this point, there is uncertainty as to the final terms and conditions of any new funding approach."

The full report (which I got yesterday, after learning of it belatedly) is fairly cryptic, stating that the rating for the taxable bonds was withdrawn “because the sponsors decided to pursue an alternative financing strategy to that originally presented to Standard & Poor's.”

The rating on the tax-exempt bonds “was predicated on a capital structure that assumed issuance of debt at BAHC.”

“At this point, there is uncertainty as to the final terms and conditions of the new funding approach,” S&P said. “We are placing LDC's 'BBB-' rating on CreditWatch with negative implications. The negative CreditWatch indicates that we could lower the ratings in the next few months."

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NoLandGrab: Might holders of Atlantic Yards bonds be wishing they'd instead invested in Greek debt?

Posted by eric at 11:31 AM

March 29, 2010

New York real estate firms set up REITs to raise cash

But badly burned banks are hesitant to make big loans

Investment News
by Theresa Agovino

Smart financing strategy or desperation move? Forest City, which recently missed a mortgage payment on one of its Metrotech buildings, looks to the Real Estate Investment Trust model to raise money.

Joining Mr. Swig in an effort to tap the stock market for cash is Forest City Ratner Cos., which hired Bank of America Corp. and Barclays PLC to explore underwriting a REIT of its retail properties. Meanwhile, American Realty Capital New York Recovery REIT Inc. is trying to raise up to $1.5 billion to purchase distressed Manhattan office properties.
...

What Forest City hopes to offer investors with its proposed REIT isn't office buildings but retail properties.

Forest City didn't return calls seeking comment.

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NoLandGrab: This is the second time in as many weeks that Forest City has been mentioned in an article (and in a similar context) alongside a seriously struggling developer. Is it just smoke, or might there be a fire?

Posted by eric at 11:23 AM

March 11, 2010

"We still need more" subsidy, Forest City CEO said in April 2008, and they got it

Atlantic Yards Report

Looking back, one of the most telling episodes in the Atlantic Yards saga came in a 4/2/08 earnings conference call that Forest City Enterprises (FCE) held with investment analysis.

As I wrote, in response to a question from analyst Rich Moore, FCE Chuck Ratner expressed satisfaction in the developer’s relationship with local government, and said he expects more subsidy.

Forest City Ratner, FCE's New York subsidiary, had gained $105 million in subsidy on top of the initial pledged $200 million, at the time of the call. Since then, FCR gained (beyond other stated subsidies and tax breaks):

  • a speed-up in delivery of pledged state and city subsidies
  • an additional $31 million for land purchase (allegedly from infrastructure funds)
  • a revised deal with the Metropolitan Transportation Authority for the Vanderbilt Yard, with only $20 million down (instead of $100 million), a smaller permanent yard, and a generous 6.5% interest rate
  • a Development Agreement with gentle penalties and generous deadlines (12 years for Phase 1, 25 years for Phase 2)

Upcoming--and hinted at in the call--is the developer's effort to corral scarce subsidies for affordable housing.

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Posted by eric at 10:24 AM

March 5, 2010

More confirmation that the BALDC is pretty much an ESDC alter ego

Atlantic Yards Report

Those following the Atlantic Yards saga will recall that the triple-tax-free bonds to finance the arena were issued by the Brooklyn Arena Local Development Corporation (BALDC), a quasi governmental body incorporated by the Job Development Authority (JDA). This clever maneuver allowed the powerbrokers shepherding the Atlantic Yards deal to avoid going through the Empire State Development Corporation (ESDC), which would automatically trigger a requirement that the bonds be subject to approval by the Public Authorities Control Board (PACB).

However, when someone pointed out that bonds issued by the JDA are supposed to be guaranteed by the State, therefore making them automatically subject to PACB review, the powerbrokers suddently claimed that the BALDC isn't a "subsidiary" of the JDA, it's a "creation." This doesn't pass the smell test, even if it might pass legal muster.

Today, Norman Oder offers some intriguing evidence of the close ties between the BALDC and the ESDC, the agency which was sidestepped to evade PACB scrutiny.

According to documents outlining the deal for Payments in Lieu of Taxes (PILOTs):

For the ESDC and the BALDC, the contact person is the same: ESDC Senior Counsel Steve Matlin, the agency's point man on Atlantic Yards.

article

NoLandGrab: The point is that powerbrokers in Albany are issuing debt, without public scrutiny, using whatever quasi public corporations suits them best, in order to create new ones, primarily for the benefit of one well connected developer.

Yes, we live in a democracy, but this deal demonstrates that there is also a very creative and cagey shadow government at work. Maybe they aren't arresting dissidents or intimidating individuals to drop charges against government officials, but they are using and creating very convoluted institutions and refining and redefining laws that are running circles around the legislature and court system. And, it takes a mind-numbingly obsessive reporter to attempt to keep track of their footsteps through the shifting sands.

Aside from an unprecedented urban planning white elephant, one of the great legacies of Atlantic Yards will be the black hole created by Public Authorities run amok.

Posted by lumi at 6:12 AM

February 19, 2010

What if AY is delayed or smaller? Plausible scenario (25-year buildout, 25% smaller) means projected tax revenues would decline nearly 50%

Atlantic Yards Report

The Empire State Development Corporation's projected tax revenues (see memo, below) for Atlantic Yards could be cut nearly in half under the plausible conditions--neither of which would incur a penalty--of a 25-year buildout and a project cut 25% in size.

Reasons for doubt

Yesterday, I suggested several reasons to doubt the ESDC's calculations of new tax revenue, which rely on a ten-year buildout of the project. After all, even a supporter such as then-ESDC CEO Marisa Lago said the project would take "decades." The Development Agreement allows 25 years, plus extensions.

Also, the projections rely on a full buildout of the project, nearly 8 million square feet, opening after ten years and continuing for the 30 years. But the Development Agreement allows for a much smaller project, less than 5.2 million square feet.
...

Though no alternative calculations or assumptions were provided, a helpful reader prepared a spreadsheet to suggest such alternatives. (The ESDC's assumption of a 3% real discount rate is maintained.)

What if, rather than take a decade to build, the full project took 15 years? That would mean only 90% of projected revenue after 40 years. A 25-year buildout would mean 72% of revenue.

article

Posted by eric at 10:41 AM

February 10, 2010

Stee-rike 3 for Mets stadium bonds

S&P downgrades to junk status the debt that financed construction of CitiField. Blame the bond insurer's performance more than Luis Castillo's.

Crain's NY Business
by Aaron Elstein

It's official, sports fans: The New York Mets are junk.

That, at least, is the new rating for the bonds used to finance the construction of the baseball team's CitiField.

Standard & Poor's on Tuesday deemed the debt, issued by the New York City Industrial Development Agency, to be less than investment grade and cut it by two notches, to BB+ from BBB. (For those keeping score at home, BBB- is the lowest investment grade rating.) Moody's downgraded the bonds to junk last week.

article

NoLandGrab: Wonder how the junking of the Mets' bonds will affect renewed efforts to sell subordinated debt for the planned Barclays Center.

Posted by eric at 7:44 PM

February 9, 2010

Nets subordinated bonds back on

Project Finance

The sponsors of the proposed Nets basketball arena in Brooklyn, New York are making a second attempt to launch the project's subordinate debt to market. Forest City Ratner and the Onexim Group are looking for buyers for $106 million in bonds, down from an earlier proposed $150 million.

According to a source familiar with the transaction, the reason for the relaunched issue is that Onexim would prefer not to buy the subordinated bonds. However, the source said that no sale of the subordinated debt has yet happened....

link [subscription or trial registration required]

NoLandGrab: Don't everyone jump on this wonderful issue at once. Mikhail Prokhorov isn't, apparently, and he's allegedly Russia's richest man.

Posted by eric at 10:58 PM

February 7, 2010

When Parks Must Rely on Private Money

New York Times

This article points out the challenge in funding new city parks. One solution for the Brooklyn Bridge Park was to build luxury housing in the park to generate revenue. Why is it that public parks need to pay for themselves, yet the public must subsidize a private arena at the proposed Atlantic Yards project that will be a money loser?

The struggle to pay for Brooklyn Bridge Park echoes similar problems around the country in creating urban parkland in a postindustrial age when open space must often be carved, at great cost, from derelict manufacturing zones, military installations or rail yards. Governments no longer have the fiscal or political muscle to finance the projects alone, and the involvement of private donors or commercial ventures has led to public battles.

The days of grand development in the style of Frederick Law Olmsted and Robert Moses, whose parks and playgrounds were built and maintained by the government for decades, have given way to an era of private-public partnerships and pay-as-you-go.

“There is this accelerating notion that not just parks but many aspects of the public realm have to be self-financing,” said Michael Sorkin, director of the graduate program in urban design at the City College of New York. “The paradox is that it’s always amounting to giving away some public good in order to realize some other public good.”

NoLandGrab: Meanwhile, Atlantic Yards continues to eat up precious public subsidies even as its public benefits continue to evaporate.

link

Posted by steve at 8:05 AM

February 5, 2010

In a second effort to market taxable junk bonds for the arena, they have an interest rate--and smaller quantities are on the block

Atlantic Yards Report

Norman Oder has an update on the state of the Atlantic Yards arena bond financing:

So, the Atlantic Yards junk bonds were back on the market this week, and the Brooklyn Arena Holding Company (BAHC) may be selling them soon, near or at a hefty 11% interest rate.

First try

In December we learned that Standard & Poor's (S&P) rated the $146.8 million in taxable arena bonds as B, which is "very speculative." S&P assigned "a recovery rating of '6' to this debt, indicating our expectation of negligible (0%-10%) recovery in the event of a payment default."

Project Finance magazine suggested, apparently without foundation, was that the taxable bonds might be bought by Mikhail Prokhorov, slated to own 80% of the Nets and 45% of the arena company.

That's not how it worked out. Ten days later, on December 21, Standard & Poor's withdrew its preliminary ratings, stating, "The notes were not sold in December 2009. The issuer's [sic] intends to market them in the new year."

Back on the market, same risks

This week a smaller sum--$106 million in bonds--were for sale, according to a February 2 ratings report issued by S&P. It's a good time to market corporate bonds, according to the Wall Street Journal, before interest rates sky.

That said, the bonds still have a preliminary 'B' rating, and the recovery rating of '6', all of which means it's still a speculative investment.

Find out more on the possible timing of the sale, details from the ratings report (inluding the contention that construction has commenced), and speculation about Mikhail Prokhorov's investment, in the full article.

Posted by lumi at 5:02 AM

January 25, 2010

Atlantic Yards Report Master Closing Mania!

Among the voluminous documents blog posts published by Norman Oder since he got his first peek at the Atlantic Yards Master Closing documents today are these three hot-off-the-internet pieces.

Gotta get paid: BALDC bond issue fee dwarfed by payments to bond counsel and underwriting counsel

Wonder why there's so much momentum for deals like the $511 million arena bond issuance?

Because all parties involved get paid. As part of the Atlantic Yards master closing documents, first made available today, there's a list of the funds paid various participants in the transaction.

Mintz Levin, the bond counsel, earned $2,726,633
Fried Frank, the counsel to Forest City Ratner, earned $626,684
Nixon Peabody, the counsel to the underwriters (Goldman Sachs), earned $2,325,000
Ratings agency Moody's earned $360,000
Ratings agency Standard & Poor's earned $388,080
Auditor Price Watershouse earned $60,000
Printer Bowne & Co. earned $76,618.63

New documents hint at potential affordable housing dodge: "all-affordable buildings" with no low-income units, but subsidized units at market rates

[The document] opens up the possibility of subsidized buildings that are "100% affordable," with the majority of units aimed at households earning 165% of Area Median Income, or AMI.
...

But that "fully affordable" building might be a dodge on two levels. First, most units would be unaffordable to those who most passionately advocated for subsidized housing.

Second, "affordable" units at 165% of AMI as I wrote in April and July--would easily fall into the range of current market prices.

A studio apartment for someone at 160% of AMI in 2006 would cost $1861 a month. Consider that the limit has risen to 165% and AMI has risen, even as studios at new towers in Downtown Brooklyn cost well under $1861.

Agreement says Forest City Ratner must reinforce subway supports on its own dime, but does anyone know how much it would cost?

Posted by eric at 10:32 PM

Is new subway entrance to arena block worth $50 million (as MTA claimed)? New mortgage doc says $28 million covers entrance plus Carlton Avenue Bridge

Atlantic Yards Report

Among the voluminous documents that were part of the Atlantic Yards master closing, first made available today, is a mortgage agreement by the Empire State Development Corporation, as mortgagor, to the city of New York, as mortgagee.

The agreement casts significant doubt on claims in court by the Metropolitan Transportation Authority (MTA) that new subway entrance connecting to the Atlantic Yards arena block is would cost $50 million to build, since it requires the Atlantic Yards developer to pay only $28 million for both the subway entrance and the reconstruction of the Carlton Avenue Bridge.

Alternatively, it suggests that, if the developer walks away, the promised new subway entrance and bridge reconstruction would cost significant additional amounts of public funds.

article

Posted by eric at 8:58 PM

January 6, 2010

Doing Damage by Doing What Isn't Needed

The Cleveland Leader

Columnist and watchdog Roldo Bartimole uses Bruce Ratner's subsidy-soaked Atlantic Yards megaproject as the mascot for one of the major things that has been ailing Cleveland:

Forest City Enterprises Al Ratner once bragged to me about how many federal subsidies he has been able to get for projects all over the U. S.

This Brooklyn project is soaked in subsidies, not unusual for these unnecessary projects. This one, as others, includes a new arena for a Ratner family professional sports team.

Isn’t it wonderful that all over the nation we are spending billions of dollars to provide work places for multi-millionaire owners and millionaire sports players while so many ordinary people have no access to a paying job?

article

NoLandGrab: To Bartimole's point, unnecessary projects like Atlantic Yards require massive public subsidies in order to make it off the drawing board.

If Atlantic Yards, the densest and largest single-source private project in the history of NYC, were such a good idea, then the free marketplace could support it. It's not, so Bruce Ratner has to get the City, State and Federal governments to chip in with direct cash subsidies, eminent domain and tax breaks.

Posted by lumi at 7:13 AM

January 1, 2010

Official Statement: Forest City Ratner to get 5% development fee, or $7 million minimum

Atlantic Yards Report

We've known since a July 2007 New York Times report that Forest City Ratner would get a 5% development fee while also owning a significant part of the Atlantic Yards project.

When Atlantic Yards was projected to cost $4 billion, that 5% fee would have represented $200 million. Now that AY is projected to cost $4.9 billion, that 5% fee would total $245 million.

But it could be a little more.

The Barclays Center Official Statement, prepared by underwriter Goldman Sachs, indicates that the annual reimbursement should not exceed the greater of $7 million or 5% of cumulative total Arena Project costs.

$7 million is 5% of $140 million. So if for some reason annual Arena Project costs are less than $140 million, Forest City Ratner could get a $7 million fee, which would represent somewhat greater than 5%.

Given that the arena is supposed to cost $1 billion and be built in less than three years, that seems not too likely, but you never know with Atlantic Yards.

So when Forest City Ratner says it plans to fully build Atlantic Yards because that's the only way to get a return on its investment, the development fee has to be part of the equation.

article

Posted by eric at 1:06 PM

So, where's the $324.8 million more for the arena going to come from?

Atlantic Yards Report

Eliot Brown of the New York Observer points to a major gap in funding for the Atlantic Yards arena, the need for $324.8 million, money not yet in hand but expected to be raised within a year.

The money would come from Mikhail Prokhorov (aka "New Investor"), additional financing, and new equity from Forest City Ratner or third parties.

FCR told investment analysts earlier this month it planned to invest $200 million in equity, but, as Brown writes, " it's not as if developers generally have $200 million just lying around." (Forest City hasn't yet publicly commented.)

And it's not clear to me what role the unmentioned taxable junk bonds would play in this.

link

Posted by eric at 10:46 AM

December 31, 2009

Can $8.1M in infrastructure contingency funds pay for repairs on damaged MTA tunnels when neither extent nor cost has been assessed?

Atlantic Yards Report

Remember that confidential December 2007 report commissioned by developer Forest City Ratner and provided to the Metropolitan Transportation Authority (MTA), which stated that portions of two subway tunnels were in critical condition and required repair "in the immediate future" and the "near future"?

The MTA, as I wrote in August, would not provide details concerning the amount of repairs completed or planned, or how such repairs would be funded.

Now we learn the repairs would be paid for via a contingency fund in the budget for the arena project, but the extent of the damage--nor, obviously, the cost of such repairs--has not been determined. And there's only $8.1 million available for Infrastructure Contingency.

That raises lingering questions about whether the contingency funds would be sufficient.

article

Posted by eric at 10:30 AM

Ratner’s Next Nets Arena Challenge: Raising $324 M.

NY Observer
by Eliot Brown

The footprint of the planned new Nets arena in Brooklyn looks like a construction site. Developer and Nets owner Bruce Ratner closed on tax-free financing and other approvals for the project last week, and now fencing with flashy renderings of the project runs along Flatbush Avenue; traffic has been redirected to make way for equipment. The massive $4.9 billion Atlantic Yards project, or at least the $900 million centerpiece basketball arena, is looking like a reality.

But a glance at a lengthy set of public documents linked with the $511 million in tax-free bonds that go toward the arena show that there is still more of the hill for Mr. Ratner to climb. If the developer doesn't raise $324.8 million within a year for the arena, he could be forced to refund the bondholders' money, returning the financing that makes the project possible, according to the documents.
...

If the money isn't deposited by Dec. 17, 2010, the documents say, this would trigger a refund of the bonds, or "extraordinary mandatory redemption," in bond speak.

Some of this money will come from Mikhail Prokhorov, the tentative new buyer of the Nets, who has agreed to pay $200 million for 80 percent of the team and 45 percent of the arena-to-be.

article

Posted by eric at 10:22 AM

December 21, 2009

Ratner sells bonds to finance new arena

Park Slope Courier
by Stephen Witt

The Courier catches up with last week's Atlantic Yards developments.

Investors quickly snapped up $511 million in bonds bringing Developer Bruce Ratner one major step closer to building the $1 billion Barclays Center arena at the Flatbush/Atlantic avenues intersection.

Raising half the money to build the arena also brings the borough closer to having its first major professional sports franchise since the Dodgers left Brooklyn following the 1957 season.
...

The project is expected to officially break ground before the end of the year, and Ratner said he hopes to have the arena completed by the end of the 2011-12 NBA season.

article

Posted by eric at 4:01 PM

Alphabet soup: if the UDC aims to offer Sports Stadium Assistance, why was the BALDC created by the JDA (which finances machinery and equipment)?

Atlantic Yards Report

The text on the web page of the Bond Program offered by the state's economic development agency compounds questions raised by state Senator Bill Perkins about the legitimacy of the bonds issued for the Atlantic Yards arena.

It states:
Empire State Development is the parent organization for New York’s two principal economic development financing entities: the Empire State Development Corporation (formerly known as the Urban Development Corporation), and the Job Development Authority. In 1995, these agencies, which had previously functioned independently, were consolidated in order to increase efficiency, reduce overhead and enhance the delivery of the State’s economic development initiatives. Reorganized as Empire State Development, the combined agencies now function as a streamlined economic development organization whose primary mission is the facilitation of business growth and job creation across New York State.

As part of this economic development role, Empire State Development Corporation oversees the issuance of debt under the programs of both the Urban Development Corporation and the Job Development Authority. On the UDC side, bonding programs include Corporate Purpose, Correctional and Youth Facilities, Sports Stadium Assistance, and various educational and civic related project revenue bonds. The Job Development Authority issues both taxable and tax exempt bonds to finance its business lending programs. These programs are designed to promote job growth by providing loans to assist New York companies to build and expand facilities and acquire machinery and equipment.

(Emphases added)

The questions

If the UDC is supposed to offer Sports Stadium Assistance, then why was the Brooklyn Arena Local Development Corporation (BALDC) created instead by the Job Development Authority (JDA)?

And if the JDA aims to help companies "build and expand facilities and acquire machinery and equipment," then why is it financing an arena?

link

Posted by eric at 10:52 AM

DDDB PRESS RELEASE: Atlantic Yards Arena Bonds Appear to Be Illegal

Answers Sought From Paterson Administration

NEW YORK, NY — The $511 million triple tax-exempt bond issued by the Brooklyn Arena Local Development Corporation (BALDC) on December 15 appears to be structured and issued illegally.

State Senator Perkins (D- Harlem), Chair of the Senate Committee on Corporations, Authorities and Commissions, sent a letter to Governor Paterson on Friday explaining the legal concerns, which the Senator described as "raising the spectre of fraud," and rendering the bonds "effectively worthless."

Senator Perkins said at a Saturday community meeting confronting eminent domain abuse that he spoke to the governor's counsel, Peter Kiernan, who was taking the matter seriously. He asked that the Governor halt reportedly imminent closing on Atlantic Yards project agreements. He said that if the state did not respond, legal action would be considered.

In sum the letter explains that the BALDC has no legal authority to issue PILOT (Payments in Lieu of Taxes) backed bonds because they have no legal authority to lease tax-exempt land.

The letter can be found at: http://dddb.net/documents/letters/PerkinsPatersonBALDC.pdf [PDF]

link

Posted by eric at 9:35 AM

December 20, 2009

State senator charges Nets bonds are illegal

Field of Schemes

Neil deMause looks at the legality of bonds created for the proposed Nets arena.

Freddy's Bar, one of the buildings slated for demolition to make way for the new Nets arena in Brooklyn, is installing chains today so that patrons can attach themselves to their barstools if the bulldozers come. But as surprise last-ditch efforts to forestall the Atlantic Yards arena project go, there might be more significance in a state legislator's surprise insistence that the arena bonds sold last week are illegal:

Suggesting that bonds for the Brooklyn arena were issued improperly, state Senator Bill Perkins yesterday asked Governor David Paterson to halt the "master closing" for the project scheduled for Wednesday and to stay condemnation proceedings until "serious questions... are addressed."

Had the bonds been issued by an Empire State Development Corporation (ESDC) subsidiary, they could be repaid via for payments in lieu of taxes (PILOTs), but the issuance would have had to have been approved by the Public Authorities Control Board (PACB), Perkins wrote in a letter. However, in an apparent effort to avoid the PACB, the ESDC created the Brooklyn Arena Local Development Corporation (BALDC), and that murky entity--which issued $511 million in bonds--should not possess a property tax exemption, the letter said.

In English, that seems to mean this: In order to take advantage of the Yankees dodge and use federally subsidized tax-exempt bonds for the arena, the Nets need to claim that their bond payments are really "payments in lieu of property tax." (For reasons that I really can't bear to explain again, tax-free bonds can only be paid off with tax revenue, not private rent payments.) But of course, to be "in lieu of" property tax, the property in question needs to not be charging tax that it otherwise could be.

...

Whether this legal argument is valid, I have no idea — as the one property-tax expert I contacted today remarked, "This is way above my pay grade." That said, major development projects in this city have been scuttled by more unlikely sources, so anything is possible. It'll be very interesting to see if Gov. Paterson responds, and if not, whether Perkins (or local opponents) then throws another lawsuit on the fire.

link

Posted by steve at 8:44 PM

Waiting for a follow-up on the BALDC (and more evidence of Paterson inattention)

Atlantic Yards Report

We're awaiting responses to yesterday's disclosure that bonds sold for the proposed Nets arena may be illegal.

Well, I know that the daily newspapers are aware of the letter from state Senator Bill Perkins raising serious questions about the Brooklyn Arena Local Development Corporation (BALDC).

Since there's no follow-up today, I'd look for a response tomorrow. I suspect some lawyers for the state are busy doing some research and writing a memo.

...

Meanwhile, Michael D.D. White reports on Gov. David Paterson's answer to another question posed at the impromptu press conference yesterday.

White said AY would cost $2-$3 billion in public subsidies; Paterson responded that any project, at a snapshot in time, might be a loss.

The $2-3 billion figure is debatable, and Paterson didn't object to that number simply because he's not up to speed. (He should know more about AY, but, then again, he's got some major crises in front of him.)

However, what's not debatable is that no government entity, including the New York City Independent Budget Office (which looked only at the arena), has attempted a credible cost-benefit analysis for Atlantic Yards as a whole, with estimates encompassing both a ten-year buildout (as promised) and a much longer one.

And, as noted yesterday, Paterson is not up to speed either on the questions raised about the BALDC.

In a day or so, however, more clarity should emerge.

link

Posted by steve at 8:23 AM

Officially Worthless - Atlantic Yards JunkYard Bonds - Shady Backroom Plan Backfires

Freddy's Brooklyn Roundhouse

$511 million in worthless bonds for Atlantic Yards were sold in the last week. Only problem: To get around government regulations, the crafty Ratner had his bonds sold through the Labor Authority, instead of by an ESDC subsidiary, and the Labor Authority isn't authorized for tax exempt status for real estate bonds! Senator Bill Perkins issued a letter last week officially calling the shady bonds "effectively worthless," since they were sold as tax-free bonds, and they are clearly not tax free.

Save-the-neighborhood advocates called it early when they brought a garbage truck to the bond-rating agency (which missed a big issue with the bonds) and tossed mock bonds into it, calling the bonds, JunkYard Bonds, to associate them with junk bonds. Only these bonds are worth even less than junk bonds without true tax-exempt status.

During a week when the Governor claimed New York State was about to be insolvent, and one week after he signed a law to reign in public authority spending, the State issued bonds in a backdoor way to help its special friend, billionaire Bruce Ratner. And now this has backfired. But there is more in Ratner's stocking. The MTA is cutting 2 train lines, and free student metrocards to honor it's less than half-price deal with Ratner in its no-bid sale of the Vanderbilt Railyards.

Posted by steve at 6:54 AM

December 19, 2009

Serious Legal Questions Raised About Atlantic Yards Arena Bond

Develop Don't Destroy Brooklyn

It appears that the Brooklyn Arena Local Development Corporation, which sold $500 million worth of triple tax-exempt, PILOT backed bonds, had no legal authority to do so.

The following letter was sent December 18, 2009 from Senator Bill Perkins (Chair of the Senate Committee on Corporations, Authorities and Commissions) to Govenor Paterson.

A very brief summary of the letter:

The Empire State Development Corporation (ESDC) had the Job Development Authority (JDA) create the Brooklyn Arena Local Development Corporation (BALDC) to avoid creating a subsidiary that would have required approval from the Public Authorities Control Board (PACB) to issue bonds for the proposed Nets arena. But since the BALDC is not a subsidiary and does not have real estate tax-exemption authority, it cannot use payments-in-lieu of taxes (PILOTs) to secure the bonds, and the bonds "are effectively worthless".

[The text of the letter can be found after the jump.]

link

Senator Perkins' letter:

David A. Paterson, Governor State of New York State Capitol Albany, New York 12224

Dear Governor Paterson:

On Tuesday, December 15, 2009, the Brooklyn Arena Local Development Corporation (BALDC) sold $511 million of tax exempt bonds to help finance the Atlantic Yards arena. BALDC is a not-for-profit corporation and was created by the Job Development Authority under section 1411 of the Not-For-Profit Corporation Law. The Job Development Authority (JDA) is a mostly defunct public authority that exists, along with the Urban Development Corporation, as part of Empire State Development Corporation (ESDC).

It appears that ESDC chose to have the JDA create the BALDC so as to avoid creating an ESDC subsidiary, which would have required approval from the Public Authorities Control Board (PACB) and the Comptroller to issue the arena bonds. Pub. Auth. § 51. PACB approval in this case would have been disadvantageous for two reasons: (1) it would have required the PACB to undertake a substantive review of the financial merits of the bond issue, which are questionable; and (2) it would have delayed the bond issue, likely past the December 31 deadline set by the IRS for issuing tax exempt bonds (after December 31, a rule change will not permit tax exempt bonds to be issued for stadiums).

However, as a local development corporation, and not an ESDC subsidiary, the BALDC cannot legally finance the arena using the convoluted financing methods applied in this case. Of particular importance, the BALDC does not have the authority to grant a real property tax exemption for the land that it will lease to Arena Co., which is Forest City Ratner’s arena management company. The BALDC is subject to Real Property Tax Law (RPTL) § 420-a, a different section than the one that applies to public authorities and their subsidiaries, § 412. Under § 420-a, not-for-profit property is tax exempt only if the corporation is “organized or conducted exclusively for religious, charitable, hospital, educational, or moral or mental improvement of men, women or children purposes”.

In June, 2009, the Court of Appeals addressed § 420-a and its application to LDCs. The court held that land leased by an LDC to a manufacturing company, for economic development purposes, was not eligible for the property tax exemption. Lackawanna LDC v. Krakowski, 12 N.Y.3d 578 (2009). Accordingly, if economic development does not fall within § 420-a as a basis for an LDC’s tax exemption, there would seem to be little basis for the BALDC to claim tax exempt status for the Atlantic Yards arena land(1).

Additional support for the arena not having a valid tax exemption is provided by two Fourth Department cases involving stadiums. In the first, County of Erie v. Kerr, 49 A.D.2d 174 (4th Dept. 1975), the court held that the county-owned facility was tax exempt because it served the “public” purpose of providing entertainment facilities for Erie County residents. However, being a “public use” for purposes of RPTL § 406 does not automatically satisfy the more restrictive provisions of § 420-a. In Syracuse University v. Syracuse, 92 A.D.2d 46 (4th Dept. 1983), the court acknowledged as much by holding that the university was not entitled to a full tax exemption under § 420-a where the stadium was used for commercial events, in addition to events connected with the university’s educational purposes. Moreover, there are separate exemptions in the RPTL for stadium uses. In particular, subsection 10 of § 420-a exempts stadium facilities owned by educational institutions. Basic tenets of statutory construction indicate that had the legislature intended to generally exempt not-for-profit property used for stadiums from property taxes, it would have done so. Furthermore, RPTL § 429 exempts stadiums housing both: (1) a professional basketball team; and (2) a major league hockey team. Not only will the Atlantic Yards arena be too small to support a major league hockey team, there is no such contractual obligation, as required under § 429.

In light of this analysis, the BALDC property is not tax exempt if used for arena purposes. Consequently, payments-in-lieu of taxes cannot be used to secure the bonds, and they are effectively worthless. If ESDC knowingly misrepresented the legitimacy of these bonds, this raises the spectre of fraud.

ESDC could have easily avoided this result if it had created the BALDC as a formal subsidiary under section 12 of the Urban Development Corporation Act, as it would then qualify for a tax exemption under RPTL § 412. There is no reason for using the JDA to create an independent non-subsidiary local development corporation, except to create a loophole and avoid review by the PACB and the New York State Comptroller.

Although ESDC has not represented the BALDC as one of its subsidiaries, the exact corporate nature of the BALDC is unclear. It is clear that the BALDC is either a subsidiary or not a subsidiary, and in either case, the bond issuance is illegal. If it is a subsidiary, the Public Authorities Law required approval by the PACB as a precondition to the bond issuance. There was no such approval. If BALDC is not a subsidiary, it has no real property tax exemption to back the bonds.

In the Lackawanna case, the Court of Appeals “decline[d] LCDC's invitation to read the Real Property Tax Law together with the Not-for-Profit Corporation Law in such a manner as to establish a ‘tax loophole’ where one would not otherwise exist”. The same logic applies here: ESDC should not be permitted to establish a loophole to avoid PACB review where no loophole should exist.

ESDC’s murky and exotic financing methods vitiate the longstanding efforts of the Legislature to reform public authorities and make them more accountable and transparent.

On December 2, you promised “an objective and thorough review” of the Atlantic Yards project and its financing. I urge you now to keep that promise. You should also act immediately to halt the closing of the bond issuance scheduled for next Wednesday, and to stay the condemnation proceedings. The project should not be permitted to go forward until the serious questions raised in this letter are addressed.

Thank you for your attention to the very important matter. I look forward to hearing from you at your earliest convenience.

Sincerely,

Senator Bill Perkins 30th Senatorial District

cc: Andrew Cuomo, Attorney General Thomas P. DiNapoli, State Comptroller Peter Kiernan, Counsel to the Governor

(1) It should be pointed out that the BALDC’s bond issue was only for the arena block, and not for the entire Atlantic Yards project, so it does not encompass the bulk of the affordable housing planned as part of the development (which could possibly be considered “charitable”).

Posted by steve at 4:48 PM

December 18, 2009

Master closing scheduled for December 23, but ESDC won't release deal documents (penalties, incentives) for at least a week

Atlantic Yards Report

A master closing involving the Metropolitan Transportation Authority, Empire State Development Corporation (ESDC), and developer Forest City Ratner is expected to be held next Wednesday, December 23.

But the ESDC tells me that the documents won't be made publicly available until a week or two after the closing.

That's backwards, isn't it?

Fine print important

Keep in mind that contract documents, rather than the more aspirational and vague Final Environmental Impact Statement and the Modified General Project Plan, are where we get to see the real oversight of the project.

The State Funding Agreement, which was signed in September 2007 but didn't surface until March 2008, gave FCR up to a dozen years (after the delivery of property by eminent domain) to build Phase 1 of the project without penalty.

And the City Funding Agreement, which also was signed in September 2007 but wasn't revealed until April 2008, allowed the developer to build a project 44% smaller than planned.

article

NoLandGrab: You may have heard this from us before, but, at the risk of repeating ourselves, if the Atlantic Yards project is all it's cracked up to be, why all the secrecy?

Posted by eric at 10:52 AM

December 17, 2009

Curious omissions of the BALDC in most press coverage of the arena bond sale

Atlantic Yards Report

There was a curious omission in most of the press coverage of the sale Tuesday of bonds for the Atlantic Yards arena: the issuing agency, the Brooklyn Arena Local Development Corporation (BALDC), an entity that deserves a lot more scrutiny.

The press release didn't claim that Forest City made the sale, but rather announced "pricing" and omitted mention of the BALDC, which, as a government-created not-for-profit corporation, is able to issue tax-exempt bonds to save the developer well over $100 million.

(When the tax-exempt bonds were supposed to total $678 million--rather than $511 million, as it turned out--the New York City Independent Budget Office estimated the savings to the developer at $193.5 million.)

Some--as I delineate below--ignored the role of the LDC completely, while others omitted its name, perhaps taking a cue from the New York Times, which, in initial CityRoom coverage, declared that developer Bruce Ratner sold the bonds, later adding "and a local development corporation."

Click through to see who made the grade — and who didn't.

article

Posted by eric at 12:16 AM

December 16, 2009

TISH JAMES PRESS RELEASE: Save student Metrocard program, crucial service, and MTA jobs — Cancel the Atlantic Yards sweetheart deal for Forest City Ratner!

(December 15, 2009) -- The Metropolitan Transportation Authority's latest doomsday budget cuts include a proposed cut of the student Metrocard program, which provides full and half fare Metrocards to over 550,000 students who commute to school each day. Also, numerous service cuts are proposed on routes where bus and train services are over-crowded, and waiting times are long. Lastly, severe layoffs and salary cuts within the MTA are proposed.

The MTA says these cuts will help alleviate a massive budget deficit and maintains that these proposed service cuts are for underused routes already serviced by other trains and/or buses. But, riders say they will be inconvenienced, especially because of the recent fare increase and reduction in service this year already. Some students have expressed expectations of having to choose between paying the Metrocard fare, or buying a meal for themselves. It is unacceptable that riders, specifically youth, who depend on the student Metrocard program for educational needs be subjected to unsafe walks, and/or possibly not being able to travel for classes at all.

An obvious questions for residents of Downtown Brooklyn then comes up - why is Forest City Ratner, the multi-million dollar developer of the Atlantic Yards project not paying upfront for what he has purchased from the MTA? If Bruce Ratner paid upfront what he owes to the MTA for use of the MTA's Vanderbilt Yards, then the doomsday budget cuts could be significantly reduced.

"Cancel the sweetheart deal for Forest City Ratner," said Council Member James. "Forest City Ratner should pay the $100 million owed now for the purchase of the Vanderbilt Yards. I also question why Forest City Ratner is not being made to pay the millions of dollars owed for the naming-rights deal upfront? And, had the MTA accepted a higher bidder, they would have received their funds upfront and their current budgetary gap could have been cut almost in half."

The MTA's deal with Forest City Ratner simply does not make sense. Many are questioning why the MTA, who is facing a potential budgetary gap of $615 million next year, and today faces a $343 million massive budgetary gap, is able to accept a $20 million payment towards a $100 million dollar property deal. This purchase and construction of the Atlantic Yards Development by Forest City Ratner was also given the option of spreading the balance of $80 million owed in payments over a 21 year period.

Community advocates suggest that another means of closing the budget gap would be for the MTA to do a new appraisal of the railyards valued at $271.5 million, and open up bids to other developers who would pay more of the cost upfront. Severe cutbacks in service, layoffs and especially cuts to the student Metrocard program appear unconscionable in light of the MTA's business agreement with Forest City Ratner.

Critics and opponents of Atlantic Yards have continued to argue that rival developer Extell, who submitted a bid that offered $150 million in cash, was a far better plan. For unclear reasons, the MTA board negotiated solely with Forest City Ratner. Extell head Gary Barnett in a December 2007 interview with the Observer said he was shocked that he bid $150 million, and Forest City Chairman Bruce Ratner bid $50 million, yet Ratner was offered the deal.

"Something simply doesn't sit right with the community about the preferential treatment that Forest City Chairman Bruce Ratner has received from the MTA. Now it appears as though MTA customers and specifically our youth - the future of the City - may pay dearly to support the project of a multi million dollar developer that the community doesn't want to begin with," said Council Member James.

Posted by eric at 1:35 PM

More Bondage

The Architect's Newspaper Blog, The Final Slam Dunk?

There may be a few hoops left to jump through before Bruce Ratner can begin construction of his SHoP- and Ellerbe Becket-designed arena for the Brooklyn, né New Jersey, Nets, such as completing a partial sale of the team to a Russian oligarch, prevailing in some outstanding lawsuits, and going ahead with eminent domain against the area’s remaining holdouts. But the developer appears to have cleared the final major hurdle standing in his way with the successful sale of $511 billion in tax-exempt bonds today. Yes, those hoops may still present challenges, but none had the same drop-dead, end-of-the-year deadline the bonds did, and they seemed the likeliest chance for the project’s opponents to succeed. Instead, they sold briskly in a matter of hours, or, as Ratner put it in a release, “The interest in the arena bond offering was beyond our expectations,” expectations that have always been highly optimistic, though also always on the money. Perhaps this is why they are already preparing to divert traffic starting next Monday to make way for construction.

The New York Times, $500 Million in Bonds Sold in 2 Hours for Nets’ Arena

The Times updates the story it broke on City Room yesterday.

Indeed, the demand for the bonds from institutional investors far outstripped what was available and belied the project’s tortured history and court challenges.
...

The developer and his partners will raise the rest of the money for the 18,282-seat arena privately. Ratner, the chief executive of Forest City Ratner, is expected to complete the master closing for Atlantic Yards with various city and state agencies next week. At the same time, Ratner plans to close on the sale of an 80 percent stake in the Nets to the Russian billionaire Mikhail D. Prokhorov, pending approval by the N.B.A.

The two partners will invest $293.4 million in the arena and use a $131 million subsidy from the Bloomberg administration.
...

According to the official statement for the bond offering, the N.B.A. issued a consent letter in October offering initial approval of Ratner’s financial plan for the team and the arena, including the sale of a majority interest in the Nets to Prokhorov for $200 million.

Still, Ratner and his underwriters say the N.B.A. is not expected to formally approve the Prokhorov deal until early 2010.

NY Observer, Atlantic Yards Sells Out

It's hard to imagine the project is finally in the clear, but the undying drama might not have much more to live on.

The bond sale—which had to be completed by January 1 to guarantee Mr. Ratner could use tax free bonds—was widely seen as the last serious hurdle facing the project, with opponents hoping the economic climate and legal uncertainty might scare away investors. That didn't happen. Now, Mr. Ratner just has to sell $146 million in taxable bonds—in addition to the $200 million he's pouring in—but that's expected to be relatively easy, even before today's strong showing.

Opponents are still hoping to topple the project with a number of outstanding lawsuits, but it would take a rather serious surprise for any of them to derail the project. The other longshot is the N.B.A., which may not want an enigmatic Russian oligarch as an owner—in which case, the drama would begin all over again.

Brownstoner, Investors Eat Up Atlantic Yards Arena Bonds

Not everyone felt quite as sanguine, however. “These bonds went on the market without any oversight from any state officials,” said Daniel Goldstein, spokesman for Develop Don’t Destroy Brooklyn, the main Atlantic Yards opposition group. “The state will be on the hook if the project defaults.”

GlobeSt.com, Bond Sale Complete on Atlantic Yards Arena

However, the legal challenges to Atlantic Yards are far from over. Following an appellate court’s ruling earlier this month against the state’s use of eminent domain in the planned Columbia University expansion in Harlem, plaintiffs in the Atlantic Yards case asked the Court of Appeals to reconsider its Nov. 24 decision. Specifically, they requested that the court hold off making any final decision on their motion and appeal until the court rules on the Columbia eminent domain case, which it will hear in early 2010.

NY Daily News, Developer Bruce Ratner sells $511 million in tax-free bonds to pay for new Nets arena

Ratner had to beat the clock to sell the bonds because the IRS has barred using such tax-free financing for sports stadiums starting Jan. 1. The rest of the $904 million arena will be paid for by state and city subsidies and private investment.

NY1, Investors Grab Up Brooklyn Arena Bonds

NetsDaily, With Bond Sale, Brooklyn Move Looks More Likely

Gothamist, Ratner Sells $511 Million In Atlantic Yards Bonds

Posted by eric at 9:21 AM

Bonds away! Ratner’s tax-free bonds are snapped up fast

The Brooklyn Paper
By Stephen Brown

Bruce Ratner scored roughly half the money he’ll need for his Atlantic Yards arena in a matter of hours yesterday, selling out $511 million in tax-free bonds that were snapped up by investors thanks to their high interest rate and investors’ faith in the success of the project.
...
Believe it or not, Ratner’s timing was excellent. Though the Atlantic Yards project bears little resemblance to the Frank Gehry fantasyland that Ratner first proposed in 2003, the ailing economy actually helped the bond sale.

“There is a lot of confidence in the municipal bonds market these days,” said Debra Saunders, a member of the New York Board of Municipal Analysts. “The muni-market is viewed as a safe place to go.”
...
The bonds, which are essentially loans issued by the state on behalf of Ratner, were rated just above “junk” status by the major ratings agencies earlier this month.

The opposition to the project — which dumped fake “junk bonds” into a garbage truck on Wall Street on Monday — criticized the sale as yet another example of Ratner running roughshod over the public interest.

article

Posted by lumi at 4:49 AM

December 15, 2009

FOREST CITY ENTERPRISES PRESS RELEASE: Forest City Announces Pricing of $511 Million Tax-Exempt Bonds for Barclays Center at Atlantic Yards

CLEVELAND, Dec. 15 -- Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) today announced the pricing of $511 million of tax-exempt bonds to finance a portion of the construction of the Barclays Center arena at the Company's Atlantic Yards project in Brooklyn. The interest rate on the bonds was 6.48%.

"We're very pleased at the strong level of interest shown by investors in these bonds," said Charles A. Ratner, Forest City president and chief executive officer. "Demand far exceeded the total dollar volume of the bonds being marketed, a demonstration of support and confidence in the arena, in Atlantic Yards and in the future of Brooklyn. I congratulate our New York team and our advisors, and thank our public partners as we take this important next step in making this great project a reality."

Co-lead underwriters for the bond offering were Goldman Sachs and Barclays Capital.

link

Posted by eric at 8:56 PM

Ratner Wins Bond Financing for Nets Arena

NY Observer
by Eliot Brown

Doubts are fading for Bruce Ratner's new Nets arena planned for Brooklyn.

Mr. Ratner, owner of the Nets, has successfully marketed $511 million in tax-free bonds to build the arena, clearing the largest remaining hurdle to the project. Mr. Ratner's firm, Forest City Ratner, announced the news Tuesday afternoon, saying the bonds were priced at 6.48 percent.

The bond sale comes amid a last-minute race to finalize numerous parts of the larger Atlantic Yards project before the end of the year, when an IRS exemption expires. Since the summer, Mr. Ratner has redesigned the arena; renegotiated a land sale in a deal rather favorable to him; renegotiated a subsidy deal with the state; nearly finalized a revised subsidy deal with the city; tentatively sold the Nets and 45 percent of the arena development to Russian billionaire Mikhail Prokhorov; and now sold $511 million in tax-free bonds.

He still needs to raise $146 million in taxable bonds, and put in more than $200 million in equity from Forest City. The arena is to cost more than $900 million, and is planned to be the first component to rise on the 22-acre Atlantic Yards site.

There are numerous lawsuits and legal actions outstanding that challenge the project.


Related coverage...

NorthJersey.com, Atlantic Yards project developers complete bond sales

"The interest in the arena bond offering was beyond our expectations," said Nets principal owner and lead project developer Bruce Ratner, who added that orders from institutional investors across the board were almost four times the supply of bonds. "Even more importantly, the overwhelming support from investors is a good sign of confidence in this project and in the city."

Bloomberg.com, Brooklyn Arena Sells $511 Million in Tax-Exempt Bonds

Brooklyn Arena Local Development Corp., the state arm created to help finance a new basketball facility in New York City, sold $511 million of tax-exempt bonds at yields lower than a comparably rated deal last week.

Bonds due in 2040 paying 6.25 percent interest were priced to yield 6.35 percent, 65 basis points less than a comparable maturity issued by Texas Private Activity Bond Surface Transportation Corp. last week, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
...

The arena bonds are rated at the lowest investment grades by Standard & Poor’s and Moody’s Investors Service, one level higher than high-risk, high-yield junk status.
...

Investors placed almost $4 of orders for every $1 of bonds offered, allowing underwriters to reduce yields about 15 basis points from initial levels. The overall interest was 6.48 percent, according to the release from Ratner.

Underwriters were led by Goldman Sachs Group Inc. and Barclays Plc, which bought naming rights to the facility.

“It was tremendously received by the marketplace,” said Greg Carey, a managing director in Goldman Sachs’ public sector and infrastructure group, in an interview today. “We had 48 major institutions participating in the transaction.”

Atlantic Yards Report, Ratner Wins Bond Financing for Nets Arena

Well, with the sale of tax-exempt bonds and a planned "master closing" next week, the Atlantic Yards arena is coming ever closer to construction.

Crain's NY Business, Atlantic Yards bonds sell for $511M

Securing financing will be the last major hurdle to starting construction on the arena, which is the centerpiece of Forest City Ratner's $4.9 billion plan to redevelop the Atlantic Yards. Last month, the developer overcame the other major obstacle when New York's highest court gave the state permission to use eminent domain to seize property on the 22-acre site that Forest City doesn't already control. Forest City plans to have the arena open by the 2011/2012 basketball season.

NetsDaily, Brooklyn Bonds Get Sold

One more hurdle has been cleared for the Nets’ move to Brooklyn. More than $500 million of tax-exempt bonds for the team’s new arena were put on sale Tuesday morning, and they were sold quickly. “There was a strong appetite for the bonds,” said a bond analyst. The master closing for the Atlantic Yards property, along with the start of condemnation of the parcels that FCR doesn’t already own, is expected next week.

The Brooklyn Blog [NY Post], Atlantic Yards passes funding obstacle, clearing way for Brooklyn Nets arena

Ratner next week is now set to complete the “master closing” for Atlantic Yards with city and state agencies.

He can now also close on the sale of 80 percent interest in the Nets to the Russian billionaire playboy Mikhail Prokhorov, who is also buying 45 percent interest in the planned Barclays Center arena.

Ratner and his partners would also invest their own cash to help pay off the arena, while tapping into a $131 million city subsidy.

NoLandGrab: Prokhorov still needs approval from NBA owners, but that would appear to be a formality, given the support of Commissioner David Stern and Ratner's stellar track record in the ownership club.

NetsAreScorching, BONDS FOR BROOKLYN ARENA SELL FAST

In a show of just how divisive this project has been, check out these two comments from the Times’ comments section:

This is great news. All of the NIMBY opposition and consequent increased costs have not stopped this beneficial economic development project from moving forward.

And:

“which is to include more than 6,000 apartments.”

Also to be included are magic unicorns and leprechauns.

AP, Bonds for new Nets arena sell well

A developer's plan to move the New Jersey Nets to Brooklyn has gotten a boost from Wall Street.

Investors quickly bought up $511 million in tax-free bonds that went on sale Tuesday to pay for part of the much-delayed project.

Posted by eric at 4:45 PM

Bonds for Nets’ Arena in Brooklyn Sell Briskly

City Room
by Charles V. Bagli

Developments in the now-six-year-old Atlantic Yards saga rarely fail to astound us.

Almost six years after he bought the New Jersey Nets with plans to move the team to Brooklyn, the developer Bruce C. Ratner quickly sold more than $500 million in tax-exempt bonds on Tuesday morning for a new basketball arena in Brooklyn.

Indeed, the demand for the bonds from institutional investors far outstripped what was available and belied the project’s tortured history, years of delays and court challenges. The $1 billion basketball arena at the intersection of Flatbush and Atlantic Avenues is the centerpiece for the 22-acre Atlantic Yards development, which is to include more than 6,000 apartments.

“There was a strong appetite for the bonds,” said Jay Abrams, a bond analyst at FMS Bonds. “The market was comfortable with the ratings the deal received and the security that was pledged.”

The developer’s underwriters — Goldman Sachs and Barclays Capital — handled the sale of the tax-exempt bonds, which totaled $511 million. The developer will sell more than $100 million in taxable bonds in the coming weeks for the 18,282-seat arena.

Next week, Mr. Ratner, chief executive of Forest City Ratner, is expected to complete the “master closing” for Atlantic Yards with city and state agencies and to begin condemnation for private property he does not already own or control. Mr. Ratner is also selling an 80 percent stake in the Nets to the Russian billionaire Mikhail D. Prokhorov. The two partners will invest $293.4 million in the arena and use a $131 million subsidy from the Bloomberg administration.

They hope to open the new arena by June 2012. The new housing at Atlantic Yards may take longer, given the flagging real estate market, although Mr. Ratner has promised to start one of the residential towers after the arena is under way. He must also contend with several remaining lawsuits challenging the project.

link

Posted by eric at 3:05 PM

The Golden Rule

MrT.gif From "MrT's" comment on Field of Schemes:

The more I hear about Atlantic Yards, the more I'm convinced your latter conclusion (a scam) is accurate. It is a scam with the backing of NY City and State Politicos, as well as Judges, IMO. This may be quite possibly the most corrupt public/ private partnership in the nation. Some new wrinkle is added every day that normally would cast doubt on this project ever seeing the light of day.

If these bonds are sold, you can be assured the fix is in. People are so hell-bent on getting a new Brooklyn arena that facts are being completely ignored. Basic approvals processes are disregarded as nuisance; as if they never existed! People talk about the corruption sting in NJ this summer - if anyone bothered to investigate this project, they could make a career for themselves in NY.

Perhaps the beloved straight-talkin' entertainer "Mr T." summed it up best:

"I believe in the Golden Rule — The Man with the Gold . . . Rules."

Posted by lumi at 4:59 AM

For FCE, are commercial mortgage loan defaults vexing--or just playing chicken?

Atlantic Yards Report

From last week's conference call with investors:

Forest City officials were asked why they had delayed a $5 million payment on a loan for land in the Atlantic Yards footprint: “I’m wondering what your negotiations are with the lender. Are you trying to get a lower interest rate? Are you trying to get them reduce the size of the mortgage? And how does that impact the potential close of the project?”

Executives declined to give a straight answer, only offering, “The lender group on our land loan has been very supportive and has been working with us in connection with making sure that this project occurs as planned.”

Norman Oder wonders if "working with lenders" is a euphemism for "tough negotiation," and Crain's Cleveland Business reported:

One of the nation's realty titans, Forest City Enterprises Inc. in Cleveland, talks about negotiations with lenders over debts in such a way that it sounds like a game of who blinks first.

article

NoLandGrab: It's the lenders who are likely to blink first, since all the properties in the Atlantic Yards footprint, including those Forest City already owns, are slated for condemnation by New York State. If the State's initial offer to Daniel Goldstein is any indication, the banks would hardly want to deal with "fair market value" for the property to which they would take title.

Posted by lumi at 4:48 AM

WPU joins Atlantic Yards protest

Willets Point United

Willets Point United members Irene Presti, Jake Bono and Jerry Antonacci attended the "Junk Yard Bonds Protest" held by Develop Don't Destroy Brooklyn today at noon in front of 55 Water Street in Manhattan, headquarters of Standard and Poor. Crown Container donated a garbage truck upon which hung a banner that stated "Deposit Atlantic Yards Bonds Here". At the end of the demonstration, junk yard bonds were tossed into the back of the truck and compacted. Unfortunately, Crown couldn't dispose of them because their transfer station permit does not cover toxic assets.

link

Posted by lumi at 4:39 AM

December 14, 2009

Dan Goldstein talks trash

Videos from today's demonstration by Brooklyn community and political activist Raul Rothblatt.



NoLandGrab: Just in time for the holidays — junk bonds for sale, get 'em while they're not!

Posted by lumi at 8:42 PM

Forest City's Longshot Bond Issue in Brooklyn

Huffington Post
By Steve Ettlinger

As that bastion of moral rectitude and good judgment, Goldman Sachs, prepares to market Forest City Enterprises' just-above-junk-rated bonds for the very controversial Atlantic Yards development in Brooklyn -- which includes the most expensive basketball arena in the country (and history, I suppose) -- I'm struck by how tenuous the whole thing is. The bonds are being issued by Brooklyn Arena Local Development Corporation.

When you think about it, you really have to wonder how Bruce Ratner has found the stamina to persist. I wondered, that is, until I saw how much profit there is to be made when the government gives you much of what most developers would have to buy themselves.

Let's see: There's the deal for acquiring the air rights to the MTA's rail yards for $100 Million less than their estimated value (at a time when the MTA is missing $200 million cash from its budget -- arrrggghh). There's the $100 Million or so that Bloomberg put in the NYC budget for land acquisition assistance. There's those wild payments instead of taxes (PILOTS) if FCE manages to sell the bonds in three weeks, saving them millions. What stinks is that the IRS found such deals so bad for us taxpayers that they've outlawed them, but not until Dec. 31, hence Ratner's rush. Those are just the obvious ones, the things that normal developers, who lack Ratner's tight links to Bloomberg and Pataki, could not easily get.

Now FCE is desperate to sell these bonds before Dec. 31, and the tension must be high considering the numerous obstacles to the successful completion of the project.

Full article

[Photo of author Steve Ettlinger at today's demonstration by Tracy Collins.]

Posted by lumi at 7:47 PM

Demonstration today against Ratner's bonds targets not the underwriter but the ratings agencies (which need reform)

Atlantic Yard Report

From a DDDB press release:

Join Develop Don’t Destroy Brooklyn in a Demonstration to Protest the extremely risky tax-exempt bonds New York State is preparing to sell for Ratner's arena. We will highlight S&P and Moody’s questionable bond ratings. Lacking in normal due diligence, the bond ratings were set just a “notch above junk.’ These “Junk Yards Bonds” create enormous risks for New York State, its taxpayers and the investment community, at a time when the State's budget gap is in crisis. While the Governor is making huge cuts in crucial sectors such as health and education, the State continues to back Atlantic Yards—a financial house of cards.

So, why exactly are the bonds "lacking in normal due diligence"? DDDB says to stay tuned.

And how do they "create enormous risks for New York State"? Well, maybe they do and maybe they don't.

The demonstration will take place at noon, not outside the office of underwriter Goldman Sachs but outside the ratings agency Standard & Poor's. Interestingly, S&P was somewhat more cautious than rival Moody's regarding the tax-exempt bonds; the latter took the projected 225 arena events a year as gospel, while S&P considered 220 events "aggressive."

article

Posted by eric at 10:39 AM

Brooklyn Arena to Lead Tax-Exempt Sales as Similar Bond Gets 7%

Bloomberg.com
by Jeremy R. Cooke

The Barclays Center in Brooklyn, New York, leads projects seeking municipal financing this week, as developer Forest City Ratner Cos. aims to meet a year-end deadline to sell tax-exempt bonds for the new basketball arena.

Brooklyn Arena Local Development Corp., a state arm created to help finance the anchor of a commercial and residential development known as Atlantic Yards, intends to issue $500 million of tax-exempt bonds rated at the lowest investment grades. The New Jersey Nets of the National Basketball Association plan to move into the new facility in 2012.

A toll-road project in Texas that also involves public financing and private investors found buyers last week for $400 million in similarly rated tax-exempt bonds at a top yield of 7 percent. The ability of the arena developer, led by Bruce Ratner, to sell bonds exempt from federal taxes expires in less than three weeks under Internal Revenue Service rule changes.

“If it’s structured right and priced right, there’s definitely demand,” said Dan Solender, who oversees about $12.5 billion as director of municipal bond management at Lord Abbett & Co. in Jersey City, New Jersey. “I think we saw that with the deal down in Texas.”
...

The pending deal has required “a lot of analysis” by potential investors, Solender said.

article

NoLandGrab: Presumably, the Texas toll-road deal didn't involve significant overstatement of the number of vehicles that would be using the road, nor the notion that the road could potentially be retrofitted to accommodate Zamboni traffic.


Related coverage...

Field of Schemes, Nets bonds inch closer to sale

With 17 shopping days to go, the Atlantic Yards Nets arena bonds still haven't been sold, as bond issuers and buyers continue to haggle over the price. Bloomberg News speculates that $500 million in tax-free bonds could go for an interest rate of 7%, based on similarly rated bonds recently issued in Texas — this would qualify as worse than Bruce Ratner hoped, but better than he feared.

Meanwhile, the $147 million in taxable bonds that will accompany the tax-free bonds — trust me, you don't want to know why, but if you really need to, start here — have been assigned junk-bond status, which, Atlantic Yards Report notes, could carry interest rates as high as 14%. The interesting twist here is that the rumored buyer for these bonds is Nets soon-to-be co-owner Mikhail Prokhorov. Because Prokhorov would own 45% of the arena corporation that would be paying off the bonds to himself, he'd effectively be earning a 7.7% rate on his money — though given that, according to his deal with Ratner, he gets to take title to the whole arena if it defaults on the bonds, you could argue that he's effectively covered his risk in other ways.

I can't tell if this is brilliantly creative finance or a scam — but given the players involved here, that's probably about right.

Atlantic Yards Report, Municipal bond buyer on arena bonds: "there’s definitely demand" but "a lot of analysis" is required

A Bloomberg News article about the planned sale of $500 million in tax-exempt bonds for the Barclays Center arena suggests the interest rate would be 7%, the same as the interest rate for the second (and much smaller) phase of Yankee Stadium bonds and slightly above the 6.45% interest rate for the second phase of Mets stadium bonds.

(By contrast, the main bonds for both stadiums were sold in 2006 at interest rates of 4.57% and 4.7%.)

Noticing New York, To Attorney General Andrew Cuomo and State Comptroller Thomas DiNapoli: Investigate and Halt Issuance of Arena Bonds

Michael D.D. White enumerates the risky risks inherent in Bruce Ratner's arena bonds. Will the AG and the Comptroller open their mail?

The following an open letter from Noticing New York to Attorney General Andrew Cuomo and State Comptroller Thomas DiNapoli calling for an investigation and halt to the proposed issuance of ESDC’s Brooklyn Local Development Corporation PILOT Revenue Bonds for Forest City Ratner’s proposed Nets basketball arena.

Posted by eric at 10:06 AM

December 11, 2009

So, the other arena bonds really are junk: $146.8 million issuance rated "B" by S&P, interest rate could hit 14%

Atlantic Yards Report

Note to Bruce: we find if you spell it J-u-n-q-u-e, it sounds classier.

After $500 million in tax-exempt arena bonds earned a Baa3/BBB- rating, one notch above junk, from the ratings agencies Moody's and Standard & Poor's, the latter has rated the $146.8 million in taxable bonds B, which is considered "very speculative."

The interest rate can go up to 14%.

From the report, which suggests caveat emptor:

Standard & Poor's Ratings Services assigned its preliminary 'B' rating to BAHC's $146.8 million senior secured notes that mature in 2017. We assigned a recovery rating of '6', indicating that lenders will realize between 0% and 10% recovery of their principal in a default scenario. The outlook is stable. The notes are secured by distribution payments from [Brooklyn Events Center].

(Emphasis added)
...

The bonds will be issued by the Brooklyn Arena Holding Company, which is a subsidiary of Brooklyn Arena LLC and owned by an investor group headed by Bruce Ratner of Forest City Ratner.

Prokhorov the buyer?

These taxable bonds may be bought by Mikhail Prokhorov, slated to own 80% of the Nets and 45% of the arena company, according to Project Finance magazine; if so, and there's not enough revenue from the project to make the bond payments, he'd fully control the arena.

link

Posted by eric at 4:42 PM

Tax-Exempt Muni Bond Sales Rise 64%, Led by More Refinancing

Bloomberg.com
By Jeremy Cooke

The following, which originally ran on December 9, is from an article under a list of upcoming bond issues:

BROOKLYN ARENA LOCAL DEVELOPMENT CORP. intends to issue $500 million of tax-exempt bonds to help finance construction of a new facility in New York City for the New Jersey Nets, which set a National Basketball Association record this month for the worst start to a season. The debt, rated at the lowest investment grades by Moody’s and Standard & Poor’s, will be backed by payments in lieu of property taxes, known as Pilots, derived from arena revenue. Forest City Ratner Cos. is developing the arena, Barclays Center, as part of the Atlantic Yards project in the city’s most populous borough. Underwriters led by Goldman Sachs and Barclays Plc are marketing the bonds, which need to be sold by year-end to meet a deadline for tax- exemption rules. (Updated Dec. 9)

article

NoLandGrab: Unmentioned in all of the bond documentation is the fact that developer Forest City Ratner just delayed a $5 million mortgage payment while the loan is being renegotiated.

Posted by lumi at 5:59 AM

December 10, 2009

FCE executives say Atlantic Yards is on schedule, bond details, sale next week

Atlantic Yards Report

Norman Oder listened in on today's Forest City Enterprises earnings call.

In a conference call today (webcast) with investment analysts, Chuck Ratner, CEO of Forest City Enterprises, parent of Forest City Ratner, expressed optimism about the Atlantic Yards project and said more details on the terms for the arena bonds would emerge “by the end of next week.” Another executive said bonds would be sold by early next week.

“In summary, we have several things yet to accomplish, and we fully expect to close this project by the end of the year,” Ratner said. “We are in a position to close because we have achieved some major milestones. The first was a letter of intent with an affiliate of Onexim Group, an affiliate of an international private investment fund, to create a strategic partnership for the ownership of the Nets and the development of the Barclays Center arena. This influx of new global capital is strong sign that others also see a value creation opportunity that we see in this great project.”

Other might say that Russian tycoon Mikhail Prokhorov—a big basketball fan--got a very good deal.
...

Capital investment

FCE CFO Bob O’Brien at one point acknowledged that there is a significant investment that needs to go into Atlantic Yards as it goes forward.

An analyst asked, "Can you give an update on the arena... and expectations of capital investment in the project?"

Forest City Ratner President Joanne Minieri responded, “As Chuck mentioned, we are anticipating to close on the Atlantic Yards and the Brooklyn arena by the end of this year. We had always anticipated the necessary equity, which would in the neighborhood of around 200 million dollars, primarily in connection of the land and infrastructure… I think, overall, all of our targets are being met, and we continue to proceed accordingly for the year-end close. We’re out in the market, as you probably heard, on the bonds… and we expect to have them sold early next week. So, with that, I think, overall, the project is pretty much moving as we planned.”

Click through for some Forest City obfuscation on its missed Atlantic Yards mortgage payment and the big arena-naming-rights price cut.

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NoLandGrab: Yup, the "project is pretty much moving" as Forest City planned, with the arena on target to open in 2006 2007 2008 2009 2010 2011 2012(?).


Additional coverage...

Crain's Cleveland Business, Forest City Enterprises CEO says market's worst 'may be behind us'

While noting challenges aplenty face real estate companies, Charles Ratner, president and CEO of Forest City Enterprises Inc. (NYSE: FCEA, FCEB) said today in a conference call with analysts that “the most difficult stretch may be behind us” in adapting to the recession and real estate credit crunch.
...

While some economic reports show the recession ebbing, Mr. Ratner said that is “difficult to see” in the real estate business. He noted the company was unable to sell a portfolio of properties it was marketing to increase its cash position.
...

The company also is pursuing federal stimulus funds for energy projects; allocations of federal New Market Tax Credits, which give investors a tax credit for investing in low-income areas; and public infrastructure projects that benefit its properties, such as a new interchange at its Stapleton mixed-use project in Denver.

Posted by eric at 6:59 PM

A minimum of 10 community events vs. a maximum of 10 events; how FCR frames the same arena pledge differently for community groups and bond buyers

Atlantic Yards Report

Norman Oder catches Bruce Ratner talking out of both sides of his mouth, as the Atlantic Yards developer and NJ Nets owner signs off on one promise to supporters in the Community Benefits Agreement (CBA) and but seeks to reassure potential bondholders otherwise.

When it comes to making the Atlantic Yards arena available to community groups, Forest City Ratner has promised those groups at least ten events a year, but it has told potential bond buyers that ten times is a maximum.

Also, in a seeming contradiction, it has told community groups the arena would be made available at a discount, but it told bond buyers it wouldn't.

The Empire State Development Corporation's (ESDC) Final Environmental Impact Statement (FEIS) for the Atlantic Yards project states in Chapter 1, Project Description:

The arena is expected to host approximately 225 events per year. Of these, a minimum of 10 events would be made available for use by community groups at a reasonable cost (generally the cost of operation) with any net proceeds to the sponsor from these events to be donated to not-for-profit organizations.

That's pretty much the same as what's in the Community Benefits Agreement (CBA), which states:

(1) Events. The Arena will be available to Community groups for at least ten (10) events per year, at a reasonable rate, with net proceeds from such events to be used to support non-profit community organizations.

However, there's something else in the Barclays Center Project Preliminary Official Statement prepared by Goldman Sachs, (G-4, or p. 298 of the PDF) :

Tenant shall make the Arena available to ESDC or its designee for use as a venue for civic, cultural, social or other events as requested by ESDC, not to exceed ten (10) events in any lease year, which access shall be on the same terms, including cost, as the Arena is generally made available to other Persons for use.

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NoLandGrab: So to fulfill his obligation to his CBA supporters and to stay on track with bondholders, Bruce Ratner would have to rent out the arena for exactly 10 events at the "reasonable rate" of exactly what everyone else has to pay.

You'd think that CBA signatories would be peeved, but since they're funded by Ratner, they seem to have little recourse other than continue their unwaivering support to the end.

Posted by lumi at 6:25 AM

December 9, 2009

The Latest from Ratner: 'Challenges Remain' for Arena, Nets Revenues Down

NY Observer
by Eliot Brown

Some highlights (and lowlights) from Forest City's most recent earnings report:

-The company's efforts to start construction on the Nets arena faces another previously unreported hurdle: Forest City stopped sending in required payments on a $162 million loan--the mortgage on its property for the $4.9 billion Atlantic Yards project, of which the Nets arena is a part. While Forest City didn't provide immediate explanation, the move appears to be another display of the penny-scrounging that's been going on over the project (the company is negotiating sped-up subsidy payments from the city, along with payment of infrastructure money). The company said it missed a $5 million payment on the loan, and had been granted an extension until Dec. 10, which it was negotiating. (The Atlantic Yards Report has more on the risks, which Forest City is required to report.)

-Through Oct. 31, well before the Nets achieved their current 1-19 record, revenue for the team was down $10 million for the same nine-month period from the year before (expenses dropped by $10 million as well). Last year, Forest City reported $59 million in revenue at the time, which itself was down slightly from $62.8 million in 2006. Pre-tax losses were mostly stable at $53.6 million (compared with $54 million last year), of which Forest City's share is $33.1 million.

-Should the Atlantic Yards project collapse, according to the filing, Forest City estimates its costs would be $580 million, including repaying subsidies, writing off investment, and restoring the M.T.A.'s rail yard.

-A press release notes that "challenges remain" for the project, though its overall tone is optimistic. After all, the number of barriers for the development are indeed falling, and Forest City has been on a "road show" in recent days in an attempt to find buyers for $500 million in tax-free bonds, one of the last major hurdles remaining.

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Posted by eric at 10:32 AM

Top-Rated Maryland Revives Refinancing as Muni Bond Yields Fall

Bloomberg.com
by Jeremy R. Cooke

BROOKLYN ARENA LOCAL DEVELOPMENT CORP. intends to issue $500 million of tax-exempt bonds to help finance construction of a new facility in New York City for the New Jersey Nets, which set a National Basketball Association record this month for the worst start to a season. The debt, rated at the lowest investment grades by Moody’s and S&P, will be backed by payments in lieu of property taxes, known as Pilots, derived from arena revenue. Forest City Ratner Cos. is developing the arena, Barclays Center, as part of the Atlantic Yards project in the city’s most populous borough. Underwriters led by Goldman Sachs and Barclays Plc are marketing the bonds, which need to be sold by year-end to meet a deadline for tax-exemption rules.

One of Forest City Ratner's biggest benefactors, the City of New York, is also issuing new debt — and it's better-rated than Bruce's.

NEW YORK CITY, the largest borrower among U.S. municipalities, plans to sell $700 million of taxable securities to fund public works, after offering $900 million in tax-exempts this week. The city will take competitive interest-cost bids tomorrow for underwriters seeking to market $83.9 million of notes. Banks led by JPMorgan Chase & Co. were selected to negotiate the sale of $616.2 million in federally subsidized Build America Bonds. New York is rated AA by S&P, Aa3 by Moody’s and AA- by Fitch.

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NoLandGrab: What's a little competition between friends?

Posted by eric at 10:27 AM

Goodbye blue Monday — Ratner’s tax-free bonds may go on sale within days

The Brooklyn Paper
by Stephen Brown

Earlier this month, Moody’s and Standard and Poor’s rated the state’s tax-free bonds as Baa3 and BBB, respectively — meaning that the $500 million in bonds are as risky an investment as those used to finance previous sports projects like Yankee Stadium and Citi Field.

Still, the fact that the rating is just above junk-bond status — a term all too familiar from the economic crisis — provided ample fodder to those opposed to the project because it reflects a current economic climate that’s inhospitable to projects like an arena that relies so heavily on revenue sources like naming rights deals, luxury boxes and advertising.

Indeed, several years ago, Ratner and his partners at the Empire State Development Corporation believed they could issue $900 million in bonds because the project appeared more likely turn a handsome profit, and thus pay back investors with less risk.

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Posted by eric at 10:21 AM

Can’t tell a Baa3 from an Aaa? Let the Explainer explain it all to you

The Brooklyn Paper just published their version of "Atlantic Yards PILOTS and Bond Ratings for Dummies."

Click here for answers to scintillating questions such as:

Posted by lumi at 6:48 AM

Congratulations Bruce

Huffington Post
By Paul Sonn

Congratulations Bruce Ratner, your subsidy-sucking Atlantic Yards scheme is now the poster-project for financial houses of cards.

From an opinion piece about the fight for a living-wage guarantee for the Kingsbridge Armory:

In fact, if slight upward pressure on the wages for the very lowest-paid employees would jeopardize the Kingsbridge project's profitability, the city should be asking whether the project as a whole is financially viable. The financial vicissitudes of Brooklyn's Atlantic Yards project stand as a recent cautionary tale in this regard. If a living wage requirement would sink the Kingsbridge Armory project despite a large public subsidy, elected leaders should question whether the project is sufficiently sound to merit public resources in the first place.

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Posted by lumi at 6:37 AM

December 8, 2009

FCE anticipates "groundbreaking in the fourth quarter" (could be January); AY mortgage delayed (hard bargain or cash-flow problem?)

Atlantic Yards Report

OK, would you want to buy one-notch-above-junk bonds from a company that can't — or won't — pay its mortgage?

Forest City Enterprises (FCE), parent of Forest City Ratner, today announced third quarter earnings--up 24% from the same period of time last year--and decreased losses--$0.03 per share, compared with $0.19 per share in the third quarter last year.

There were two statements asserting that Atlantic Yards was on track, citing significant milestones, "while challenges remain."

Indeed, there are signs the company still faces cash flow difficulties or, perhaps, is just a hard bargainer. FCE delayed an 11/30/09 payment of $5 million on a $162 million mortgage secured by all land owned in the Atlantic Yards footprint and was granted an extension until December 10, with negotiations continuing about modifying the mortgage. (See highlighted text below.)

A groundbreaking on Atlantic Yards is "anticipated" for the fourth quarter; note that FCE's fiscal year ends January 31.

A conference call with investment analysts is scheduled for 11 am Thursday.

From the press release

The Company achieved the following additional milestones either during the third quarter or subsequent to the end of the quarter:

--In late September, Forest City Ratner Companies, the Company's New York-based subsidiary, and Nets Sports and Entertainment signed a letter of intent with an affiliate of Onexim Group, an international private investment fund, to create a strategic partnership for the development of the Atlantic Yards project in Brooklyn, and the Barclays Center arena, the planned home of the NBA's Nets. As part of the agreement, entities to be formed by Onexim Group will invest $200 million and make certain contingent funding commitments to acquire 45 percent of the arena project and 80 percent of the NBA team, and the right to purchase up to 20 percent of the Atlantic Yards Development Company, which will develop the non-arena real estate.

--On November 24, the New York State Court of Appeals issued a key favorable ruling in a lawsuit related to the Company's Atlantic Yards development project in Brooklyn. The suit challenged the State's use of eminent domain related to the project. The court rejected the challenge in a 6-1 ruling, clearing a significant legal hurdle for the project. Subsequently, during the week of December 1, the major bond rating agencies issued investment-grade ratings for $500 million in tax-exempt bonds to finance a portion of the construction of the Barclays Center arena. Both of these events are major positive milestones for the overall project, and while challenges remain, they enable the project to move forward with an anticipated ground-breaking in the fourth quarter.

(Emphasis added)

Warning from the 10-Q

A 10-Q form filed with the Securities and Exchange Commission stated:
...

Subsequent to October 31, 2009, we have elected to delay a November 30, 2009 scheduled amortization payment of $5,000,000 on our $162,000,000 nonrecourse mortgage secured by all land owned in the Atlantic Yards footprint and were granted an extension until December 10, 2009. We have commenced negotiations with the lender to modify the terms of the mortgage but can give no assurance that these negotiations will be successful. If no agreement is reached under the nonrecourse loan between the parties, we can relinquish the land to the lender in lieu of payment of the mortgage.

(Emphasis added)

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Additional coverage...

The Wall Street Journal, Forest City Enterprises Loss Narrows, But Company Cautious

The owner of commercial and residential properties reported a loss of $4.4 million, or 3 cents a share, for the quarter ended Oct. 31, compared with a year-earlier loss of $19.1 million, or 19 cents a share. On a continuing basis, the company swung to earnings of 1 cent a share from a loss of 15 cents.

Total revenue fell 7.3% to $306.1 million.

Analysts polled by Thomson Reuters projected a loss of 1 cent a share on revenue of $351 million.

Cleveland Plain Dealer, Losses narrow, EBDT up at Forest City Enterprises in the third quarter

Forest City, based in Cleveland, expects the rest of this year and 2010 to be challenging for the real estate industry, which has been battered by the recession, falling property values and a pullback on lending.
...

The company announced quarterly earnings after markets closed today. Shares of Forest City's stock (NYSE: FCE-A) closed trading today at $11.50, down 45 cents or 3.8 percent.

Posted by eric at 9:59 PM

According to bond deal, Nets in Brooklyn could only give 15% of the tickets away (without paying a larger license fee)

Atlantic Yards Report

According to the documents outlining the arena bond deal, the Nets would only be allowed to give up to 15% of game tickets away because:

...the team (New Jersey Basketball) would be obligated to make payments each year to the arena operator (ArenaCo) for the use and occupancy of the Arena, and one formulation of that license payment involves 10% of Net Ticket Revenue.

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NoLandGrab: The deal doesn't preclude the Nets from selling tickets for a dollar, which is the amount the State is charging Bruce Ratner to lease the arena.

Posted by lumi at 7:08 AM

December 4, 2009

Atlantic Yards Report: fact finding in a 772-page document hole

Norman Oder has been on a five-plus-year-long search for scarce facts about Bruce Ratner's highly-subsidized Atlantic Yards megaproject, which explains why he's been mining the 772-page document, released as a prelude to the arena bond offering.

Is the city kicking in an extra $31 million for property acquisition? It may look like that, but no confirmation is available

Yes, it really may be possible that, despite the fiscal straits our City is in, Mayor Bloomberg is planning on kicking in another $31 MILLION to bail out Bruce Ratner's Atlantic Yards megaproject. According to Norman Oder, it's a developing story:

Has New York City contributed an additional $31 million subsidy for Atlantic Yards land? While I haven't been able to get an answer from city or state officials, language in bond documents is ambiguous but suggests that conclusion.

Arena_pricetagA.jpg Why the arena would cost about $900 million--and why the Carlton Avenue Bridge job hasn't been paid for yet

The cost of the arena, plus "related infrastructure" "required in order to open the Arena," will add up to $1.1 BILLION. The money for replacing the Carlton Avenue Bridge "is supposed to be coming."

If the arena is built as a green building, it'll cost every visitor a buck

As the headline says, though Bruce Ratner touts his plans for achieving the environmental imprimatur of LEED certification for his Atlantic Yards plan, he intends to slap a $1 surcharge on every ticket sold at the arena (for basketball or not) to pay for it.

The plans for arena transactions and PILOTs; see if they make sense to you

They're not Rube Goldberg contraptions — they're the schematic plans that illustrate how the arena bonds are structured and get paid pack.

ArenaBondFlowCharts.gif

Just to be clear: Ellerbe Becket is the arena architect; SHoP is merely the façade architect

Though SHoP has been brought on board to satisfy local tastemakers, the documents indicate that the hot NYC-based architectural firm is only working on making the facade more palatable.

SHoPTurkey.gif

A lot of people have casually referred to the arena as a collaborative effort. But the Barclays Center Arena Preliminary Official Statement (prepared by Goldman Sachs) makes it clear that Ellerbe Becket is the arena architect, while SHoP is merely working on the façade.

In other words, the basic orientation and design of the arena was not changed; the main change concerned the skin.

[Current rendering (not included in Atlantic Yards Report's post), by John Bauman.]

Market analysis (commissioned by Ratner) suggests arena would have no trouble attracting events, might even host hockey

We admit, we get confused when Bruce Ratner's crack team talks out of both sides of their mouths. First the arena is downsized to the point it can't accommodate a professional hockey team, but now a marketing study commissioned by the developer says, "If built as planned, the arena would need to be retrofitted to accommodate the ice-making abilities the NHL requires for its franchises."

Check out the rest of the post for highlights and soft spots from the study.

Posted by lumi at 5:25 AM

December 3, 2009

It’s half-off at Brooklyn arena, but Islanders 'could' join Nets

The Brooklyn Blog [NYPost.com]

Barclays Bank could be getting two horrendous teams for half off what it originally agreed to pay for naming rights to the planned Brooklyn arena.

New arena financing documents released yesterday leave the door open to the NHL’s Islanders joining the NBA’s Nets at the planned Barclays Center in Prospect Heights, and they also indicate that a once-record $400 million naming-rights deal the British bank agreed to pay over 20 years has been chopped to $200 million.

Barclays would now pay $10 million a year to the arena’s owner over the 20-year deal as part of a renegotiated agreement, according to a 772-page statement prepared by Goldman Sachs for the $900 million arena project sent out to potential investors.
...

A source close to the deal said it is a far cry from the $20 million a year over 20 years that Barclays was once set to pay.

The Nets will "definitely be getting much closer to $10 million a year than $20 million,” the source said.
...

The Goldman Sachs document says the Nets – who set an NBA futility record Wednesday by starting a season 0-18 -- are expected to be in the new arena by the middle of 2012, and for the first time indicates the Islanders could be leaving Long Island to join them.

“The New York Islanders could potentially become a tenant” at the Barclays Center, the document says.

But there’s one problem: When Ratner spiked Gehry’s original arena plan for a cheaper design, the size of the arena’s playing area was a casualty, and, as planned, it’s no longer wide enough to host pro hockey games.

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NoLandGrab: Sure, the "Islanders could potentially become a tenant" if they quit playing hockey for a sport that would actually fit in the arena, like roller derby or a dog show. Is there anything they won't claim in trying to buck up Ratner's high-risk arena bonds?

Posted by eric at 11:55 PM

Did Barclays Get a Discount on Nets Naming Rights?

NY Observer
by Eliot Brown

Are the naming rights for Bruce Ratner's planned Nets arena worth what they used to be?

In January 2007, Mr. Ratner, Nets owner and developer of the planned $4.9 billion Atlantic Yards project in Brooklyn, trumpeted a record-setting naming rights deal for the new $900 million basketball arena that would be the centerpiece of the project.

While Mr. Ratner's firm never released an exact number, it was widely reported that British bank Barclays would pay nearly $400 million over a 20-year deal to slap its name on the venue, which, at the time, was to be designed by stararchitect Frank Gehry. The move was a huge win for Mr. Ratner, a record price that would bring in a big injection of funds with a well-respected name.

But now, after a historic economic crash, lengthy project delays, and the dropping of Mr. Gehry as project architect, there's reason to think the deal is less than it once was.

According to documents related to the arena's financing that were released Thursday, Barclays will pay $10 million a year to the arena's owner for the 20-year deal. Looking solely at this, it would seem to make it a half-off discount, but there are a number of other untold fees paid directly to the Nets as part of the naming rights, according to the documents. Forest City Ratner declined to provide those numbers, and a spokesman for Barclays declined to comment.

Click through for more.

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Additional coverage...

Atlantic Yards Report, After two renegotiations, Barclays naming rights agreement is $10 million a year (not $20 million, never formally confirmed)

Well, the Barclays Center Project Preliminary Official Statement (see p. 38 and 78-79) indicates that the 20-year Barclays Center Naming Rights Agreement was renegotiated twice and is worth $10 million a year.

(The document was acquired by Eliot Brown of the New York Observer, who quotes Forest City Ratner spokesman Joe DePlasco, spinning as always, as asserting the value is more because it includes "the arena, team and hospitality assets." Sure. But they're not saying $20 million a year.)

Other previous evidence of sweeteners: the addition of Barclays to the bond deal and the naming rights agreement for the Atlantic Avenue/Pacific Street station.

By the way, the New York Times just this week asserted the agreement was for $20 million a year.

NoLandGrab: A pie-in-the-sky estimate for the number of annual arena events. An incredible-shrinking-naming-rights deal. These one-notch-above-junk bonds are looking junkier by the day.

Posted by eric at 3:02 PM

The mysteries of the $131 million in New York City equity and the number of arena events

Atlantic Yards Report

As I wrote yesterday, the bond ratings agency Moody's counts $131 million from New York City as an substantial equity component, but that doesn't make sense.

If Moody's is counting city funding for land and infrastructure--and considering the "project" the arena plus infrastructure--it should also count at least some portion of the state's $100 million for infrastructure.

That $131 million figure, nor any other component of equity, is not mentioned in the other ratings agency report on the project, from Standard & Poor's.

Arena events

According to the Standard & Poor's report:

Of the 220 expected annual events at the arena, 41 will be basketball (excluding playoffs) and the remainder will be concerts, family shows, etc. We believe this expectation to be aggressive.

Indeed, they should. After all, the arena sponsors most recently predicted "over 200" events, and the one-time prediction of 225 events a year depended on no competing arenas in either the Meadowlands or Newark.

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NoLandGrab: And, unfortunately, there are competing arenas in the Meadowlands and Newark. Is there going to be some magical spike in demand for Sesame Street Live and $300 concert tickets? Not likely, which is just one more reason that the projected revenue stream supporting the arena bonds are as shaky as Jello. Caveat emptor.

Posted by eric at 2:53 PM

It came from the BONDosphere...

Atlantic Yards Report, Could Prokhorov become majority owner of the arena, too? If he buys the subordinated bonds and they fail, so it seems

Could Russian billionaire Mikhail Prokhorov control not just the majority of the Nets (of which he would buy 80%) but also the Atlantic Yards arena (of which he's slated to own a 45% stake)?

Maybe, but two not-at-all assured things have to happen: 1) he buys the riskier subordinated bonds and 2) there's not enough revenue from the project to make the bond payments.

(Remember, there would be $500 million in tax-exempt bonds, which were rated by the ratings agencies, and $146.8 million in unrated taxable bonds, likely at junk bond interest rates.)
...

The upshot, though, is that the enormous state effort to get the project going--the Blight Study, the use of eminent domain, the tax-exempt bonds, etc.--could turn out to provide the most significant benefits to Russia's richest man.

Atlantic Yards Report, When it comes to tax-exempt bonds (for BALDC and WTC), the ESDC shows inconsistent transparency

The New York Liberty Development Corporation, another special-purpose subsidiary (more or less) of the Empire State Development Corporation (ESDC), is having a meeting today at 9 am (webcast) regarding $2.6 billion in tax-free bonds for the use of World Trade Center (WTC) developer Larry Silverstein.

Except the bonds were already approved yesterday. Reuters reports:

Following its "common practice," the board approved Silverstein's Liberty bonds one day before holding a public hearing on the offering, she said.

"In case there is a large amount of public testimony, then the board is asked to meet again to review the testimony and the board will deny or affirm the sale," the spokeswoman said.

Bettina Damiani, project director for Good Jobs New York, an advocacy group, criticized the state agency for not waiting until after the public had a chance to comment.

"For the corporation to approve the bonds before a public hearing is the height of hypocrisy," she said.

Compared with BALDC

That seems both worse--and better--than the process last week by which the Brooklyn Arena Local Development Corporation (BALDC) approved tax-exempt and taxable bonds for the Atlantic Yards arena.

However much the decision was preordained, the BALDC did not meet a day ahead of time. On the other hand, no testimony was allowed; it was a public meeting, not a public hearing.

The Brooklyn Paper, Bonds away! Bruce’s bond rating means sale of notes is imminent

Attention investors! Now that the key bond-rating agencies have signed off on the financing for Bruce Ratner’s Atlantic Yards arena, $500 million in tax-free notes are poised to go on the market any day now.

Yes, the bonds will be on sale any day now; whether they do sell remains to be seen.

The state must sell all the bonds before the end of the year, when new IRS rules go into effect that would bar the use of such tax-free bonds for projects such as Ratner’s.

If the developer misses the deadline, the costs to finance his project would be prohibitively expensive.

Experts said that bonds of this type will easily sell out before that deadline.

"Experts" who are not named, apparently.

Posted by eric at 9:50 AM

December 2, 2009

Ratner's Yards Bonds Rated 'Barely' Investment Grade

Brownstoner

On the heels of last week's eminent domain ruling, Forest City Ratner took another step towards realizing its vision for a basketball arena in Brooklyn when Moody's Investor Service gave the $500 million in tax free bonds being used to finance the Barclays Center a crucial investment-grade rating. According to a largely positive story in Crain's yesterday afternoon, "the “Baa3” rating reflects several factors, including the strength of New York City as a media market, existing sponsorship support for the team, the large amount of equity the developer and its partner are putting in the project and strong reserve funds." And check out this quote in The Times from a vice president at Moody's: “The lawsuits are not an issue as far as the rating is concerned. The rating assumes that the lawsuits will be settled and that the project will move forward." A more skeptical article in the New York Observer noted that while technically investement-grade, the bond rating was only one step above junk level, reflecting significant risk factors like relocation, weak team finances and "uncertain demand for premium seating."

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Posted by eric at 2:24 PM

How the BALDC seemingly flouts the state Open Meetings Law, and why it probably doesn't scotch the AY bond deal

Atlantic Yards Report

When the Brooklyn Arena Local Development Corporation (BALDC) adopted several resolutions in September--including a predicate to the issuance of tax-exempt arena bonds--without a public meeting, it seemingly violated the state's Open Meetings Law.

However, that seeming violation likely had no impact on the issuance of those bonds because another clause in the law says its provisions won't affect the validity of bond issues.

Official concerns

The issue was first raised in a report on WNYC radio, quoting Robert Freeman, executive director of the state Committee on Open Government (COOG):

REPORTER: Robert Freeman, a state official overseeing freedom of information law, says the September decision was apparently invalid anyway, given that it took place not in an open meeting, but by written consent.

(This report concerned only the now-abandoned plan to issue $400 million in tax-exempt bonds for infrastructure.)
...

Freeman, in an interview, said that the BALDC, which he called a "dummy not-for-profit corporation," should not be allowed to avoid meeting in public. However, he backed off from assertions that decisions made by the BALDC regarding bonds were thus invalid.

Read on for the fine print.

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Posted by eric at 10:41 AM

Atlantic Yards report: Arena financing doesn't all add up

The slippery, risky Atlantic Yards bond deal

Did you notice that the Atlantic Yards financing deal keeps changing and has some very unclear numbers?

No infrastructure bonds

In September, the Brooklyn Arena Local Development Corporation (BALDC) agreed that it was willing to authorize up to $400 million in tax-exempt bonds for Atlantic Yards infrastructure. Now that plan is off the table.

PILOT bonds lowered in a week

Last week, the BALDC contemplated issuing up to $825 million in tax-exempt and taxable bonds for the arena. Yesterday, the amount of tax-exempt bonds had declined from $600-$650 million to just $500 million, in order to reassure investors.

Risky tactics denied but not ruled out

Officials of the BALDC say they won't do the following things, but won't definitively rule them out:

  • issue additional bonds
  • bail out investors who lose on arena bonds
  • issue tax-exempt bonds for infrastructure

And that ain't all of it.

Ratings agency Moody's says its estimates are based on 225 events a year at the Brooklyn arena, but that total's overblown

An updated article in the Bond Buyer, headlined Atlantic Yards Debt Gets Rated, quotes a ratings agency analyst explaining why the PILOT bonds for the planned Barclays Center got an investment grade.

But the number of arena events is inflated:

Out of the 225 days a year the arena is expected to hold events, only 40 to 45 of those will be Nets games, [Moody’s analyst Richard Donner] said.

“While the Nets are important as an anchor tenant, the arena is reliant upon other revenues,” Donner said. “We view that as a positive.”

However, a 9/16/09 Barclays Center press release stated, "Overall, the arena will host over 200 events annually."

And, as we've known for years, the original projection of 225 events a year depended on the closing of the Meadowlands Arena (now the Izod Center) and no construction of an arena in Newark.

But there's an arena in Newark.

So, does Moody's know what it's doing?

Funny, but Moody's won't say...

Ratings agency Moody's, asked why it assumes 225 events a year at the AY arena, won't discuss it

Given that a Moody's analyst told the Bond Buyer that its just-above-junk rating for $500 million in Barclays Center PILOT bonds depended in part on 225 events a year, I thought it was worth following up.

Noting that the arena sponsors most recently predicted 200 events a year (an 11% difference), I asked if Moody's was confident of the stated total of 225 events and, if there were 200 events, how might that change the rating.

Moody's spokesman John Cline responded, "I'm going to have to direct you back to the release. That is our comment."

The ratings agency release said nothing about the number of events; that was elicited in an interview.

My take: Moody's made a mistake.

NoLandGrab: Did these guys learn anything from events last year that damned near brought down the world's economy? Apparently not.

Posted by eric at 10:22 AM

Atlantic Yards Debt Gets Rated

The Bond Buyer
by Ted Phillips

Moody’s Investors Service and Standard & Poor’s gave the bonds for New York City’s controversial Atlantic Yards basketball arena their lowest investment-grade ratings yesterday.

Moody’s assigned a Baa3 with a stable outlook to the Brooklyn Arena Local Development Corp.’s $500 million of senior tax-exempt bonds, and Standard & Poor’s assigned them a preliminary BBB-minus.

The issuer plans to sell the bonds, which are backed by payments in lieu of taxes, to partially finance the construction of the Barclays Center, a $1.06 billion, 18,000-seat complex that will be the future home of the National Basketball Association’s New Jersey Nets franchise.

In assigning the barely investment-grade rating, Moody’s compared the arena’s projected revenue streams to comparable sports centers, including the new stadiums for Major League Baseball’s New York Yankees and Mets and an arena in Louisville, said Moody’s analyst Richard Donner.
...

Projections vary over the years, but in the first year the biggest revenues are expected to come from sponsorships, at 30%, premium seating at 24%, and the naming rights agreement with Barclay’s Capital at 10%, Donner said. Rental payments from the Nets will generate a projected 8%.

Click through for many more details about the bonds.

article

Posted by eric at 10:16 AM

Tax-exempt bonds rated just above junk, down to $500 million; arena cost confirmed at more than $1 billion

Atlantic Yards Report

In another crucial advance for the Brooklyn arena, the tax-exempt bonds for the planned Barclays Center--the cost of which is now estimated at $1.06 billion--have been rated investment-grade, though just above junk.

It should be enough to get the bonds sold to major institutional investors, though, as the Bond Buyer notes, bond insurance--which reassures investors but makes it more expensive for those paying back the bonds--remains in question. (The Times notes that bonds for the new Yankees and Mets stadiums got the same grade.)

Also, the amount has been reduced from $600-$650 million to $500 million, plus another $146 million in riskier "subordinated bonds," according to a report issued by Moody's Investors Service. (Those bonds are "likely to be sold to one of the project company's sponsors," reports Project Finance magazine, which says the split is indicative of the difficulty in getting an investment-grade rating.)

The Moody's report concerned the proposed issuance of $500 million of PILOT [payments in lieu of taxes] Revenue Bonds, Series 2009 (Barclays Center Project) by the Brooklyn Arena Local Development Corporation. The bonds must be sold by the end of the year to qualify for a tax exemption, which would save the developer well over $100 million.
...

Bond primer

Moody's primer: Baa Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics...the modifier 3 indicates a ranking in the lower end of that generic rating category.

A key giveaway and a key to the rating

One thing clear from the report: if the state hadn't given away naming rights to developer Forest City Ratner, the arena would not be built.

Also, key to the credit rating is an on-time construction schedule--not the safest bet, given the history of Atlantic Yards.

link

Posted by eric at 10:02 AM

New Nets Arena Wins Another Court Challenge

The NY Times
By Charles V. Bagli

The developer Bruce C. Ratner won another court challenge to his $1 billion basketball arena in Brooklyn on Tuesday, just as he began the sale of the bonds for the long-delayed project.

article

Atlantic Yards Report, Times roundup on bonds, court case adds some important context but gets basic issues wrong

A roundup story in the New York Times on arena bonds and more, headlined online New Nets Arena Wins Another Court Challenge, adds some important context--the bond ratings issued yesterday are no different from those assigned to bonds for the Yankees and Mets stadiums this year and in 2006. And rating agency Moody's says it's not worried about lawsuits.

But the article also contains some major errors.

The Times reports:

The financial underpinnings of the project, the cornerstone of the 22-acre Atlantic Yards development, also emerged on Tuesday when two rating agencies assigned an investment grade rating for $646 million in bonds for the project. In addition, the developer and his partners will use a $131 million subsidy from the Bloomberg administration and invest $293.4 million of their own to build the 18,282-seat arena at the intersection of Atlantic and Flatbush Avenues.

The investment grade rating was assigned only to the $500 million in PILOT bonds, not the riskier $146 million in subordinated bonds.

And that $131 million subsidy, stated in the Moody's report, doesn't make sense. If Moody's is counting city funding for land and infrastructure, it should also count at least some portion of the state's $100 million for infrastructure.

The Times reports:

At the same time, the Court of Appeals declined to hear an appeal from some property owners who said the state’s decision to condemn their land would benefit a private developer, rather than the general public, as required by the New York Constitution. Last week, the Court of Appeals ruled six to one that the state could exercise eminent domain in claiming businesses, public property and private homes for economic development projects like Atlantic Yards.

Actually, those two sentences describe the same eminent domain case. The appeal denied Tuesday challenged the environmental impact statement (EIS) and the petitioners were community groups, not property owners.

Also...
The Star-Ledger, Hapless NJ Nets' move to Brooklyn gets double boost

Posted by lumi at 7:07 AM

Nets arena gambles on subordinated tranche

Project Finance

Goldman Sachs and Barclays Capital have split the proposed bond financing for the Nets basketball arena into senior and subordinated tranches, in a bid to win an investment grade rating for some of the bonds and sell them before a 31 December tax-exempt treatment deadline. The debt will break down into a $500 million senior tranche due 2047, to be serviced by payments-in-lieu-of-taxes (PILOTs) and a $146 million holding company tranche.

This subordinated tranche, which is taxable, does not cross-default with the senior bonds, is described as "equity-like", and is likely to be sold to one of the project company's sponsors. The split into senior and subordinated tranches is indicative of the struggle that the developer of the project, Forest City Ratner, has faced in gaining an investment grade rating on the debt. The subordinated tranche has not been rated, and while the agencies have not produced a consolidated rating for...

article [subscription only]

Posted by lumi at 7:02 AM

Gotta Laugh at This One

Develop Don't Destroy Brooklyn thought that this little bit from Moody's rating of the Atlantic Yards arena bonds passed the laugh test, but does it pass the smell test?

Moody's assigns Baa3 to Barclays Center Project Bonds
[no link]

...The stable outlook [for the arena bond deal] is based upon the expectation that the Arena will be completed on time and within budget and the expectation that the ArenaCo will achieve projected revenues.

Right, which happens all the time with embattled megaprojects with no proven revenue model.

link

Posted by lumi at 6:56 AM

So, are tax-exempt bonds for infrastructure ruled out forever? Where would infrastructure funds come from?

Atlantic Yards Report

Norman Oder ponders the Atlantic Yards financing mystery.

Though the Empire State Development Corporation (ESDC) does not "foresee" having to issue tax-exempt infrastructure bonds to make up the current project funding gap, that doesn't preclude them from doing so in the future.

"ESDC does not foresee a scenario in which the abandoned financing structure would be taken up again," responded spokeswoman Elizabeth Mitchell.

So how will the funding gap be made up?

"The funding for the entire project will be a combination of tax-exempt bonds, New York State funds, and New York City funds," Mitchell responded. "Any additional funding required will be made available by Forest City Ratner Companies."

She left out taxable bonds--unless that's subsumed under FCR funding. Still, there's a gap. Will the developer go back to the city and state for "extraordinary infrastructure" funding? Stay tuned.

article

NoLandGrab: The State of NY is on the brink of issuing tax-exempt arena bonds, but there is no public information on how developer Bruce Ratner expects to finance the entire project. Obviously Ratner knows how he expects to fund the project.

Shouldn't prospective bond holders and the public be in on the secret?

Posted by lumi at 6:34 AM

December 1, 2009

Better than Junk — barely

Here's a round-up of news stories reporting on Moody's assigning of a Baa3 rating to Bruce Ratner's arena debt, including some must-read explanations from Field of Schemes, NY Fiscal Watch, and others. Eliot Brown of the New York Observer is also reporting that Standard & Poor's has assigned the arena debt a BBB- rating, its proprietary shorthand for one step above junk.

Field of Schemes, Nets arena bonds squeak through

Another shoe drops for the Atlantic Yards arena project: Bond rating agency Moody's has given an investment-grade rating to the bonds for the Nets' planned Brooklyn arena. It looks like Nets owner Bruce Ratner paid a high price for the rating, though, cutting the amount of tax-free bonds from $600 million to $500 million, and accepting a rating of Baa3, Moody's lowest level below junk bonds.

The next question is what this means for the bonds' interest rate, and the team's bottom line — each added percentage point of new interest will cost the Nets owners $5 million a year — something that could be answered when the Empire State Development Corporation makes its initial bond offering, as soon as tomorrow. The lowered amount of bonds also means a growing funding gap that must be filled by Ratner and his soon-to-be partner Mikhail Prokhorov: already at $100 million or so, it's now looking closer to $300 million. Prokhorov is a pretty rich guy, and clearly he stands to get lots of intangible publicity benefits from entering the NBA owner's club, but you still have to wonder how much cash he (or Ratner) will be willing to throw at this deal before the investment starts to look like a money pit.

If nothing else, this could get interesting once the inevitable cost overruns show up. The ESDC has said it has "no expectation" of issuing additional public bonds for the project, but admitted it's possible. Paging Richard Brodsky!

NY Observer, The Ratings Are In for Atlantic Yards

Atlantic Yards slipped in just above junk bond status today, when Moody's gave the project an Baa3 rating, the lowest rung of investment-grade bonds.

That's probably not as high as Bruce Ratner had hoped, but given the uncertainty surrounding the long-stalled development, it's better than it could have been. Mr. Ratner now has exactly one month to sell $500 million dollars in bonds if he wants to qualify for an I.R.S. deadline on the tax-free debt, which has long been seen as the last significant hurdle facing the project--though there are at least three outstanding lawsuits that could still derail it.

NorthJersey.com, N.J. Nets arena bonds rated 'investment grade' -- barely

Backers of the Atlantic Yards project scored victories in court and on the bond market on Tuesday, further improving the chances of the New Jersey Nets moving to Brooklyn as soon as 2012.

The site of the proposed Atlantic Yards mega-development project in Brooklyn. The New York Court of Appeals — which last week affirmed the right of the state to seize land on the project footprint via eminent domain — on Tuesday denied Develop Don’t Destroy Brooklyn’s request that the court review whether developers prepared a proper environmental impact statement.

Moody’s Investors Service, meanwhile, rated $500 million worth of bonds for Atlantic Yards at Baa3, according to the Bond Buyer. That grade is just high enough to avoid “junk” status, making them instead “investment grade.” The distinction is expected to make the bonds far more appealing to institutional investors.

NY Observer, Nets Arena Wins Needed Bond Rating, Mostly

This does not appear to be all of what Mr. Ratner had hoped. Last week, a state development agency said it expected $600 million in tax-free bonds, which itself was lower than executives had initially said they wanted (the arena's costs have been estimated between $800 million and $900 million). The less there is in tax-free bonds used to finance the project, the more expensive it gets for the development firm, Forest City Ratner, which has been scrambling to cut costs on the project for over a year.

The next (and most important) step is to actually sell the bonds to investors in the next couple of weeks. The bonds must be sold and a set of other loose ends tied up before the end of the month in order to qualify for an Internal Revenue Service deadline on the tax-free debt.

In its report on the bonds, Moody's laid out a number of notable risks with the project: the fact that the team is relocating to a new location, that the finances of the team are poor (more than $70 million in pre-tax losses a year, according to SEC filings made by Forest City), "uncertain demand for premium seating," and uncertainties over sponsorships, other events and ticket sales. Sports facilities traditionally take in the bulk of their revenue from a small percentage of seats and luxury boxes, meaning that the ability to sign up corporations to fill the luxury seats will be integral to making the arena a financial success.
...

Standard & Poor's is out with their rating, which, like Moody's, is the lowest investment grade rating: BBB-. This is the rating that Forest City's underwriter, Goldman Sachs, had been shooting to hit, as the junk bond market would presumably be much more expensive.

The S&P analysis highlights similar positives (a strong structure given the PILOT payments; expectation of on-budget construction, as the contractor is apparently responsible for cost overruns; strong liquidity) and negatives (uncertain demand; potential overcapacity; and "potential reduction in the annual PILOT payments.")

NY Fiscal Watch, Atlantic Yards scrapes by, with a little (OK, a lot of) help from Gotham

The rating for the arena, called the Barclays Center, is Baa3, the lowest investment-grade rating available.

And Atlantic Yards largely got the rating on the strength of New York City taxpayers taking a big risk.

The mechanics of the financing aren’t that difficult. A subsidiary of Albany’s Empire State Development Corporation, the Brooklyn Arena Local Development Corporation (BALDC), will own the arena.

ArenaCo, a company owned in turn by developer Bruce Ratner and his partner, Russian billionaire Mikhail Prohkorov, will make payments in lieu of taxes (PILOTs) to BALDC in return for the long-term right to use the arena.

In turn, BALDC will turn those PILOTs over to the PILOT trustee, which will then use the funds to pay off the debt.

The PILOTS, and thus the bonds, depend on revenues from the arena for payment: “premium seating licenses and sales, sponsorship agreements, … concession revenues,” and the like, note Moody’s.

While ArenaCo does have a contractual obligation to pay debt service, it is a special-purpose company without recourse to any if its owners’ other companies or assets. Mikhail Prohkorov, Ratner’s equity partner, has agreed to keep the Nets themselves solvent, for example, but not to keep the arena solvent, according to Bond Buyer.
...

On these senior bonds, Atlantic Yards is keeping debt way down. Raters have required a 40 percent equity component for this part of the deal.

This is important: It’s likely only because of this huge equity component that Atlantic Yards could attain even this low investment-grade rating.

Crain's NY Business, Moody's gives $500M in Nets bonds thumbs up

Not so much of a must-read here. While Crain's reporter Theresa Agovino has been covering the Atlantic Yards story for some time, she seems to be struggling with the facts.

For one thing, while getting even the lowest investment-grade rating from Moody's, just a whisker above junk status, is a win for Ratner, it's not "the last major hurdle." Someone still has to buy those bonds, which is still not a sure thing.

And Ratner did not sell "80% of the Nets and 45% of the arena to the Russian mogul for $200 million earlier this year" — they reached an agreement on a deal, but that deal has yet to be consummated.

Lastly, Crain's fails to mention that a Baa3 rating is the lowest non-junk rating the bonds could have received — a not-so-ringing endorsement that the pro-Atlantic Yards Crain's chose to ignore.

Posted by eric at 5:22 PM

Moody’s Rates Atlantic Yards PILOT Deal at Baa3

The Bond Buyer
by Ted Phillips

Bruce Ratner's Atlantic Yards arena bonds have been rated "a touch above junk" by Moody's.

Moody’s Investors Service rated the bonds for New York City’s controversial Atlantic Yards basketball arena at a notch above junk, according to a rating report released today. Moody’s assigned its Baa3 rating with stable outlook to the Brooklyn Arena Local Development Corp.’s offering of $500 million of bonds.

The issuer plans to sell the bonds, which are backed by payments in lieu of taxes, to partially finance the construction of the Barclays Center, a $1.06 billion, 18,000-seat complex that will be the future home of the New Jersey Nets National Basketball Association franchise.

The Moody’s report cited as credit positives the security of the PILOT bond structure, the strength of New York City as a media market, the non-relocation agreement with the Nets, an operating support agreement with Russian billionaire Mikhail Prokhorov, sponsorship agreements, and an equity structure that has $424.4 million invested in the arena.

Credit challenges include the weak financial position of the Nets, construction risks, and uncertain demand for the venue and sponsorships.

article

Posted by eric at 3:23 PM

NYS May Give More Aid to Atlantic Yards Project

WNYC Radio
by Matthew Schuerman

New York State's economic development agency says it recently considered giving Brooklyn's controversial Atlantic Yards project more financial help than previously announced. WNYC's Matthew Schuerman reports.

REPORTER: In 2006, the state officials voted to give $100 million to developer Forest City Ratner for infrastructure costs and then provide tax-exempt bonds to build a basketball arena. But in September, members of a state entity agreed behind the scenes to preliminarily approve another $400 million in tax exempt bonds.

It's unclear whether the state or Ratner would ultimately pay the bonds back, but critics say that either way, the taxpayer's burden would increase considerably. The Atlantic Yards Report blog reported the secret allocation first.

The Empire State Development Corporation says it's abandoned the plan, but wouldn't comment further. Last week, officials stuck to the original plan and approved only bonds slotted for the arena. For WNYC, I'm Matthew Schuerman.

REPORTER: Robert Freeman, a state official overseeing freedom of information law, says the September decision was apparently invalid anyway, given that it took place not in an open meeting, but by written consent.

link

NoLandGrab: We can rest assured that the ESDC is working feverishly on a Plan B, designed to elude nosy reporters like Norman Oder and Matthew Schuerman, for conveying more public money to Forest City.

Posted by eric at 12:06 PM

Dubai's dilemma: a warning to NY

NY Post
by Nicole Gelinas

There's a vital lesson for New York in the travails of Dubai, the little Persian Gulf emirate with big buildings and bigger debts -- if only our politicians and taxpayers would understand.

Last week, Dubai's state-owned investment arm, Dubai World, told its banks (mostly British) that it needs a freeze on debt repayments. It also needs to cut the $60 billion that it borrowed to speculate on office towers, hotels, luxury retailers and the like.

Global bankers were shocked. The Dubai government doesn't legally back Dubai World's debts -- but investors had thought that two levels of bailout would protect them if Dubai World's projects failed. If the company's dubious investments ran into trouble, they figured, Dubai would bail them out. And if the Dubai government wouldn't or couldn't do so, then Abu Dhabi (the richest of the seven United Arab Emirates) would step in, so as not to make all the emirates look bad.
...

Pay attention, New York: Albany and New York City have their own "Dubai Worlds" -- state-owned entities that borrow buckets of money to invest in oft-dubious projects without the "official" backing of taxpayers.
...

The most recent example is Atlantic Yards, the $4.9 billion basketball arena and luxury-apartment project in Brooklyn. By December, developer Bruce Ratner must raise the arena's first bonds, $800 million approved by the Empire State Development Corp. The debt supposedly comes without a government guarantee: If revenues from luxury-box sales and such don't cover the debt, bondholders lose.

But if lenders believed that, Ratner probably couldn't borrow at a price he could afford for this project -- a luxury stadium for a losing team. Plus, there are no comparable deals that investors can look at to see what they should charge, and no one knows what demand for luxury boxes will be like in half a decade.

So anyone buying Ratner's bonds is likely counting on Atlantic Yards being "too big to fail." And Empire State Development Corp. officials play along. "I don't know if I'd characterize [the state] as willing [to let Atlantic Yards' bonds default]," ESDC lawyer Jonathan Beyer said last week. "It's just that the documents do not require us to make any payments."
...

The best antidote for the most questionable spending would be some market discipline: Warn bondholders that they'll suffer if they put their money in a white-elephant project or in an authority that can't control its spending.

article

Related coverage...

NY Fiscal Watch, Dubai dribble

By the way, Empire State Development (ESDC) absorbed the Urban Development Corp., whose February 1975 default helped precipitate the state and city fiscal crisis of the 1970s. Governor Hugh Carey and the Legislature then felt compelled to appropriate roughly $200 million (the quivalent of $800 million in today’s terms) to complete unfinished UDC projects and prop up the authority until it could re-enter the debt markets a couple of years later.

Speaking of losing, the New Jersey Nets–the team Ratner wants to put in the Brooklyn arena–just fired its coach and tied an NBA record for futility by losing its first 17 games of the season. Ratner is in the process of selling a controlling interest in the Nets, along with a large share of the Atlantic Yards arena, to a Russian tycoon known as the “bachelor billionaire,” who appears to have made his fortune in precious metals.

Luxury box, anyone?

Posted by eric at 11:15 AM

If bonds won't be used to build AY infrastructure, there would still be a huge funding gap

Atlantic Yards Report

Who knows why the Empire State Development Corporation would rather blow off Norman Oder's inquiries, preferring instead to issue a statement under pressure of questions of mainstream reporters. However, true to form, Oder still has some questions:

The Empire State Development Corporation (ESDC) said yesterday, in response to my report, that, though it "was at one time considering additional tax exempt bonds for infrastructure financing," it ultimately "decided not to pursue that type of financing."

(It was the plan as recently as September, given the 9/11/09 date of the Inducement Resolution adopted by the Brooklyn Arena Local Development Corporation.)

Still, as I wrote yesterday, the 2009 Modified General Project Plan, passed by the ESDC in September, budgeted $717 million for project infrastructure, with $205 million coming from government funds but no particular source for the rest.

So, where's the money going to come from?

article

Posted by lumi at 5:22 AM

November 30, 2009

ESDC: no tax-exempt bonds for infrastructure will be issued

Atlantic Yards Report

The Empire State Development Corporation (ESDC), says the Brooklyn Arena Local Development Corporation is not going to issue tax-exempt bonds for Atlantic Yards infrastructure, as documents prepared in September suggested (as I reported this morning).

The ESDC issued a statement:

ESDC was at one time considering additional tax exempt bonds for infrastructure financing. Ultimately ESDC decided not to pursue that type of financing. Last week’s Board authorization of last week is the only financing under consideration by the Brooklyn Arena Local Development Corporation. Additional details of the bond sale will be released once documents are finalized. There will be a formal mid-December closing and we anticipate marketing the bonds prior to that time.

I'm several hours late posting this because I was in transit, but the ESDC had a day and a half last week to tell me that the plan was off.

link

NoLandGrab: OK, did they only decide "not to pursue that type of financing" after Norman Oder wrote about it? Why are we having a hard time trusting anything that comes out of the ESDC?

Posted by eric at 10:58 PM

Breaking...

Citing today's article in Atlantic Yards Report, WNYC News Radio reporter Matthew Schuerman reported that the Empire State Development Corporation has dropped that plan to issue an additional $400 million in tax-free infrastructure bonds for Atlantic Yards, but declined to comment further.

Posted by lumi at 7:34 PM

Revealed: state is prepared to issue up to $400 million in tax-exempt bonds so FCR could save on Atlantic Yards infrastructure

Atlantic Yards Report

While Governor Paterson is implementing $1.6 billion in emergency budget cuts aimed at partially closing New York State's $3 billion-plus-and-growing budget deficit, his administration is working feverishly (and secretively) to close Bruce Ratner's budget deficit.

According to a previously unrevealed action in September, developer Forest City Ratner could benefit from $400 million in state-authorized tax-exempt bonds for much more than the planned arena.

The recently-formed Brooklyn Arena Local Development Corporation (BALDC) is prepared to authorize up to $400 million in tax-exempt bonds for Atlantic Yards infrastructure, thus allowing FCR to save tens of millions of dollars and filling a funding gap discernible in project documents.

This raises significant questions:
--When, if ever, would such bonds be issued?
--What revenues would back bond payments?
--Could the state be on the hook to pay off the bonds?
--Would the bonds be used to build the new railyard?
--Would the full $400 million be issued?
--Why wasn't this funding mentioned in the Modified General Project Plan issued in 2006 or its update in 2009?
--How could bonds be paid off in the "delayed buildout" scenario envisioned in the Technical Memorandum (p. 55) issued in June by the Empire State Development Corporation (ESDC)?
...

No disclosure

The size of this important funding component--revealed in response to a Freedom of Information Law (FOIL) request--was not disclosed by the Empire State Development Corporation (ESDC) during the public comment period earlier this year regarding the revised Atlantic Yards plan nor before the ESDC approved the plan in September.

There was no opportunity for the public to comment at the November 24 BALDC meeting authorizing arena bonds.

(The BALDC authorized up to $825 million for the arena, including $150 million in taxable bonds, though in September it set a cap of $1.1 billion. Thus, while the infrastructure cap is $400 million, that total need not be issued.)

"[W]e are issuing governmental bonds and there is no federal or state requirement for a hearing," ESDC spokeswoman Elizabeth Mitchell stated before the meeting. "The distinction is based on the fact that governments are already subject to a public process, in our case ESDC's prior hearings, for governmental projects."

But the public process did not include any mention of tax-exempt financing for infrastructure. Thus, the public costs of such tax-exempt bonds were not available to those examining the project, such as the New York City Independent Budget Office.

article

NoLandGrab: Why so secretive?

Posted by eric at 12:17 PM

Dubai and Atlantic Yards

NY Fiscal Watch
by Nicole Gelinas

“[Dubai] will not … be able to restore confidence in its solvency without support from Abu Dhabi, its oil-rich investor, neighbour and the more conservative senior partner in the United Arab Emirates. … Abu Dhabi should give whatever help is needed to bring this episode of incompetence to a close. Abu Dhabi allowed it to be believed that it was backstopping Dubai, so it should make good its promises. This will require a public guarantee of Dubai’s debts – and soon. The reputation of the whole UAE depends upon it.” — Financial Times editorial, Nov. 28, 2009

“I don’t know if I’d characterize [the state] as willing [to let Atlantic Yards' bonds default]. It’s just that the documents do not require us to make any payments.” — Jonathan Beyer, attorney, Empire State Development Corporation, Nov. 24, 2009

link

Posted by eric at 12:13 PM

November 28, 2009

Picturing What Could Have Been Said If Public Officials Accepted Public Comment at the Atlantic Yards Bond Approval Meeting

Noticing New York

This past Tuesday the Brooklyn Arena Local Development Corporation (“BALDC”) met in the offices of the ESDC, the tool of developer Bruce Ratner. The purpose of the meeting was to approve the issuance of bonds.

Michael White attended the meeting and found that there was no opportunity for public comment. As a way to make his objections known, he brought a set of graphics with him that he held up in succession during the meeting.

This blog entry is a way of presenting the commentary that was not permitted by the state.

In addition to objections to a money-losing arena, there are also questions to the BALDC that should make anyone who is considering the purchase of bonds for the proposed Nets arena be wary.

  1. There are of course many questions to be asked about why you are issuing bonds with so many tell-tale loose ends. We could ask you why, for instance you aren’t reviewing and approving the involvement of Mikhail Prokhorov as a proposed principal in this transaction?

  2. Of all the multiple loose ends that make this so transaction dangerous, perhaps the most important to ask you about is this: Why are you financing an arena that is different from the one that the ESDC board and the PACB actually approved and which will be so much more risk for the bondholders? You are financing an arena which, among other things is so much smaller that it won’t be able to host a second team playing hockey.

  3. Of course, you should be worrying that these bonds will default and consequently don’t deserve a good rating. A default will negatively affect the market for all New York issuers. But that is not all you should be worrying about. Moody’s has warned that the entire state is weeks away from a substantial downgrade of its credit rating if it doesn’t close its budget gap. Governor Paterson is asking the legislature to take steps to close that gap but who can take the governor seriously when on his behalf you are still pursuing this supremely wasteful financing that is driving the state into a deeper financial hole. You are responsible for the misapplication of billions of public money to Atlantic Yards.

A Goldman Sachs banker's remarks suggest that the bonds might not be very tasty.

Before the meeting we were talking with one of the Goldman Sachs bankers involved in issuing the bonds, commenting that this must be the weirdest transaction on which they had ever worked. We were told that they had worked on some pretty weird transactions. We challenged them to name one as strange or involving so many oddities. Various other transactions were named. . . and discarded as candidates. We never came up with a transaction that even marginally approached eing comparably strange. We commented that this transaction probably had within it every element of every weird deal that had been done anywhere else that strange things were going on in New York. Our banker mentioned that he sometimes tells people he does “Tutti Frutti” deals. Then he sighed, and perhaps realizing what was more apropos to this deal, he said, “Or I sometimes tell them I do `Rocky Road.’” “This,” we said certainly involves more than one scoop of “Rocky Road.” And god knows how many scoops of something else.

link

Posted by steve at 5:38 AM

November 25, 2009

Atlantic Yards "Cloud" Lifted, But Fog Remains: What About the Bonds?

Runnin' Scared
by Neil deMause

Speaking of astute, sports-facility-boondoggle expert Neil deMause runs the numbers on Ratner's arena bonds.

So is the long-heralded arrival of Atlantic Yards finally at hand, or what? According to the front page of today's Times (echoed on its sports page), the answer is yes: Following yesterday's appeals court ruling, which dismissed challenges to the state seizing private land for the Nets-arena-and-other-stuff project, "a cloud of uncertainty that has hung over Atlantic Yards for more than a year had lifted," writes development reporter Charles Bagli, while rookie Nets beat writer Jonathan Abrams calls the ruling the "last major hurdle in the groundbreaking process."

When and whether the bulldozers will actually pull up to Freddy's, though, remains murky. That's because despite all the fuss about the eminent domain lawsuit — one of four remaining legal challenges against the project — the real hurdle facing developer Bruce Ratner is selling $800 million in bonds to pay for the damn thing. The Wall Street Journal last month declared the likelihood of the bonds passing muster with financiers as a "toss-up," and the bond issuance date has been pushed back at least once since then, with a December 31 IRS deadline fast approaching.
...

The real test now is whether the ESDC can secure bond rates that Ratner can afford to pay off — and there, all official answers are saying "we'll tell you later." An initial statement by ESDC that it had secured investment-grade ratings was contradicted by Bond Buyer, which got a Standard & Poor's bond analyst to confirm that no public rating had been made; ESDC later amended its statement to say it had "tentatively secured" a rating, a coinage that no doubt would have entertained George Carlin.
...

One possible holdup is bond insurance, which was the main bugaboo cited in that Wall Street Journal piece: Thanks to the financial meltdown, there's effectively only one bond insurer left in town, Assured Guaranty — and they've been unable to come to an agreement with Ratner's team on how much to charge to cover the Atlantic Yards bonds should the whole thing go kablooey. Yesterday's court ruling might make Assured a bit more amenable to compromise, but here again, nothing's been finalized, according to Goldman Sachs, which is handling the bond insurance talks.

How much difference does all this financial mumbo-jumbo make? Well, the Brooklyn Arena Local Development Corporation (an ESDC subsidiary spun off for solely for the purpose of issuing the arena bonds) authorized rates as high as 8 percent for tax-exempt bonds and 14 percent for taxable bonds, which is pretty much a rating of "usurious"; if the rate were really bumped up from the 6.5 percent Ratner previously said he hoped for to 8 percent, that'd mean close to $10 million a year in extra bond payments, or more than one Devin Harris worth. But what interest rate Ratner will get — and how much he'll have to pay to Assured to get it — won't be made public until next Wednesday at the earliest, which is when ESDC hopes to issue a "preliminary offer statement" spelling out the details.

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Posted by eric at 6:01 PM

Atlantic Yards Decision Drama! More Lawsuits as Financing Questions Remain

NY Observer
by Eliot Brown

The ever-astute Mr. Brown follows the money.

The project, developed by the Brooklyn firm Forest City Ratner, received a key victory early Tuesday morning with a decision from New York's highest court, as the judges ruled 6-1 to uphold the use of eminent domain in the project.

Shortly after, the plans for financing were revealed, and the state's development agency said that the project was expected to receive an investment grade rating from the ratings agencies on hundreds of millions of dollars in bonds for the arena.

There has been skepticism that the bonds would be able to reach investment grade; failure to do so would render the project unable to receive financing ahead of a Dec. 31 deadline on the use of tax-free debt.

Now, the question becomes whether or not Forest City will succeed in selling the tax-free bonds, and then if it will be able to ward off any additional obstacles, including lawsuits, between now and the end of next month.

THE SPECIFICS OF THE financing are still unclear, though the state-run Empire State Development Corporation, said at a hearing Tuesday that the state expected $600 million in tax-free bonds to be approved as part of a complex financing agreement meant to skirt federal laws intended to bar many stadiums and arenas from using tax-free debt. (These have proved controversial when used on recent stadium deals, with critics alleging that land values were improperly inflated in order to make the numbers work. Would-be property tax payments are used to pay the debt service on the bonds.)

The ESDC said that there would also be $150 million in taxable bonds, which are far more expensive for Forest City. The stated reason? The property taxes are not excepted to be high enough to cover more than the $600 million in debt.

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Posted by eric at 5:54 PM

Gov. Paterson should tell potential bondholders that Atlantic Yards isn’t too big to fail

NY Fiscal Watch
by Nicole Gelinas

Fresh from a key court victory, Albany’s Empire State Development Corporation (ESDC), via its subsidiary, the Brooklyn Arena Local Development Corporation (BALDC), yesterday approved the issuance of up to $800 million in bonds for the construction of the Atlantic Yards basketball venue, sponsored by developer Bruce Ratner.

What is state and city taxpayers’ obligation here?

As A/Y blogger Norman Oder reports, up to $650 million of the financing would be tax-exempt (meaning that the state and city, as well as the feds, are losing the value of the taxes). The rest would come in taxable bonds.

Technically, the bonds don’t enjoy state backing or ESDC backing. They will rely on revenues for their repayment. Ratner will make “payments in lieu of taxes” for the tax-exempt bonds, and he’ll use money from other arena-related revenues (not well-defined at the moment) to pay back the junior, taxable portion.

ESDC officials said yesterday that the arena will garner investment-grade ratings, but none of the three major ratings agencies has released a report yet.

Are potential investors really counting on the arena’s revenue to be enough?
...

It’s unclear how much due diligence potential investors can do in a month on a complex financing in an uncertain investment environment that doesn’t offer many comparable benchmarks.

So, perhaps potential investors are counting on something else instead.

The possibility is that bond investors will simply rely on Atlantic Yards being “too big to fail” — that is, they’ll figure that New York State and City have invested so much political capital in the project that they’ll step in to make up for any revenue shortfalls.

Yesterday, ESDC officials didn’t exactly disabuse anyone of this notion, according to Oder’s account.

When a WNYC reporter asked if ESDC would let the bonds default “if Ratner can’t make these payments,” ESDC lawyer Jonathan Beyer said coyly, “I don’t know if I’d characterize it as willing. It’s just that the documents do not require us to make any payments.”

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NoLandGrab: Caveat emptor.

Posted by eric at 1:29 PM

Arena bonds authorized, underwriter Goldman confident, but questions remain about rating, insurance, market

Atlantic Yards Report

The news at the meeting yesterday of the Brooklyn Arena Local Development Corporation (BALDC) was not that the special-purpose LDC was going to approve bonds for the arena, but the numbers and terms surrounding the bonds.

And several important aspects of the bond sale remain unresolved.

While the Empire State Development Corporation (ESDC) said in a statement that it had "secured investment-grade ratings" for the arena bonds, the Bond Buyer checked with Standard & Poor's analyst Jodi Hecht, who said no public rating had been made, leading ESDC spokesman Warner Johnston to acknowledge that the ratings had been "tentatively secured." Nor has an interest rate been set.

Also, the bonds do not yet have insurance, a factor that adds a significant safety factor but adds to the cost. Officials of both the BALDC and underwriter Goldman Sachs said that such a "credit enhancement" was under discussion.

Check out the rest of the article, for reporting on the followup questions from the media, including Ted Phillips of Bond Buyer and Matthew Schuerman of from WNYC News Radio.

Posted by lumi at 6:21 AM

November 24, 2009

With decision in eminent domain case possible on same day arena bonds are authorized, it could be an interesting Tuesday

Atlantic Yards Report

spiral.jpg

By about 9:20 am today, we should know whether the Court of Appeals has ruled in the Atlantic Yards eminent domain case.

If there's no ruling, then the 10 am meeting of the Brooklyn Arena Local Development Corporation to authorize arena bonds should be relatively uneventful--except, of course, for the details to be revealed about the mix between tax-exempt and taxable bonds, as well as whether they're to be used for infrastructure.
...
If the ruling is in favor of the state, then likely there will be a collective sigh of relief among those running the hearing, even if other lawsuits and the challenge of selling bonds in the current market represent potential snags.

And if the ruling turns out to be in favor of the plaintiffs, then expect a rather surreal meeting. Atlantic Yards would have been dealt a near-fatal blow.

article

Also...
ArtInfo, Bruce Ratner’s Atlantic Yards Project Awaits Judges’ Ruling

Posted by lumi at 6:12 AM

November 23, 2009

Arena bonds authorization coming Tuesday: questions about transparency, PILOTs, and infrastructure spending remain

Atlantic Yards Report

Norman Oder explains how the State of NY will approve the triple tax-free arena bonds on Tuesday, without releasing deatils beforehand and allowing for a public hearing and comment, and how various City and State agencies will have to fudge property tax estimates in order to save Bruce Ratner's as much money as possible.

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Posted by lumi at 5:20 AM

November 19, 2009

DDDB PRESS RELEASE — DDDB to Comptroller DiNapoli: Paterson, Silver, Sampson Must Review and Vote on Atlantic Yards Financing

PACB Role is to Prevent The Kind of Reckless Borrowing Envisioned by the Ratner Project

NEW YORK, NY — Develop Don’t Destroy Brooklyn (DDDB) sent a letter to State Comptroller Thomas DiNapoli, State Senator Bill Perkins and Assemblyman Richard Brodsky (each chair committees on public authorities) explaining in detail why the Public Authorities Control Board (PACB) needs to convene and vote on whether to approve the Atlantic Yards project’s financing.

The 3-member PACB is comprised of appointees of Governor Paterson, Speaker Sheldon Silver and Majority Leader John Sampson. PACB votes must be unanimous.

In sum the letter, provided below explains that the financing, cost, revenue model, design and construction timeline of Forest City Ratner’s Brooklyn Atlantic Yards project have changes so substantially since the PACB voted in December 2006 that new analysis and a new vote is required.

The letter also explains that the PACB must vote to approve the $700 million Barclays Center arena bond before it can be issued. Ratner has an end-of-year IRS deadline to issue the tax-exempt bond.

DDDB explains "The PACB was formed specifically to guard against reckless borrowing by the Empire State Development Corporation that could result in defaults and place the State in a moral obligation to support the bonds."

"Allowing the vastly altered Atlantic Yards financing to go forward without a review and vote by the PACB, would be not just reckless in the extreme, but illegal" said DDDB spokesman Daniel Goldstein. "The Governor, who is so concerned about the State’s precarious financial situation, should convene a review of the Atlantic Yards financing and do due diligence to determine if the project’s borrowing makes any sense. The Comptroller, Mr. Brodsky and Mr. Perkins should make sure this happens."

[Click through to read the rest of the release and the letter to State Comptroller Thomas DiNapoli.]

link

Posted by eric at 2:51 PM

November 18, 2009

ESDC subsidiary to approve arena bonds on November 24

Atlantic Yards Report

The Empire State Development Corporation (ESDC) subsidiary Brooklyn Arena Development Corporation (BALDC) will meet on Tuesday, November 24, and authorize arena bonds. (It will also take "related actions," which will be worth a look.)

Either the ESDC knows that a favorable decision on the Atlantic Yards eminent domain case will come down by Tuesday, or the ESDC, and bond rating agencies, have taken steps to put whatever bonds are sold in escrow while the case is still pending. Or maybe the bonds will be authorized but not sold until the case is resolved.

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Posted by eric at 10:58 PM

MEETING ADVISORY and PUBLIC NOTICE

What: Meeting of the Directors of the Brooklyn Arena Local Development Corporation, a local development corporation created under State Law.

Purpose: Authorization to Issue Bonds and Take Related Actions with Respect to the Atlantic Yards Land Use Improvement and Civic Project.

When: Tuesday, November 24th, 2009 at 10:00 a.m.

Where: The Offices of the Empire State Development Corporation
633 Third Avenue - 37th Floor Conference Room
New York, New York 10017

The meeting is open to the public for observation only

Public please RSVP to (212) 803-3795.

Posted by eric at 10:19 AM

Goldman Apologizes. Ratner Arena Bond Would Lead to Same Late Regrets

Develop Don't Destroy Brooklyn

Goldman Sachs is the underwriter for the bond Ratner is struggling to have issued. Yesterday, Goldman Sachs had something to say:

Blankfein Apologizes for Goldman Sachs Role in Crisis

Nov. 17 (Bloomberg) -- Lloyd Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc., apologized for the firm’s role in some of the activities leading to the financial crisis.

“We participated in things that were clearly wrong and have reason to regret,” Blankfein, 55, said at a conference in New York hosted by the Directorship magazine. “We apologize.”
...

Multiple press reports have stated that the problem Ratner is having is getting a good credit rating and insurance for the $700 million arena bond, and presumably part of the problem is the lack of a revenue model that could pay off the bond. A defalut on the bond would put New York State, and thus New York taxpayers, on the hook.

If Goldman goes forward with the arena bond (they have money to make in doing so) will they come back and apologize later? Wouldn't it be better to think twice before later regretting?

link

Posted by eric at 10:13 AM

November 14, 2009

Observer: as delays mount on bond sale, the clock ticks (but Ratner could still pull it off)

Atlantic Yards Repot

Norman Oder reminds us that the last two months of 2009 should be interesting for everyone following the Atlantic Yards fight.

Yesterday, I pointed out that Bruce Ratner predicted to the New York Observer that bonds for the arena would be rated and sold in mid-October. Now, the Observer's Eliot Brown reminds us that Ratner first predicted an end-of-September date.

In today's piece, headlined New Doubts About Atlantic Yards Financing as Deadline Approaches, Brown says "the project is running into trouble at the ratings agencies," which have resisted Forest City's effort to get the arena bonds rated at the crucial minimum: investment grade (BBB-) or better. Still, Ratner's confident it'll work out.

The clock ticks

Brown adds:

Forest City must first get the bonds rated, then market them, then sell them--and it's no forgone conclusion that anyone will buy them--and, finally, firm up all final agreements with the city, state, and M.T.A. on the complex real estate deal, all before Dec. 31 (with Thanksgiving and Christmas breaks mixed in). Each of these steps takes at least a few days, if not more than a week, making it hard to see how everything could get wrapped up if the bonds are not rated before the end of November, if not sooner.

ALL IS NOT TO say the deal is doomed. Mr. Ratner, with extraordinary stamina for this project and the outpouring of cash that comes with it amid a recession, has a history of executing. Further, many deals and financing arrangements go through rocky periods, where doubts are raised, before ultimately working everything out as deadlines approach.

There are lots more variables and uncertainties--read the whole piece. The gist: it's not over til it's over.

link

Posted by steve at 7:43 AM

November 13, 2009

New Doubts About Atlantic Yards Financing as Deadline Approaches

NY Observer
by Eliot Brown

Here's a must-read article summarizing all the loose threads that Forest City Ratner must somehow knit together in the next seven weeks if its Atlantic Yards project is to become a reality.

On Sept. 9, Bruce Ratner, the powerful developer scrambling to start building a new Brooklyn basketball arena for the Nets, gave a prediction: The credit ratings agencies would deliver ratings on about $700 million in bonds for the arena by the end of the month. The ratings are a necessary precursor of financing the arena, an act that must be finished by Dec. 31 to meet an Internal Revenue Service deadline.

On Sept. 30, still with no ratings, Mr. Ratner, chairman of development firm Forest City Ratner, updated the timetable: The bond ratings would be done by mid-October.

It's now mid-November, and the word remains the same from the project's backers: The bond ratings are still at least a week off--hopefully.

As the repeated missed internal schedules suggest, the project is running into trouble at the ratings agencies.

According to multiple people briefed on the situation, the agencies have been pushing back against Forest City in its attempt to get the arena bonds rated as investment grade (BBB-) or better, causing new concerns for the project. (Forest City's representatives expressed confidence they will receive the needed ratings.)

This significant hurdle comes as the countdown clock ticks. Loudly.

article

NoLandGrab: While things may look bleak for the project's future, Ratner's Goldman Sachs banker expresses confidence, and Atlantic Yards' six-year history has demonstrated that Ratner often manages (with a lot of help from his office-holding friends) to pull a rabbit out of his hat.

Posted by eric at 12:57 PM

November 5, 2009

Forest City Ratner says AY is not eligible for $55 million in federal tax credits

Atlantic Yards Report

Norman Oder is trying to uncover the details of the federal tax credit [for Atlantic Yards*]:

Well, like some other people, I'm still trying to figure out for what Forest City Enterprises got $55 million in federal tax credits, if it wasn't for Atlantic Yards.

The New York Daily News today advanced (and muddied) the story today, with an article headlined Forest City Enterprises could get $55M boost from feds [for Atlantic Yards*]. Note that the words in brackets were later excised from the article.
...
Well, multiple states were listed [on the tax credit]: Connecticut, District of Columbia, New Jersey, New Mexico, New York, Pennsylvania. If the feds won't tell us (and Luecht [spokesman for the Community Development Financial Institutions Fund] didn't respond to three queries I sent since Friday), maybe Forest City can do so.

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NoLandGrab: The developer says the tax credit isn't for Atlantic Yards and Federal "Community Development Financial Institutions Fund" won't say what projects are eligible or were on the application. Since money is fungible, it's ridiculous to pretend to be hiding something... unless they're really hiding something.

Posted by lumi at 5:12 AM

November 4, 2009

Forest City Enterprises could get $55M boost from feds [for Atlantic Yards*]

NY Daily News
By Erin Durkin

The original article about the $55 million federal bailout for Forest City Ratner was posted with "for Atlantic Yards" included in the headline.

The developer of the troubled Atlantic Yards project is getting a $55 million shot in the arm from the federal government.

The money, part of $5 billion in tax credits announced by the Treasury Department on Friday, isn't specifically earmarked for the controversial Prospect Heights project.

But federal officials said it's a vote of confidence that the beleaguered developer, Forest City Enterprises, has the ability to get its projects off the ground.
...
Forest City spokesman Joe DePlasco said Atlantic Yards was "not included in the application" and "is not eligible for this money."

But [spokesman for the Community Development Financial Institutions Fund Bill] Luecht said the developer could use the money for any project located in a census tract classified as low income - and the four tracts covered by Atlantic Yards are on CDFI's list of spots that qualify. He said he could not disclose what projects Forest City had named when they applied for the money.

article

Coverage of the Daily News story...

New York Multifamily News, Five Shots (or $55 Million) and He’s Still Alive! Atlantic Yards Gets Another Subsidy For Make-Believe Affordable Housing.

According to the NY Daily News, “Forest City spokesman Joe DePlasco said Atlantic Yards was “not included in the application [for tax credits]” and “is not eligible for this money.” Mr. DePlasco was not quoted as saying the following:

Everyone knows that money is fungible. Every dollar we get from the government frees up a dollar we would use elsewhere. Even if the government put the money in a bag with weapons-grade plutonium and an exploding dye pack, and Daffy Duck opened the bag for us, Uncle Sam still wouldn’t know we used the money for Atlantic Yards.

Manhattan Real Estate, AY developer gets $55M in federal tax credits
Real Estate Ones, Forest City Enterprises could get $55M boost from feds

Posted by lumi at 7:28 PM

Memo to Assemblyman Richard Brodsky: don't ignore PILOTs for the Atlantic Yards arena

Atlantic Yards Report

Not that this will change the mind of Assemblyman Richard Brodsky, who looked into the dubious financing scheme for Yankee Stadium after the fact but hasn't seen fit to look into the Atlantic Yards arena before it goes forward, but DDDB's Daniel Goldstein sums up the case for doing so.

link

Posted by eric at 8:21 AM

November 3, 2009

Wrong Way PILOTs Would Crash into Atlantic Yards

The Huffington Post
by Daniel Goldstein

Imagine the city told you, that instead of paying property taxes on your home you could take the equivalent of the tax you would pay and use it for your mortgage. Not a bad deal…for the homeowner.

Now, lets say—the New York City Department of Finance (DOF), for example—worked with you to inflate the tax assessment of your property because the mortgage was $200,000 but your property taxes would only amount to $50,000 over the same time period. So, the DOF increased the tax assessment you won’t have to pay in order to meet the mortgage payments.

Even better…for the homeowner. For the City’s treasury, it’s all money down the drain.

The Yankees and Mets used this scheme which let taxpayers help pay for their new stadiums. Unfortunately, the Yankees financing was investigated, after the stadium was nearly completed, by New York Assemblyman Richard Brodsky and Congressman Dennis Kucinich. Plenty of evidence was found that the Yankees and the DOF were gaming the system by inflating tax assessments like the homeowner scenario above. In order to inflate the PILOT to meet the bond issuance the Yankees wanted, comparables for the Bronx assessment were found in a far-flung, and much more expensive area—Alphabet City. But nobody did anything about it. (Last month The Village Voice’s Wayne Barrett started looking more in-depth into this Bloomberg-favored scheme.)

Next up on the tax-exempt bonds tour is developer Forest City Ratner’s proposed Nets arena in Brooklyn. The big difference between Ratner’s arena and Yankee Stadium is that Ratner has yet to be approved for the bonds from the state or start construction, which means a political Sullenberger could (and should) swoop in to stop the scam before it happens.

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Posted by eric at 6:55 PM

November 2, 2009

Corrected: that $55 million in federal tax credits for Forest City would not go to arena bonds

Atlantic Yards Report

So the $55 million in federal tax credits going to an affiliate of Forest City Enterprises, as reported Friday, will not in fact be for the arena bonds, as an Empire State Development Corporation (ESDC) spokeswoman initially confirmed.

The ESDC's Elizabeth Mitchell offers a correction:

ESDC is making $55M worth of bond volume capital available. It was merely a coincidence that this was the amount allocated to Forest City Community Development Entity, LLC from the federal Community Development Financial Institutions Fund. The $55M of federal New Markets Tax Credit Allocation are entirely unrelated to the Arena bonds.

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NoLandGrab: When it comes to Atlantic Yards, it's rare that anything is "merely a coincidence."

Posted by eric at 8:56 PM

November 1, 2009

ESDC’s Bond Buyer Happy Talk About Restructuring and Refunding Arena Bonds

Noticing New York

Here's an item that was missed from Friday. This blog entry takes Frances Walton, ESDC’s chief financial officer, to task for statements made for an article in the Bond Buyer. It doesn't appear that the ESDC will meet IRS tax free bonds requirements in that way it is attempting to structure bonds for the proposed Atlantic Yards Project.

We are sure that Ms. Walton (who used to be in the habit of taking our legal advice when she joined us at the state agencies where she began in public finance) knows that a bond deal that is issued in order to be immediately “restructured” is pretty dead-on target to be exactly the kind of “black box” deal that the IRS has repeatedly found doesn’t meet its requirements for tax exemption (thus making bonds taxable). We also find curious the notion that if, as Ms. Walton suggests, the “court ruling went against you” (which is to say that no arena could be built) that ESDC would “just refund the bonds.” We can definitely understand Ms. Walton’s reference to an “early call” to redeem the bonds when for various reasons the arena can’t be built, but the phrase “refund the bonds” in general public finance parlance means keeping bonds outstanding (i.e. not it's not like “refunding” a ticket price and sending people home when your headline act doesn’t show up). Issue the bonds in order to immediately refund them and keep bonds outstanding with a different structure? The IRS surely ought to like that.- Not! (We refer once more to our comment about “black box” transactions.) Why talk about keeping bonds outstanding when you find out that the arena can’t, in fact, be financed? It wouldn’t be possible. The IRS would consider that an over-issuance prohibited by the tax code, making the bonds taxable (once again) as “arbitrage bonds” (retroactively to their date of issuance).

link

Posted by steve at 8:20 AM

October 31, 2009

How Does A Sports Arena Qualify For $55 Million In Federal Tax Credits?

Develop Don't Destroy Brooklyn - Feds Grant $55 Million to Forest City Ratner. Funds Seem to be for Atlantic Yards

The Federal Government has just given $55 million to "Forest City Community Development Entity, LLC" headquartered in Brooklyn. It is not clear if it is a $55 million "tax credit" or if it is a straight out grant. We're attempting to find out. It appears to be a $55 million "tax credit."

It is also not clear if all the money is for Atlantic Yards, but one would assume most of it is since Atlantic Yards is the only supposedly vertical construction project the parent company Forest City Enterprises is undertaking (according to them). We're attempting to find out.

...

The money comes from the Community Development Financial Institutions Fund. Here is an overview of what that Fund does:

Through monetary awards and the allocation of tax credits, the CDFI Fund helps promote access to capital and local economic growth in urban and rural low-income communities across the nation.

Through its various programs, the CDFI Fund enables locally based organizations to further goals such as: economic development (job creation, business development, and commercial real estate development); affordable housing (housing development and homeownership); and community development financial services (provision of basic banking services to underserved communities and financial literacy training).

Funny, but it doesn't mention the most expensive arena in the history of humankind.

Atlantic Yards Report - Forest City gets $55M in federal tax credits for AY bonds; projects must be in "low-income communities," so how could arena project qualify?

Forest City Community Development Entity, LLC, a Brooklyn-based subsidiary of Cleveland-based Forest City Enterprises, has been awarded $55 million in federal tax credits for "real estate retail development projects located in highly distressed low-income communities." (See pages 7 and 72 of this PDF.)

Do the tax credits "seem to be for Atlantic Yards," as Develop Don't Destroy Brooklyn suggests?

Yes.

Updated: While I initially wrote that I doubted that the credits would be predominantly used for AY, Empire State Development Corporation (ESDC) spokeswoman Elizabeth Mitchell confirms that the description below is "a summary of the State's agreement to allocate $55 million of State bond volume capital to the Atlantic Yards project. It is not the State providing money – rather it is the State allowing some of the capital for this project."

(The state only has a limited amount of "volume cap" for tax-exempt funding. It's unclear whether the bonds would be used for the arena, for housing, or associated retail.)

...

While Atlantic Yards--as DDDB notes--may be Forest City's only new project, it's not like other projects aren't ongoing, such as East River Plaza. Hence the mention of New Mexico, home of the ongoing Mesa del Sol project, or so I thought.

Then again, wouldn't it be tough to argue that Atlantic Yards--unlike, say, East River Plaza--would be located in a "highly distressed low-income communit[y]"?

I've asked the ESDC how exactly AY qualifies. (Remember, $1217/sf condos in 2015!)

Posted by steve at 8:01 AM

Well, maybe the Atlantic Yards arena bonds won't be sold on the week of November 16

Atlantic Yards Report

Some doubt as to when bonds sale will commence.

A Reuters article yesterday suggested they might. A Bond Buyer article today says it's up in the air.

And Michael White is very, very skeptical.

link

Posted by steve at 6:54 AM

October 30, 2009

Atlantic Yard Bonds May Be Sold, Escrowed: Official

The Bond Buyer via Develop Don't Destroy Brooklyn
by Ted Phillips

The $700 million of bonds to finance a professional basketball arena at the Atlantic Yards project in Brooklyn could be sold and the proceeds placed into escrow as legal challenges to the project are resolved, an official at the Empire State Development Corp. said yesterday.

“The expectation is that they can be issued,” said Frances Walton, chief financial officer of the ESDC. “It wouldn’t be the first time that bonds have been issued with those types of legal challenges.”
...

The structure and the timing of the bonds are still in flux, Walton said.

Typically an issuer would structure an escrow bond “short term with the expectation that it would be coming out of escrow to be restructured. That’s one of the possibilities they are looking at,” Walton said. “But they’re also looking at the structure with an early call ... if something changes, if the court ruling went against you, you’d just refund the bonds. Those are the two different approaches.”

abridged article via DDDB

full article [subscription required]

Posted by eric at 11:03 AM

October 29, 2009

NYS sets big bond sale, waits on other large issues

Reuters
by Joan Gralla

New York State's main economic arm will sell as much as $1.7 billion of debt during the week of November 16, although bond financing for two other developments -- Brooklyn's Atlantic Yards and the World Trade Center site -- have not yet been finalized.

Frances Walton, chief financial officer of the Empire State Development Corporation, told reporters after a Citizens Budget Commission conference that she did not expect lawsuits filed by opponents of the multibillion dollar Atlantic Yards project would block the debt issue by a local development corporation.

"The expectation is that they will be issued," she said. This would not be first time that bonds have been issued despite "legal challenges," Walton said.

"We have begun discussions with ratings agencies," she said.

article

NoLandGrab: Actually, according to a Wall Street Journal article two weeks ago, arena bond underwriters Goldman Sachs and Barclays had already "spent weeks in discussions with three credit-rating services and bond insurer Assured Guaranty Ltd. over ratings and terms on the bonds" — and the Journal called the odds of the bond sale succeeding "a toss-up."

Additional coverage...

Atlantic Yards Report, ESDC has a planned bond sale on the week of November 16 (before any court decision comes down)

Not only is the next Empire State Development Corporation (ESDC) meeting on November 19, the week of November 16 is when the ESDC will be issuing bonds, including (apparently) bonds for the Atlantic Yards arena, Reuters reports.
...

In other words, they're not waiting for the resolution of the eminent domain case, nor do they think any other lawsuits could stymie the project. The driver is a December 31 IRS deadline.

Bond buyers and the bond insurance company, however, had better calculate some risk, as Michael D.D. White pointed out.

NLG: Not only did White point out all the problems with the bond issue — it's likely that his blog post prodded reporters to start asking questions.

Posted by eric at 8:50 PM

Noticing New York: many clouds over the planned bond sale for the Brooklyn arena

Atlantic Yards Report

Michael D.D. White, in his Noticing New York blog, offers a must-read, warning So Many Unchecked Approval Boxes: Why Any Sensible Bond Buyer Should Probably Steer Clear of Buying Atlantic Yards Nets Arena Bonds.

Atlantic Yards is a project with many, many moving parts, and the Wall Street Journal has reported major questions about whether the bonds could get crucial insurance, given questions about the arena's revenue-earning potential.
...

The whole article is well worth a read. Surely the Empire State Development Corporation (ESDC) has considered and written off most of the concerns in White's checklist, but they don't go away that easily.

article

Posted by eric at 9:52 AM

So Many Unchecked Approval Boxes: Why Any Sensible Bond Buyer Should Probably Steer Clear of Buying Atlantic Yards Nets Arena Bonds

Noticing New York notes a litany of reasons that investors may want to pass on the arena bonds for Bruce Ratner's eminent-domain-abusing public-subsidy-scarffing compound-modifier-consuming "Barclays Center."

Pity the poor bond buyer who even thinks about buying bonds that might be offered on the market to finance the proposed Forest City Ratner Atlantic Yards Nets basketball arena. It is not your typical bond deal. Bond deals are usually really tight affairs, very “belt and suspenders.” We have never seen so many loose ends and approvals that are not in place. Many of those approvals may never be in place. Government officials may even try not to do what’s normally required. Do you remember when the subprime crisis resulted in underwater bonds across the commercial mortgage backed security industry? Everybody looked back in wonder and asked themselves how basic common sense requirements were ignored. The Atlantic Yards Nets arena bonds may be the municipal bond industry’s embodiment of the same kind of extreme folly: Basic standards of professional practices, dotting the i’s and crossing the t’s to protect the investor have simply been abandoned and one day everybody may wonder why.

Here's why.

NoLandGrab: Blogger Michael D.D. White may seem like another cranky Brooklynite who dislikes Bruce Ratner's Atlantic Yards overdevelopment, but he also "used to oversee the legal aspects of bond issuances for six agencies that were the state’s largest issuers of municipal bonds," so he knows WTF he's talking about.

Posted by lumi at 6:20 AM

October 20, 2009

Forest City in the News

Not "the News," exactly, since these are both Forest City-generated press releases, but newsworthy, for sure, as to the state of the company's finances.

Forest City Provides Update on Credit Line Renewal, Other Financing Activity, via Yahoo! Finance

Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) today provided a progress update on the modification and renewal of its $750 million revolving credit facility, and also announced extensions and refinancings among its property-level, non-recourse debt maturities.

The Company has received preliminary, non-binding commitments from a majority of its current 14-member bank group to participate in a renewed revolving credit facility. The preliminary commitments are based on a revised term sheet that is the subject of active discussions between the Company and its lenders, and are conditional on approval of the term sheet by all participating lenders, and any or all of the lenders who have preliminarily approved the term sheet may retract their approvals. Preliminary commitments to date account for approximately 60 percent of the total commitment being sought. While the Company cannot predict the outcome of this approval process and any further negotiations with the lenders, the term sheet for the extension of the facility contemplates a reduced total commitment from the lenders, increased borrowing costs, modification to the financial covenants and the addition of operational covenants. If approved, additional terms and conditions of the facility will be announced at the time of closing. The current facility is scheduled to mature in March 2010.

Forest City also closed a three-year extension of a $90.8 million loan on Two Hanson Place, the office building atop its Atlantic Terminal mall.

Forest City to Offer $175 Million Convertible Senior Notes

Forest City Enterprises, Inc. (NYSE: FCEA - News and FCEB - News) today announced its intention to offer, subject to market and other conditions, $175 million aggregate principal amount of convertible senior notes due 2016 ("the Notes").
...

The Notes are expected to be convertible, at the holder's option, into Forest City's Class A common stock at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date. The interest rate, conversion rate, conversion price and other terms of the Notes will be determined by negotiations between Forest City and the initial purchasers of the Notes.
...

Forest City expects to use the net proceeds from the offering to pay the cost of the convertible note hedge transactions, to reduce outstanding borrowings on the Company's $750 million revolving credit facility, and for general corporate purposes, which, depending on prevailing market conditions, could include repayment of debt with earlier maturities.

NoLandGrab: We're far from expert in corporate finance, but it appears to us that Forest City is yet again struggling to make ends meet.

It sounds like some of the company's current lenders are not too hot to extend credit to Forest City, since the term sheet "contemplates a reduced total commitment from the lenders, increased borrowing costs, modification to the financial covenants and the addition of operational covenants."

Furthermore, the $175 million in convertible notes, which are not secured, are potentially dilutive to current shares, and proceeds may be used to repay other loans that are coming due.

Finally, if market reaction is any indication, this is not good news for Forest City — Forest City stock is trading nearly 10% lower this morning.

Posted by eric at 11:24 AM

October 17, 2009

Skeptical bond market could be latest hurdle for NJ Nets' Brooklyn arena project

The Star-Ledger
By Michael J. Fensom

This article gives reasons to be skeptical regarding the proposed Atlantic Yards project being built.

A Wall Street Journal report Friday indicated that the tough bond market could present the latest challenge for the Nets' Brooklyn arena project.

Of course, the first order of business for the Nets is overcoming the property-rights case levied against the team by Brooklyn residents. But, if the case is resolved in favor of the group hoping to develop the Atlantic Yards, the clock will start ticking to issue the bonds.

The developers have until Dec. 31 to issue the bonds that will fund $700 million of the arena's estimated $900 million cost, or the debt's tax-exempt status will be lost.

Furthermore, if the developers cannot get an investment-grade credit rating for the bonds, the bonds' interest rates will rise, making them unattractive to investors.

So as the Nets' hearts are set on Brooklyn, the reality of the arena project -- the linchipin of the proposed move -- still has a long way to go before coming to fruition.

link

Posted by steve at 7:18 AM

October 16, 2009

Nets arena snags equity, bonds near market

ProjectFinance

The developer of a new arena for the Nets basketball team in Brooklyn, New York, has lined up an equity commitment from Mikhail Prokhorov's Onexim Group. It is set to come to market shortly with a roughly $700 million tax-exempt bond issue for the arena. Assured Guaranty, the last remaining viable monoline, is in line to insure the bonds.

"In line" is overstating the case, at least according to The Wall Street Journal.

The issuer and its underwriter Goldman Sachs are targeting a bond coupon of about 6.5%, or roughly 220bp over where the 30-year treasury currently stands. Project and municipal finance issuers have encountered strong issuer appetite in recent months, though spreads have widened in the last two weeks. Assured is rated AAA/Aaa by S&P and Moody's, though Fitch recently downgraded it for a second time, to AA-.

article [subscription or free-trial registration required]

Posted by eric at 12:50 PM

October 15, 2009

Sale of Nets' Arena Debt Is Tough Shot

The Wall Street Journal
by Serena Ng and Matthew Futterman

The world's leading business publication says the sale of Atlantic Yards arena bonds is anything but a slam dunk.

As the long-running legal battle over the Atlantic Yards nears an end, developers of the New Jersey Nets' Brooklyn arena project are gearing up for their next big challenge -- selling the development to a skeptical bond market.

Right now, the planned sale of as much as $700 million in bonds to finance the project's centerpiece -- a $900 million basketball arena to be called the Barclays Center -- looks like a toss-up. The U.S. municipal-bond market, while in much better shape than six months ago, has been in a rout since the start of October. The Nets arena offering, expected to launch next month, would be the largest bond sale tied to a sports venue in more than a year.

If developers of the Atlantic Yards project don't issue bonds by Dec. 31 to fund the arena's construction, the debt will lose tax-exempt status, which would kill the project.
...

Goldman Sachs Group and Barclays bankers have spent weeks in discussions with three credit-rating services and bond insurer Assured Guaranty Ltd. over ratings and terms on the bonds. The developers are hoping for an investment-grade credit rating on the bonds and to issue them at annual interest rates of roughly 6.5%. Whether the debt will be insured -- which could be key to selling the bonds -- remains uncertain, as debates continue about the arena's revenue-earning potential.
...

Not all the parties looking at the bonds are on the same page. Bankers recently balked at some of the terms that bond insurer Assured Guaranty wants before it will guarantee interest and principal payments on the bonds, according to a person familiar with the matter. Assured is effectively the only bond insurer still actively writing new guarantees after its rivals ran into financial trouble.

Analysts say a bond guarantee would help broaden the base of potential investors that can buy the securities. "It would certainly be harder to sell the bonds if they don't have insurance," says Matt Fabian, an analyst at Municipal Market Advisors, but he adds that investor demand has improved and the bonds may appeal to funds that invest mainly in municipal debt rated "junk."

article

Atlantic Yards Report, Wall Street Journal calls arena debt "a toss-up," given market for sports and apparent tension between bankers and bond insurers

Nets Daily, WSJ: Arena Financing a “Toss-Up”

Posted by eric at 10:35 PM

October 10, 2009

Andrew Zimbalist, 2005: "Thus, the ultimate public contribution may rise above the $200 million level" It stands as one of the most willfully naive statements in the Atlantic Yards saga.

Atlantic Yards Report

Of the many deceptions involved in promotion of the proposed Atlantic Yards project, is how much taxpayers are subsidizing this land grab. The ESDC, the tool of developer Bruce Ratner, continues to make outrageous claims about the benefits of the project, but always manages to avoid mentioning the costs.

This blog entry follows the history of a ruse.

It stands as one of the most willfully naive statements in the Atlantic Yards saga.

Forest City Ratner's "sports economist for hire," Andrew Zimbalist, once said that the direct subsidies would be $200 million but allowed, "Thus, the ultimate public contribution may rise above the $200 million level."

Ya think?

...

Consider that the New York City Independent Budget Office, looking only at the arena and not at housing (and other) subsidies, concluded in September that there would be $260.7 million in city and state capital contributions and $13 million in lost existing property taxes, adding up to $273.7 million in losses to the budget.

Beyond that, the IBO estimated $180.5 million in lost opportunity costs for the city, $38.4 million for the state and MTA, and $193.9 million for federal taxpayers.

And that's without even considering the bestowal of naming rights, which would bring a reported $400 million. And there's a whole lot more.

link

Posted by steve at 7:51 AM

October 6, 2009

The ESDC still hasn't shared the KPMG report; on video, lawyer explains how AY "timeline" may be longer than ten-year "timetable"

Atlantic Yards Report

A dozen business days after September 17, when the Empire State Development Corporation (ESDC) approved the 2009 Modified General Project Plan, the ESDC has still not released the KPMG report that provided the basis that a ten-year timetable for the project is "not unreasonable."

In a brief press conference after the board meeting, as shown in the video below, ESDC Senior Counsel Steve Matlin said that the ESDC would look at the issue of releasing the report "in the next few days."

Also in the interview, Matlin said he could not describe potential penalties facing Forest City Ratner if it didn't meet the project timetable because the issue was still under negotiation.

And he acknowledged a tension between a project timeline would last well beyond ten years, but an official timetable of a decade "that we expect to achieve, we want to achieve."

article

NoLandGrab: At the heart of the KPMG report are the financial projections for Bruce Ratner's controversial Atlantic Yards project, which have NEVER been revealed, so the public has no way of knowing whether the project is financially viable, at least viable enough to approach the much-touted 10-year timeline. One might assume that if either were the case, the ESDC would have already released these numbers.

Posted by lumi at 6:08 AM

The wild card regarding arena financing; could Build America Bonds take up the slack if tax-exempt bonds were insufficient?

Atlantic Yards Report

There might be a way around a potential financing snag for the Atlantic Yards arena (or, perhaps, the affordable housing): new Build America Bonds authorized by federal stimulus funding.

(I have no inside information about this; a tipster suggested it was worth airing.)

On his Field of Schemes blog yesterday, Neil deMause wondered about limits on tax-exempt financing for the arena:

There's one other wild card here, which is that the New York City Independent Budget Office has projected that even under the expiring IRS rules, the arena project wouldn't generate enough property tax value to justify $700 million in tax-free bonds. (If you really want to know what property tax valuations have to do with tax-free bonds, start here.) It'll be interesting to see if Ratner has to take out bond insurance for the possibility of the IRS rejecting some of his tax-exempt bonds as well — and if at some point he needs to find another Russian billionaire to pay for it.

Build America Bonds aren't tax-exempt--but they are subsidized. So they can achieve the same goal for the developer: a lower interest rate than the taxable market. And, if the foregone taxes on the arena block could only support PILOTs (payments in lieu of taxes) for, say, $500 million in tax-exempt bonds, perhaps Build America Bonds could take up the slack.

The popularity of such bonds has shifted more than a quarter of state and local government debt into the taxable bond market, according to the Bond Buyer. New York City has sold $800 million in such bonds.

article

Posted by lumi at 6:05 AM

September 28, 2009

It came from the Blogosphere...

A Daily Photo of Brooklyn, NY, Crossing Flatbush

There’s no construction going on at the Atlantic Yards project, yet it’s like a construction site. How is that? The large unsightly building in the background is home to Target and other stores.

NoLandGrab: There is "prep work" going on in the railyards. BTW: the "large unsightly building in the background" is owned by Atlantic Yards developer Bruce Ratner.

Noticing New York, Re: The Atlantic Yards Report of Our Wondering about Whether ESDC COULD Disapprove the Prokhorov Transaction

Coulda, woulda, shoulda — after being quoted in Atlantic Yards Report, blogger, lawyer and urban planner Michael D.D. White explains how the Empire State Development Corporation (ESDC) could review the Ratner-Prokhorov deal, why the agency should cover its ass, and why it won't.

NoLandGrab: Ratner helped the ESDC to gamely sidestep the issue, by announcing the Prokhorov deal less than a week after the quasi-public corporation "reapproved" the project.

johnbyronkuhner.com, New Jersey Nyets

One writer pats himself on the back for coming up with the "New Jersey Nyets."

NoLandGrab: Never mind that the obvious pun was also irresistible to NoLandGrab, NY Newsday, NY Post, Poet Leon Freilich, and The Associated Press.

Sean Elder, The Russian Is Coming, The Russian Is Coming!

Writer and Develop Don't Destroy Brooklyn Advisory Board Member Sean Elder comments on the "typically condescending editorial in [The NY Times] Week in Review."

Moscow correspondent Clifford Levy first gives DDDB (of which I am a proud member) points for being “resourceful, tenacious and just plain ornery.” (“Get off my land, ya varmint!”) Then he establishes his bona fides by saying he now lives just blocks from Prokhorov’s office but used to live right near the site of the Nets proposed arena.

Hoops Vibe, From Russia with love: Mikhail Prokhorov perfect for New Jersey Nets

An analysis of the Prokhorov deal from Vancouver:

With Prokhorov in the fold, the Brooklyn arena again looks like a go. Barclays, a massive British bank, are rumored to have interest in buying naming rights and the 6-6 Russian will bring other international contacts to the franchise.

The timing is perfect. With a rich owner and developing core, the Nets are suddenly attractive to free agents next summer.

Forever in Flux, Atlantic Yards

Three photos from the footprint of Bruce Ratner's Atlantic Yards project.

The photo that appears here depicts a portion of the prep work going on in the railyards. The other photos show what's left of the Ward Bakery building, next to the main part that Ratner has already torn down.

The Game I Love, Ocio alla Perestrojka
Fun with machine translation:

The magic word is Atlantic Yards, the mega-complex of residential and new Nets arena (the Barclays Center, thirty thousand people) that should be built in downtown Brooklyn. Pharaoh Project, edited since 2004 by what is the owner of the Nets, Bruce Ratner, however, is in a phase of tired. Not only because environmentalists are bringing before the courts of each judicial Ratner for that which is revealed as a great work but also as a real bath of cement in the area. But also because the credit crisis in the U.S. has slowed monstrously funding.

NoLandGrab: For the record, the arena is supposed to hold 18-19K seats, not 30K, and is in Prospect Heights, not Downtown Brooklyn, which is a couple blocks away.

Digest-News.ru, Гамбит Прохорова ("Gambit Prokhorov")

More fun with machine translation:

Prokhorov - penetrating genius and will be many times richer than when the crisis is over.

Dances with Bears, MIKHAIL PROKHOROV AND THE NATIONAL BASKETBALL ASSOCIATION – STRETCH TO FIT

John Helmer, a commentator on Russian affairs, posted US Congressional Rep. Bill Pascrell's (D-NJ) press release, "urging [NBA Commissioner David Stern] to thoroughly investigate former nickel mining baron Mikhail Prokhorov, who reached an agreement... to buy the New Jersey Nets."

Posted by lumi at 5:22 AM

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.”

link

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 10:23 AM

September 26, 2009

Should Public Agencies Approve Prokhorov as New Nets, Arena and Atlantic Yards Owner?

Noticing New York

This blog entry notes that the entry of potential Nets owner Mikhai Prokhorov into the approval process for Atlantic Yards makes for some sticky situations, given that Prohkorov's past isn't exactly squeaky-clean.

So, if you were a public agency having to approve Mr. Prokhorov as the substantial recipient of billions of dollars of public subsidy, you would be asking questions about whether you could possibly disregard the incident involving the planeload of prostitutes given that Prokhorov was released without charge by French authorities. You would wonder if that meant that he had actually done nothing wrong or only that his $14 billion in wealth (down to $9 billion now) helped him tell a convincing story to the French authorities about how he was only importing the girls for his Christmas party. Does that mean that he gets off as just being the client-john? That he was not procuring for his own commercial benefit when he supplied the guests at his Christmas party? Does that mean that under United States law he would also have been released just as the socially tolerant French did?

These are obviously fun questions for a public agency to have to deal with and they likely have something to do with the fact that perpetual Atlantic Yards cheerleader Marty Markowitz has been uncharacteristically silent about Prokhorov being the latest Forest City Ratner orchestrated Atlantic Yards unveiling. (See: Friday, September 25, 2009, The Russian connection: reason for celebration or dismay? Has Marty been rendered "oddly silent"?)

Of course, the biggest joke is that, despite appearances to the contrary, there are likely no agreements yet for any agency to approve.

Here is a very possible answer to the question whether ESDC has the right to approve the Prokhorov transfer. They probably do. Not because the transferability section of the Modified General Project Plan says they do but because it is very likely ESDC has not signed the current deal. In all likelihood it is still being written up.

Those who have been tracking Atlantic Yards will remember that at the June 22, 2009 MTA Finance Committee meeting it was revealed that after five long years the MTA had never ever signed a deal with Forest City Ratner! (And politicians had once been worrying how difficult it would be to terminate the deal with Ratner! Ha!) Until signed, ESDC and its board can always revoke any approvals given. ESDC's board only just approved the last deal dumping, among other things, an unexpected extra $25 million on Ratner at the last minute. It is a good bet that Ratner, who perpetually tries to squeeze more out of every deal, has not negotiated to his ultimate satisfaction.

By the same token the MTA may not have signed their new deal either.

That puts ESDC and the MTA on the spot. Do they want to approve this deal with Prokhorov?

And what happens if Prokhorov becomes a part-owner of the entire Atlantic Yards project?

But even if ESDC and the MTA manage to somehow sidestep the question of such approval or even if they do approve Prokhorov, the next question is the review that Prokhorov will need to be subjected to if he is to be a major participant in owning the rest of the project. After all, everyone knows that the arena is projected to be at least a $220 million net loss for the city. The ostensible reason for proceeding with this mega-project anyway was that affordable housing might speculatively be provided someday. Well, if Prokhorov has to be involved, the awkwardness in redirecting housing subsidy away from other housing developers to the Prokhorov tainted team becomes pronounced. The housing, per se, becomes less likely. For ESDC and the MTA to approve the new Prokhorov deal now makes for exceedingly awkward nonapprovals in the future.

This doesn't even include uncomfortable questions as to whether sufficient background checks were ever done for ACORN's participation in the proposed Atlantic Yards project. Click through and imagine bureaucrats squirming.

link

Posted by steve at 6:13 PM

FCE issues 10-K Amendment: ticket sales way down; Forest City Ratner earns 5% development fee on arena; sponsors get suites

Atlantic Yards Report

Norman Oder catches Forest City trying to slide financial details past the press.

After 5 pm yesterday, and well past most journalistic deadlines, Forest City Enterprises filed an amendment to its Annual Report on Form 10-K--initially filed 3/30/09--for the fiscal year ended 1/31/09, concerning its subsidiary Nets Sports and Entertainment (NSE), and it has some very interesting information.

The consolidated financial statements, for the years ending June 30, 2009, 2008, and 2007, presumably had to be prepared for the sale of the majority interest of the team to Mikhail Prokhorov, but it's unclear to me why such information was not required to be made public any sooner.

Among the details in the report:

  • the Nets earned $26 million in ticket sales last year, a huge drop--30% and 35%, respectively--from the unaudited figures of $37.4 million in 2008 and $40 million in 2007
  • an affiliate of Forest City Enterprises/Ratner is earning a development fee not to exceed 5% of total project costs, and has already been paid $28 million
  • certain arena sponsors have been given use of luxury suites as part of their license agreements, apparently as a sweetener
  • if the Master Closing on the transaction--the sale of bonds, acquisition of certain property, and start of condemnation--does not occur by November 30, a $5 million initial loan payment is due then
  • the company does not consider litigation a cause for concern
  • costs of gone steadily up for arena land and related costs
  • only at the very end is the deal with Prokhorov mentioned, as a "Subsequent Event"

Click on the link to see the relevant sections of this 10-K Amendment served up fresh.

link

Posted by steve at 12:00 PM

September 22, 2009

IBO responds to ESDC critique of fiscal analysis: "we remain confident in our methodology and results"

Atlantic Yards Report

One intriguing mini-drama during the Empire State Development Corporation (ESDC) board meeting on September 17 concerned the agency's response to a New York City Independent Budget Office (IBO) report concluding that the Atlantic Yards arena would be a loss for the city.

The ESDC's dismissal of the IBO's report was noted both verbally and in a Response to Comments document, but the ESDC's logic was sketchy, as I'll describe below.

And, after I forwarded the critique to the IBO, the official behind the report told me "we remain confident in our methodology and results."

Indeed, as I'll describe, I think the IBO could've been considered too conservative.

Click thru for more on the ESDC's hypocrisy, the IBO's rebuttal, and why Norman Oder thinks the lost public opportunity cost may be even greater than what the IBO reported.

article

NoLandGrab: The bottom line is that the ESDC has never, ever provided any credible analysis of the Atlantic Yards project's bottom line.

Posted by eric at 11:00 AM

September 17, 2009

You *Genius* Onexim

Gumby Fresh

Gari N. Corp, as per usual, helps us get a better grasp on the financial end of things.

When one reads the following it's fairly apparent that there's no-one inside the Reuters brain trust to talk to any more about municipal finance:

Prokhorov is considering issuing a bond worth $700 million through Onexim to help fund the project, one source close to the deal said. The source said the bond must be issued before the end of 2009 so it is exempt from government taxes, adding: "This is a pure business story. The value potential of the club and arena are very high."

That said, any reporter that will allow the gibberish that is that final quote to make it into their story may have more immediate parts of their reporting toolbox in need of an upgrade.

But back to the first sentence. "Through" is the wrong preposition, pure and simple. The bonds would be issued through the Brooklyn Area Local Development Corporation as part of the hastily-approved corporate welfare package put together by the city and state for Atlantic Yards. The bonds can't be tax-exempt if they're issued by Onexim. I thought briefly that Onexim might borrow the money on a taxable basis and lend it on to the project, but that isn't what the article suggests in the sentence after.

So let's assume the Reuters guys aren't too hot at verbs or prepositions. Could they mean that Prokhorov is buying the bonds through Onexim? It would mean that Prokorov might decline to demand a prepayment penalty on the bonds, although I doubt that he would be able to avail himself of most municipal bond interest breaks, since he's not presumably paying much in the way of US tax.

He is far from the most suitable buyer for a tax-exempt bond, unless the arena bonds are Build America Bonds, where the tax subsidies are paid direct to the issuer, but I don't think they are.

They could have been told that Onexim is considering guaranteeing the bonds, by putting up a performance bond, in exchange for a substantial stake in the Nets or arena company, though I have no idea whether Onexim has the resources to make a $700 million contingent commitment like that, and whether the ratings agencies would believe them.

Still there must be a reason why someone close to Onexim or Ratner is babbling about bonds when no-one asked them to. I hope you will agree with me now when I say the Reuters reporters don't sound like capital markets vets. What we're hearing, via an elaborate and far from lucid chain of whispers, is that the bond financing is looking as hairy as the Net's team finances. This should be far from reassuring to Ratner's pals at the ESDC.

article

Posted by eric at 11:50 PM

September 11, 2009

The Ratner Hat Syndrome

Gumby Fresh

Alongside the release of the new rendering, Ratner also granted Eliot Brown, the only professional journalist spending much time writing about the arena financing, an update on that end of things. There's not much new in here, more a sort of confirmation of some of the proposals that Ratner's been floating around the last few weeks and months.

He confirms that he does have a $200 million equity gap, but seems to indicate he's looking for outside providers to take equity in the project company, rather than pay Ratner for a stake in the Nets, which Ratner would then contribute to the project as equity. This could be smart, since there are a couple of private equity and real estate investors that might like a direct stake in an asset like this.

They'll only do it, though, I imagine, if the Nets sign a long and expensive lease on the arena, which would doom his chances of trying to sell the team for a while. Of course, Ratner says that FCE could meet this $200 million from its own resources, but I think a commitment that large would put its return on capital so far in the toilet it might as well go back to building strip malls in Cleveland.

Then there's this issue of issuing the bonds to finance the stadium and then holding them in escrow until the litigation can be resolved. Ratner has told Brown that he can do this. I'm still not sure how that will work. I'm fairly certain the tax consequences for investors of being made whole (paid back early) on these bonds would be horrible. But it might be possible, and FCE, in one final throw of the dice, might be able to put up the premium to prepay the bonds itself. Certainly it would be easier to find that kind of money than $200 million in equity.

But the process is likely to be hideously complex. Go look at this page to get an idea of how difficult refinancing municipal bond debt is.

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Posted by eric at 8:49 AM

September 10, 2009

IBO: increase in land assessments insufficient for arena PILOTs

Atlantic Yards Report

The New York City Independent Budget Office (IBO), in its new report, The Proposed Arena at Atlantic Yards: An Analysis of City Fiscal Gains and Losses [PDF], points out that the New York City Department of Finance has steeply increased assessments on properties destined for the arena block, especially the vacant land.

I've previously raised questions about this issue, and the IBO does not back up those concerns, though it raises new ones.

The IBO does not conclude that that the increased exemptions are fishy--I think they still deserve scrutiny--but does say that the foregone property taxes would not be sufficient to generate PILOTs (payments in lieu of taxes) to pay off the arena bonds.

The implication is that either the assessments would have to be increased--or the total amount of bonds lowered.

The IBO reports:

Turning to Atlantic Yards, IBO estimates that a typical property tax assessment would result in a PILOT that falls short of the payments needed to cover debt service in the early years of the project. Assuming the arena is assessed using a cost methodology, taking into account hard and soft construction costs and actual land acquisition costs, IBO estimates that in the early years after the arena opens, a typical property tax assessment would yield a tax bill of about $40 million annually. (If the developer took advantage of the as-of-right Industrial Commercial Abatement Program, the bill would be less than $10 million annually for more than a decade). In contrast, IBO’s estimate of the annual debt service payment for the arena’s tax-exempt bonds—assuming a 7.0 percent interest rate, 30-year term, and level payments—is $55 million.

Although the Department of Finance has sharply increased its assessments on land (particularly vacant land) throughout the city over the past year, the increases elsewhere in the city are just a fraction of those at the site. Citywide, the average increase in assessments on vacant land from 2009 to 2010 was 63 percent; for Brooklyn as a whole, vacant land values grew by 100 percent. Over the same period, the aggregate assessment increase for the three tax blocks that will be at least partially covered by the arena at Atlantic Yards has grown by 238 percent, while the assessment on the arena site’s vacant land has risen 702 percent—an eight-fold increase.
[Emphases added]

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NoLandGrab: The arena land assessment rose 700% in one year?!! Either some heads need to roll because land values were not properly assessed in the past, leaving sorely needed tax revenue on the table, or somebody needs to go to jail, for cooking the valuations in order to grease the skids for Ratner's PILOTs.

Posted by eric at 12:23 PM

Net gain to Ratner, loss to public: IBO says developer saves $726M on arena; city loses $40M plus another $180M in opportunity costs

Atlantic Yards Report

Here's new that should be surprising to no one.

In the absence of any effort to update the flawed fiscal impact reports from the city and state on Atlantic Yards, the Independent Budget Office (IBO), at the request of several elected officials, has updated its September 2005 Fiscal Brief on Atlantic Yards, with far more pessimistic results.

Unlike the previous report, which found a modest net gain for the city over 30 years, the new report, titled The Proposed Arena at Atlantic Yards: An Analysis of City Fiscal Gains and Losses [PDF], estimates that net revenues would be negative for the city and modestly positive for the state and the Metropolitan Transportation Authority (MTA)--at least until significant lost opportunity costs were added.

Moreover, the losses for the city would be far greater--another $180.5 million--were opportunity costs to be calculated. Such opportunity costs--foregone gains thanks to tax exemptions and other below-market benefits--were not fully calculated in the 2005 report.

Indeed, the combination of subsidies and tax breaks, including $194 million in federal tax breaks on tax-exempt bonds, adds up to what the IBO calculates as $726 million in savings on the arena for developer Forest City Ratner. And that's without assuming--as does Assemblyman Richard Brodsky, in the case of the new Yankee Stadium--that the use of PILOTs (payments in lieu of taxes) to pay for a sports facility constitutes a full subsidy in itself.

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NoLandGrab: Who woulda thunk it — Bruce Ratner wins, everybody else loses! And we want to build this arena why?

Posted by eric at 12:05 PM

Bondage

The NY Times and NY Observer are both reporting that Atlantic Yards developer Bruce Ratner is planning on getting around the thorny issue of issuing the arena bond financing before the end of the year by placing the money in escrow, as long as the project is held up in litigation.

The NY Times, Atlantic Yards Developer Releases New Arena Plan
This is the incredible timeline that developer Bruce Ratner is selling to the media and investors:

The state is expected to give the arena final approval on Sept. 17. Three weeks later, Forest City plans to begin marketing and selling about $700 million in tax-exempt bonds for the project. At the same time, the company will be marketing 100 luxury suites and premium seats. It hopes to get control of the land and begin construction in November. If all goes as planned, Mr. Ratner says, the Nets, now playing in East Rutherford, N.J., will play part of the 2011-12 season in Brooklyn.

The NY Observer, New Design in Hand, Ratner Plans to Seek Nets Arena Financing Within Weeks

Nearly three years after receiving a green light from the state government, the mega-Atlantic Yards development is entering a critical stage, as developer Bruce Ratner is rushing to secure financing and tie up loose ends before an end-of-year tax deadline.
...
If Mr. Ratner’s timeline for the bonds stays on course, Forest City would be attempting to secure the financing while key litigation is still pending. Next month, the state’s highest court is slated to hear a challenge to the use of eminent domain for the project.

To mitigate the uncertainty from this, Mr. Ratner said the bond sale would call for money to go into an escrow account, pending the outcome of the various uncertainties.

Posted by lumi at 7:55 AM

August 14, 2009

The mysteries of "Miscellaneous;" why funding source in AY plan went up more than four times

Atlantic Yards Report

So, where exactly would the money be going for Atlantic Yards?

Remember, what was supposed to be a $4 billion project in 2006 would now be a $4.9 billion project, with the arena--after a 50% projected increase in value--going up instead about 22%, to $772 million.

The biggest increase is in the housing, but, on a percentage basis, the largest leap is in the category of Miscellaneous. In the 2006 Modified GPP issued by the Empire State Development Corporation (ESDC), the sum was $19.5 million.

This year, the total is $92 million. That a more than four-fold increase. The 2009 Modified General Project Plan, however, went up only 20 percent.

Click thru for the ESDC's explanation.

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Posted by eric at 10:21 AM

August 12, 2009

When it comes to the curious assessments in Atlantic Yards arena block, the Department of Finance is mum

Atlantic Yards Report

One of the most crucial steps on Forest City Ratner's path to arena financing has gotten almost no attention, even though it deserves far more scrutiny: the curious elevated reassessments of properties in the Atlantic Yards arena block.

Remember, the only way Forest City Ratner can have the state sell crucial tax-exempt bonds--$650 million, saving the developer more than $100 million--is to make sure that the PILOTs (payments in lieu of taxes) do not exceed the value of the foregone taxes on the arena block.

In a nutshell, the City must fudge the value of the land, which the State claims is blighted, to justify, to the Federal Government, the value of the bonds that Ratner needs.

As I reported June 8, for some properties on the block, land assessments--which are a percentage of market value, and rise with the latter--have leaped 17 or 20 or 34 times in one year.
...
Is there an explanation? I queried [Owen Stone, a spokesman for the city Finance Department,] several times by phone and email. I never got a response.

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Posted by lumi at 5:10 AM

August 10, 2009

I am the god of capitalism, and I give you nonsense

Gumby Fresh

We don't know about you, but we're always happy to see a new post from "the Best Blog Speculating About The Atlantic Yards Arena Financing Evar."

To those pedants among you saying that the proper name for the arena is "Barclays Center", I would say, it ain't called that till it's built, and if Barclays wants me to advertise its execrable banking services it can pay me directly.

Anyway, the cause of this haste is a workmanlike update on the arena financing from the Times' Charles Bagli, FCR's go-to guy for expectations management. Oder teases out the juicy bits so you don't have to. But it's fairly thin stuff.

Ratner's meeting the ratings agencies, which we knew. What we don't know yet is if he's trying to put something together with Assured Guaranty, the least crap bond insurer in the whole of America. He's scrounging for cash from the public and outside investors, both of which are fairly well-known.

Which leaves us with the last paragraph of the story:

Some real estate executives and critics said it would be hard to sell the bonds for such an uncertain project. But Jay Abrams, a bond analyst at FMS Bonds, said there “is definitely an appetite for tax-exempt bonds in New York, and elsewhere.” The lawsuit, he added, “is not necessarily a game-killer. At the right price, there’s always a buyer for bonds.”

I don't know whether Bagli tried to ask Ratner whether he had a plan for getting the bonds out ahead of the litigation being resolved. I suspect Ratner would have been deliberately vague in any case. The reasons being that any way round the December 31 deadline for a bond financing would be fiendishly convoluted.

But let's go back to this Jay Abrams at FMS Bonds. He seems like a contrarian sort of fellow. Maybe they should give him a spot at The Big Money. It could well be that he's privy to the machinations inside Goldman Sachs' sports finance shop. More likely, though, he doesn't have a clue what he's talking about.

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More coverage...

Atlantic Yards Report, Market for arena bonds? Maybe it's a little dicey

Everybody's favorite AY finance blogger, the pseudonymous Gari N. Corp, takes a gander at the actual market for tax-exempt arena bonds.

Posted by eric at 11:49 AM

July 21, 2009

Paterson on Ground Zero towers: Public money just as important as private money

Atlantic Yards Report

Seems that what's good for Larry Silverstein isn't good for Bruce Ratner.

Developer Larry Silverstein wants the Port Authority to guarantee loans, in the absence of private financing, for him to build two towers at the World Trade Center site. But Gov. David Paterson isn't buying it.

From WNYC:
PATERSON: Where private money is eschewing the opportunity, public money should not be used either because the public's money is just as important and that is why.

From the Daily News:
Paterson's charm offensive was backed up with tough talk as he told Silverstein that taxpayers would not plow billions of public dollars into funding speculative private-sector office towers that cannot lure private financing.
"The public's dollars are just as important as anyone else's - and that is why I insist we cannot finance anyone else's project," the governor told reporters. "The state is not going to be the only entity that has risk in the project."

Now the government hasn't been asked to invest in the speculative office tower planned for Atlantic Yards, but the Metropolitan Transportation Authority (controlled by Paterson and Mayor Mike Bloomberg) moved to lower Forest City Ratner's risk in AY, allowing a delayed payment schedule and a railyard worth $100 million less, without asking for any concessions in return.

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Posted by eric at 9:54 AM

July 14, 2009

ESDC says it hopes to sell $650 million (not $531 million) in arena bonds even while Atlantic Yards appeal is pending

Atlantic Yards Report

So, the projected amount of tax-exempt arena bonds would be larger than initially announced, indicating more savings for developer Forest City Ratner.

A New York Times article on July 1 stated:
The Court of Appeals' involvement, announced on Monday, is the latest hurdle to Mr. Ratner's plans to build a $772 million basketball arena, the centerpiece of the project. The developer and his bankers intend to sell about $650 million in bonds for the arena in late September.

That $650 million number was surprising, because, at the June 23 meeting of the Empire State Development Corporation (ESDC) board, a memo stated that tax-exempt arena financing was $531.1 million.

The explanation

"The sizing of the tax-exempt and taxable financings is still in flux," ESDC spokesman Warner Johnston responded. "The $531 [million] number in our Board materials was a net number--exclusive of cost of issuance, capitalized interest, debt service reserve and bond insurance. In particular, the latter three are very big numbers. $650 [million] is a good ball park number for the tax exempt bond financing. The taxable piece will be relatively small (maybe $30-$50 million)."

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Posted by eric at 4:59 AM

July 9, 2009

Slip Slidin' Away

Straphangers, who were hit with major fare increases beginning on June 28th, just about the same time that the board of the Metropolitan Transportation Authority was cutting a new sweetheart deal with developer Bruce Ratner over the MTA's Vanderbilt Yard, aren't the only ones getting the short end of the Forest City stick these days.

FCE-AClosingQuote070909.jpg

Investors who bought up the 52.3 million new shares of Forest City Enterprises' Class A stock floated by the company in May, at $6.60 per share, are also feeling pinched. With trading of FCE-A shares closing today at a flat $5, those investors have thus far lost a smidgen less than 25% of their money. Not bad for a few weeks' work.

If it's any solace to those misguided investors — and admittedly, it's hard to find a silver lining when tacking on a 25% loss on top of the hammering the stock market has taken the past year — Ratner family members reportedly purchased about $20 million worth of those shares sold in May.

So at least they're feeling your pain at the same time they're causing it.

Posted by eric at 4:49 PM

June 29, 2009

Analysts: New Atlantic Yards Deal A 'Significant Positive’ for Forest City Ratner

NY Observer
by Eliot Brown

Well, duh!

We know Eliot Brown, who's covered this story for a few years now, isn't surprised, either. In fact, we can't imagine anyone would be surprised by this. It would only be news if the Atlantic Yards deal turned out to be even a wee bit positive for city, state and federal taxpayers.

After a renegotiation of the terms of the $4.9 billion Atlantic Yards project, financial analysts have warmed to the project.

A look at a recent rating of Forest City Enterprises by investment firm Keefe, Bruyette & Woods shows that the development company, which is the parent of Atlantic Yards developer Forest City Ratner, seems to be making at least a little bit of a comeback. After months of tanking stock prices—the stock fell from $69 a share in early 2007 to a low of $3.26 before stabilizing around $6.50—there now is some reason for optimism with regard to Atlantic Yards.

The analysis by KBW comes after the developer renegotiated its deal with the M.T.A. last week. Now Forest City Ratner is giving the agency $20 million instead of $100 million in an upfront payment, pushing the other $80 million years down the road.

This pleased the analysts, who gave Forest City a rating of "outperform," which is better than "neutral" though less strong than "buy."

The headline really should have said "analyst," since we're only talking one firm, though two "analysts" authored the report.

The analysts, Sheila McGrath and Bill Carrier, also found it ironic that opponents of the project were in an uproar after Frank Gehry was dropped from the project, because, they write, a more functional, cheaper, and far less dazzling arena is better than more delay:

"The irony at this juncture is that the opposition is citing the delays in the project and a change of architect that should be considered as a negative to vote against Forest City and the project. If this project had not been tied up in litigation for years by the opposition, the MTA would have closed on the land for an upfront payment of $100 million several years ago, and affordable housing would already have been under construction. The litigation has increased the cost of the project and dragged timing of closing into one of the deepest recessions in decades and certainly a most difficult financing environment."

Well, duh, again. Opponents were in an uproar because Gehry's design was central to the project's selling and approval — a classic bait and switch. And analyze this: the legal strategy — if the court cases couldn't be won outright — aimed to tie up the project until it could collapse under its own weight.

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Posted by eric at 6:21 PM

June 22, 2009

How Forest City Ratner deceived the MTA and the public by not acknowledging the need for affordable housing bonds

Atlantic Yards Report

I wrote in June 2007 how the Empire State Development Corporation, while that Atlantic Yards project approached approval in December 2006, never revealed that some one-third of the project funding sources would $1.4 billion in scarce housing bonds issued (most likely) by the New York City Housing Development Corporation.

The figure was revealed to the Public Authorities Control Board (PACB), however, and later revealed, after the project was approved, in litigation over the AY environmental review.
...

There's no evidence that, before the project was approved, the ESDC considered the availability of sufficient housing bonds to construct the affordable housing.

Last December, I filed a Freedom of Information Law (FOIL) request with the ESDC to see if any documents indicated such deliberations. Each month, I get the same response: they're still looking for responsive documents.

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NoLandGrab: We know that this seems to be a nit-picky technicality. However, this little-known fact, which the State and developer Bruce Ratner are trying not to discuss, indicates that the financing of Atlantic Yards relies upon these scarce housing bonds, rendering suspect the overall viability of the project and all of the promised benefits.

Posted by lumi at 6:16 AM

June 4, 2009

Big week for FCE: at annual meeting, will they discuss Gehry, arena opening, changed AY plan?

Atlantic Yards Report

Though watching paint dry is more exciting than being a spectator for the upcoming Forest City Enterprises annual meeting, the release of first-quarter numbers and the subsequent conference call with investors...

...it's still worth watching to see if they say whether architect Frank Gehry is still involved in the Atlantic Yards project and when they predict an arena opening. (The official plan is still 2011, but that's impossible if work begins at the end of the year, as the Empire State Development Corporation has indicated.)

And will they explain if the contour and timetable of the AY plan has changed?

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Posted by lumi at 5:51 AM

Nets Face Deep Potholes On Road To Brooklyn

The basketball team is trying to make its move from New Jersey to the big city seem inevitable. Don't bet the ranch on it.

Forbes.com
By Tom Van Riper

Though Atlantic Yards developer and NJ Nets team owner Bruce Ratner is making a full-court press to move the team to Brooklyn, several obstacles stand in the way:

The problem: There's a 50-50 chance at best that the arena gets built. The legal and political hurdles are now mostly cleared, but because opponents delayed the project so long, it's pushed construction into an era of economic turmoil and tight credit.
...
Forest City Ratner, whose Nets are making the move sound inevitable, isn't saying how much private financing it has lined up, according to a spokesman.

"I don't know of a single venue that has been financed since last summer," says sports law expert Gary Roberts, who is dean of Indiana University Law School. "In normal times, I'd see it as very likely to get done, but there are enough variables that you can't bet the ranch."

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Forbes.com, citing tight credit, estimates Nets move to Brooklyn at 50-50

Norman Oder finds this bit a little interesting.

"The timing is about as bad as it gets right now," says industry consultant David Carter of the Sports Business Group. A big risk that's caught lenders' attention recently: Can teams charge prices high enough these days to cover the debt service on an expensive new venue? The empty premium seats at Yankee Stadium and the slow sales of personal seat licenses for the new football stadium for the Jets and Giants in New Jersey are evidence of misjudged pricing power.

Posted by lumi at 5:44 AM

June 2, 2009

Not So Suite: Ratner's Faulty Arena Revenue Model

Develop Don't Destroy Brooklyn

No new luxury suite sales over a one year period, and now a reduction in the overall number of luxury suites. Clearly there is no demand for Barclays Center suites. Luxury suites are the raison d'être for building a new arena.

The lack of demand and the reduction of suite sales demands attention towards Ratner's revenue model for paying back the arena bond holders. The revenue model appears to be faulty, making the $800 million arena bond more risky for the bond holders and New York State which would be on the hook if there were to be a default.

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NoLandGrab: We're pretty sure this raises no flags in the NYC EDC's sophisticated financial analysis model.

Posted by eric at 12:04 PM

Breaking down the AY fiscal analysis: why if you follow NYC EDC in your personal economics you could go to jail

Atlantic Yards Report

In this must-read entry, Norman Oder applies NYC EDC's "analysis" method to his own financial situation, and likes the results.

So let's talk "economic and fiscal impact analysis." That was the exercise by which the New York City Economic Development Corporation (NYC EDC) concluded that Atlantic Yards would bring more than half a billion dollars in revenue to the city over 30 years, a figure touted enthusiastically by NYC EDC president Seth Pinsky at Friday's AY oversight hearing.
...

To NYC EDC, "economic and fiscal impact analysis" concerns revenue you take in. That's it. No costs, no subsidies.

A personal example

OK, I have just conducted an "economic and fiscal impact analysis" regarding my personal future revenue stream. After 20 years, I conclude, I will easily become a millionaire.

Yippee!

Oops--I forgot to factor in rent, food, and tons of other things, including taxes. If I don't pay taxes, well, I go to jail.

It renders my "economic and fiscal impact analysis" slightly flawed.

Didn't this kind of shoddy math lead to our economic meltdown?

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NoLandGrab: While Oder's approach is humorous, the implications are certainly no laughing matter. He outlines a number of deep flaws in the EDC's alleged "analysis," which clearly seems designed to make the Atlantic Yards project look fiscally, and misleadingly, attractive.

Seems to us that a key duty (perhaps the most significant duty) of the President of the NYC EDC is to deliver the result the Mayor wants, truth be damned.

Posted by eric at 10:41 AM

May 30, 2009

As Plans for Atlantic Yards Evolve, Government Benefits Don't

The New York Observer
By Eliot Brown

The promised benefits from the proposed Atlantic Yards project continue to diminish. State and city subsidies make less and less sense.

The M.T.A. has now publicly acknowledged that it expects less upfront cash from Forest City and less costly transit improvements made by the developer, a point that was enumerated at a raucous state Senate hearing on the project Friday afternoon. Further, figures released by the Independent Budget Office suggested the fiscal impact for the city of the arena would turn from net positive to negative given the substantial government subsidy added since the last analysis, done in 2005, which then showed a $25 million benefit to the city.

M.T.A. interim head Helena Williams said at the hearing, held by Senators Bill Perkins and Velmanette Montgomery, that she expects Forest City will give the agency less than it initially pledged to the agency in its bid for the project, $100 million, in an upfront cash payment. She also said the agency had reached a tentative agreement over the new LIRR rail yard that Forest City is expected to build for the agency, one that would cost Forest City less than the $350 million or so that it included in its bid. She said it was “value engineered,” and included modifications such as a decrease in the number of planned tracks to seven, from nine. Asked at how much she valued this yard, she said the final number was still being negotiated with Forest City.

...

THE NEW IBO NUMBERS, which take into account an extra approximately $100 million the city added in subsidy in 2007, put the 30-year fiscal impact of the new arena on the city in the neighborhood of a $65 million loss. This assumes the subsidy is all going directly for the arena, though the project as a whole is far larger—it calls for 6,400 units of housing and a commercial office tower—and Forest City sold the project as one large package.

...

The IBO testimony, made by deputy director George Sweeting, also included an observation that appraised land values of the area have tripled in the last three years. And while he did not specifically allege wrongdoing, he suggested those figures would create controversy given the complex financing agreement needed for the deal, which requires a high assessed land value to get tax-free bonds:

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NoLandGrab: The testimony of George Sweeting of the IBO was one of the highlights of yesterday's hearing. His written testimony (in PDF format) can be found here.

Posted by steve at 8:30 AM

May 21, 2009

Tax-free bonds: public vs. private

Gumby Fresh blogger Gari N. Corp appended the following comment to an Atlantic Yards Report post regarding a story this week in the NY Observer by Eliot Brown, clarifying a point about the market for tax-free debt. Still with us?

One sentence jumped out at me from the Observer article. "The arena would be financed by tax-free bonds, the market for which is far more robust than the broader credit market." I think Mr. Brown has not made a distinction between tax-free bonds issued by governments and other essential service providers, and tax-free private activity bonds, which are issued for the benefit of private developers for projects that are deemed to have a public use, such as private power plants, privately-run toll roads and, yes, unnecessary arena projects.

The distinction is important because the credit work is much easier for public activity bonds. You look at a government's tax base, budget, and a rating, hope they don't default, and off you go (though there's an emerging school that says that it's not so simple).

For private activity bonds you have to spend much more time analysing cashflows and looking at how the project will perform. This is subject to a much larger number of uncertainties, including the economy, the health of the customer(s), construction, and so forth. It's MUCH more complex, and there have not been a massive number of private tax-exempt deals done recently. I need hardly rehearse just how speculative a venture moving the Nets to Brooklyn will be.

Kudos to Mr. Brown for looking at the uncertainty about the financing (it is rarely a rewarding task to predict whether deals will happen or not). I think he does have to look at how difficult a financing prospect a Nets arena is.

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Posted by eric at 10:32 AM

May 18, 2009

Local Banks Face Big Losses

Journal Study of 940 Lenders Shows Potential for Deep Hit on Commercial Property

The Wall Street Journal
by Maurice Tamman and David Enrich

Commercial real-estate loans could generate losses of $100 billion by the end of next year at more than 900 small and midsize U.S. banks if the economy's woes deepen, according to an analysis by The Wall Street Journal.

Such loans, which fund the construction of shopping malls, office buildings, apartment complexes and hotels, could account for nearly half the losses at the banks analyzed by the Journal, consuming capital that is an essential cushion against bad loans.

article [subscription required]

NoLandGrab: If the prospects for commercial loans are bleak for the banks, they can't be very rosy for the borrowers, either, right? Especially those hoping to finance speculative arena/office/apartment complexes.

Posted by eric at 11:27 PM

May 15, 2009

Forest City warns SEC of potential new delays, new costs, and failure to meet (tax-exempt bond?) deadlines

Atlantic Yards Report

The specter of the Securities and Exchange Commission makes Forest City much more circumspect in its regulatory filings than it is in its press releases, and the prospectus issued this week in conjunction with its announced sale of new stock introduces heretofore unseen language cautioning about downside risks to the company's Atlantic Yards project.

On April 2 I pointed out that Forest City Enterprises, in its Form 10-K filed with the Securities and Exchange Corporation (SEC), acknowledged additional potential for increased costs and delays, for the first time warning of potential "inability to retain the current land acquisition financing" and "loss of arena sponsorships and related revenues." Forest City also warns about the possibility of failing to meet required equity contributions.

A new Prospectus filed Wednesday in association with the issuance of 40 million new shares adds several new warnings. I've bolded the new or changed text.

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Posted by eric at 3:11 PM

May 8, 2009

Stop Me Before I Cook Again

Gumby Fresh

Gari N. Corp, in his inimitable style, straightens out The New York Times (and, we must admit, us) as to the conclusions reached in yesterday's short article regarding the status of CitiField bonds. And, while he's at it, he does a little compare-and-contrast between the Mets' situation, and that of the Nets.

There are plenty of scenarios under which the Mets bonds' underlying rating might be downgraded, particularly if the New York economy stays in the doldrums and the stadium does not generate as much revenue as it should. But let's remember this is a popular franchise in a large city with a very patient fanbase that gets plenty of excitement in September, if not in, ahem, October. Don't try and pretend that any Nets financing could get a rating like this as easily. I love the Mets, but they're a bit trashy. Compared to the Nets though, the Mets are that really classy lady in the black dress and pearls that fronts the Lexus dealers' adverts. Yes, that classy.
...

Before anyone says (not that they will, this is hardly a popular blog with the pro-stadium crown, well it's hardly a popular blog at all, what with the infrequent postings and paucity of stimulating subjects, but you get my drift) that the preceding might be construed as a clean bill of health for the business of New York sports, please read the bit about the Mets' resilient brand, and note also that the Mets attracted new financing from the one standing bond insurer (Assured Guaranty) for a small amount for a pretty much complete stadium for a solid team. It won't do the same for the Nets. The New Jersey Nets are the Typhoid Mary of High Finance, and no-one wants to eat their delightful cooking.

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Posted by eric at 8:49 PM

May 7, 2009

Mets Alerted on Citi Field Bonds

The New York Times
by Ken Belson

The Mets’ trouble on the field may not be the only headache for the team. Higher interest rates may be on the horizon, too.

On Wednesday, Moody’s Investors Service said that $613 million worth of the municipal bonds that were issued to pay for the construction of Citi Field could be downgraded to junk status.

Moody’s cited the recent downgrade of Ambac Assurance Corporation, which was hired to guarantee that bondholders are made whole in the event that the Mets miss a debt payment. Now that Ambac has been downgraded to junk status, it is theoretically less able to meet its obligations. ...

The 40-year bonds sold in August 2006 have a coupon rate of 5 percent. They are rated by Moody’s at Baa3, the lowest investment grade. If they are downgraded to below investment grade, or junk, the team may have to pay higher interest rates if it issues new debt.

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NoLandGrab: The downgrading of the Mets' bonds can't be welcome news for Forest City, which hopes to issue about $800 million worth of bonds in order to build the Barclays Center. As Gari N. Corp, Gumby Fresh's pseudonymous blogger, posted in a comment on Atlantic Yards Report last month:

There's one bond insurer left that could do the deal - FSA/Assured Guaranty (they're merging). I'm fairly certain it has less than no interest in doing the Nets bonds. But even FSA/Assured no longer has a pristine rating. I still don't see how a financing of over maybe $400 million gets done....

Posted by eric at 3:33 PM

April 24, 2009

Morningstar revises value of FCE upward, but warns of increased uncertainty

Atlantic Yards Report

Morningstar now thinks that Forest City stock is worth as much as the paper it's printed on.

Less than six weeks after Morningstar analysts declared the stock of Forest City Enterprises essentially worthless (though other analysts disagreed), they now report an increased fair value estimate, to $4 per share. (The number is attached to a document available to subscribers only.)

Why? "[I]n large part because of our reduced expectations of bankruptcy and slightly lower cost of capital assumptions." The market is more optimistic, given that the stock closed yesterday at $7.19.

But the full picture isn't very rosy.

Morningstar also offered a warning: "We are also increasing our fair value uncertainty to extreme from very high to reflect the complications that come with the nonrecourse debt structure... If Forest City were to hand back a few highly leveraged underperforming properties, its overall debt picture could improve materially, but limited property-level information makes this impact difficult to predict."

Beyond that, the report states, "Other contributors to our higher uncertainty rating include the company's debt mix, a large development pipeline, and joint-venture interests."

Ominous for AY?

While Morningstar has been more pessimistic about Forest City than rival analysts, the report points to two factors that would make the Atlantic Yards project tougher to build, at least in the short term.

"New commercial mortgage-backed securities issuance is nonexistent at this point, meaning Forest City will have to find other means to refinance 17% of its maturities," the report states. " In addition, banks in general are less willing to loan against commercial real estate, as this asset class is poised for at least a year of falling prices and rising defaults."

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Posted by eric at 5:16 AM

April 19, 2009

From “public-private partnerships” to “crony capitalism"

Atlantic Yards Report

Simon Johnson's essay in the May issue of The Atlantic, headlined The Quiet Coup, is summarized: The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises.

The piece is well worth reading, and the resonant passage for Brooklynites might be this one: But inevitably, emerging-market oligarchs get carried away; they waste money and build massive business empires on a mountain of debt. Local banks, sometimes pressured by the government, become too willing to extend credit to the elite and to those who depend on them. Overborrowing always ends badly, whether for an individual, a company, or a country. Sooner or later, credit conditions become tighter and no one will lend you money on anything close to affordable terms.

The downward spiral that follows is remarkably steep. Enormous companies teeter on the brink of default, and the local banks that have lent to them collapse. Yesterday’s “public-private partnerships” are relabeled “crony capitalism.”* (Emphasis added)

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Posted by steve at 7:36 AM

April 17, 2009

General Growth files for bankruptcy protection

The nation's second-largest mall operator filed for Chapter 11 bankruptcy protection after it failed to persuade debt holders to give it more time to refinance.

AP via Crain's NY Business

The nation's second-largest shopping mall owner, General Growth Properties, filed for Chapter 11 bankruptcy protection Thursday in a tough bargaining move to restructure its $27 billion in debt.
...

The Chicago-based company is paying the price for its aggressive expansion at the height of the real estate boom. General Growth, like many homeowners during the frenzy, bought several properties at top dollar and now is finding lenders unwilling to refinance.

The real estate crisis has been slow to affect the market for retail, hotels and office buildings. But the delinquency rate for commercial loans, while still relatively low, is creeping up and could deepen the economic recession.
...

The company has suspended its dividend, halted or slowed nearly all development projects and cut its work force by more than 20%. It also has sold some of its non-mall assets.

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NoLandGrab: "Suspended its dividend, halted or slowed nearly all development projects and cut its work force?" Where have we heard that before?

Crain's Chicago Business, General Growth blames credit crisis, not shopping slowdown

The meltdown in financial markets, not the deep slump in the retail industry, brought General Growth Properties Inc. to its knees Thursday.
...

“The reasons for this are unrelated to the performance of the shopping center industry generally,” General Growth CEO Adam Metz wrote in an affidavit filed in U.S. Bankruptcy Court in New York. “Instead, the problem is that virtually every source of commercial real estate financing has dried up, leaving a vastly inadequate supply of credit to meet the demand created by current and upcoming maturities.”

Posted by eric at 3:54 PM

April 16, 2009

As expected, ESDC turns down FOIL appeal requesting cost of Atlantic Yards project

Atlantic Yards Report

As he expected, Norman Oder's appeal to the denial of his Freedom of Information Law (FOIL) request was denied. But this one comes with a sequel:

Two weeks ago, I described how the Empire State Development Corporation (ESDC) had denied my Freedom of Information Law (FOIL) request seeking the current cost of the Atlantic Yards project, declaring the figure exempt from disclosure because it is either a trade secret or its disclosure "would cause substantial injury to the competitive position of the subject enterprise."

Following standard procedure, I filed an appeal with the agency's appeals officer, who, in a letter I received yesterday, denied my request.
...
The new twist, however, is that the ESDC is apparently prepared to announce new cost figures for the project.

Perhaps the agency will explain why it can announce new cost figures shortly after denying my request. Is there no need for trade secrets?

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NoLandGrab: All this fuss over a project that is receiving enormous public subsidies — you'd think that there was some transparency requirement when taxpayers' money is at stake, especially for a private project.

Posted by lumi at 6:16 AM

April 1, 2009

Interesting Question

Gumby Fresh blogger "Gringcorp" (aka "Gari N. Corp") poses an interesting question that an analyst might have asked Forest City Enterprises CEO Charles Ratner during yesterday's year-end/4Q conference call:

Perhaps a more immediate one for them is this: "You busted a gut to get a rather pricey extension on your Grammercy loan, your senior debt is now the plaything of vulture funds, and you've got $780 million in corporate debt maturing a year from now. How on earth are you going to get the arena financing done too?"

link

Posted by lumi at 4:15 AM

March 31, 2009

What’s Stalling New York’s Skyscrapers?

Economix [NY Times blog]
by Edward L. Glaeser

A Harvard economist strives to figure out what's keeping big buildings from being built in NYC. [Hint: not lawsuits.]

The most high-profile pauses are associated with Frank Gehry and the developer Forest City Ratner. Their massive Atlantic Yards project in Brooklyn is experiencing delays, and they are “conducting a study to assess costs, risks and overall timing” on the stunning 76-story Beekman Tower, which was to be Manhattan’s tallest residential building. If you look at curbed.com’s collection of construction-related rumors, you would think that Manhattan was covered with half-finished skyscrapers.

At first glance, those stalled structures don’t seem puzzling. Nothing seems more normal than projects left unfinished in a recession. After all, America has gone from building two million new housing units a year during the heated frenzy of the bubble to building fewer than 600,000, according to the latest housing permits data.

Atlantic Yards isn't technically stalled, since actual construction has yet to begin.

But Manhattan prices have supposedly fallen only 15 percent, which should leave them high enough to cover the construction costs of almost any building. Why are developers, with land and permits in hand, not developing?

Glaeser puts forth several hypotheses, this being the last:

Hypothesis #4: Developers are facing their own liquidity crisis and are having trouble obtaining financing to finish projects that can easily cover their construction costs. After all, developers don’t typically bet their own money. If no one is willing to extend them credit, then projects will come to a halt, and some stalled projects have acknowledged financing troubles.

Conclusion:

Given the problems with the other hypotheses, I’m betting on No. 4. My guess is that buildings are still worth more to buyers than the cost of constructing them, but that lack of financing is stopping that from happening.

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NoLandGrab: Since Forest City reportedly has all the financing in place for the Beekman Tower, we may need hypothesis #5. Anyone?

Posted by eric at 11:58 AM

DDDB PRESS RELEASE: NYS and NYC Comptrollers Urged to Release Cost of Atlantic Yards Project and Barclays Center Arena

BROOKLYN, NY (March 31, 2009) — Develop Don’t Destroy Brooklyn today requested that New York State Comptroller Thomas DiNapoli and New York City Comptroller William Thompson procure—and release to the public—the construction costs for developer Forest City Ratner’s proposed Barclays Center Arena and the entirety of the Atlantic Yards development plan.

To date New York City and New York State refuse to release the costs of the taxpayer-subsidized project, claiming those numbers to be “trade secrets” and “proprietary information.”

"When basic information—the costs of the taxpayer-subsidized Atlantic Yards proposal—is held as some sort of state secret, there is no doubt that Forest City Ratner’s development plan suffers from a severe transparency problem,” said Develop Don’t Destroy Brooklyn spokesman Daniel Goldstein. “The Comptrollers of New York City and State owe it to the taxpayers to force the public release of the Atlantic Yards construction costs. There is no reason whatsoever for these costs to be kept secret."

The text of the DDDB’s letter follows and is available for download here [PDF].

Comptroller Thomas P. DiNapoli
Office of the State Comptroller
110 State Street
Albany, NY 12236

Comptroller William C. Thompson, Jr.
Office of the Comptroller of New York City
1 Centre Street
New York, NY 10007

March 31, 2009

Dear Comptrollers DiNapoli and Thompson:

New York City and State are refusing to release the construction costs of developer Forest City Ratner’s proposed Barclays Center—the arena portion of the Atlantic Yards development proposal in Brooklyn—and the cost of the rest of the project. In a denial of a Freedom of Information request for this information the NYC Economic Development Corporation has claimed that these costs of the publicly financed project are “trade secrets,” and the Empire State Development Corporation has stonewalled.

This lack of disclosure defies logic and good government principles.

Developer Forest City Ratner Companies’ (FCRC) proposed Atlantic Yards project had a $4 billion price tag when announced in December 2003, with the arena portion estimated at $435 million. When approved in December 2006 the arena cost had shot up to $637 million. Last March the New York Times reported that the arena cost had increased to $950 million. Recently it has been reported that the developer is looking to reduce the cost of the arena. But the cost is unknown.

These substantial changes in the arena price tag (with no mention of the attendant project cost increases) have left the public and elected officials in the dark about basic information.

Atlantic Yards Report journalist Norman Oder made FOIA requests for the most recent arena and project price tag and so far his requests to the ESDC and NYC EDC have been denied. (See: Will we ever find out how much AY and arena now cost? More FOIL responses from NYC EDC and ESDC).

In response to the FOIA request, NYCEDC has claimed that the current cost of the Atlantic Yards project is exempt from disclosure because it is either a trade secret or its disclosure "would cause substantial injury to the competitive position of the subject enterprise." The financial materials, NYCEDC said in a letter, "contain proprietary assumptions, analyses and projections regarding the feasibility and performance of the Project and provide insight into FCRC's proprietary financial models and other business practices, which would be detrimental to FCRC's competitive position if disclosed." And disclosure would frustrate ongoing negotiations "relating to all aspects of the Project.”

The ESDC told Mr. Oder that the agency would grant access to documents "not privileged or exempt from disclosure" only after FCRC gets the opportunity to argue for an exemption. That’s not particular reason for optimism about disclosure.

If there is truly proprietary information, those sections could be redacted. But the arena and project costs are not proprietary information—especially for a project subsidized by taxpayers.

When the project was being promoted, prior to approval, the developer issued arena cost projections frequently, and at approval the costs were not top-secret information. As recently as a year ago FCRC was willing to divulge the $950 million figure to the press.

Now, more than two years after the project’s approval, the arena and project cost are suddenly carefully guarded “trade secrets” whose disclosure would jeopardize the developer’s competitive edge or negotiations? Furthermore, why are there even negotiations going on at this point, over two years after the project was approved? What, in general, is being negotiated and with whom?

We write to urge you to make every effort to procure these costs—the arena cost and the project cost—and release them to the public. These figures are the very least the taxpaying public deserves to know, and must know, about the project.

Sincerely,

Candace Carponter
Legal Director
Develop Don’t Destroy Brooklyn

Cc: Mayor Michael Bloomberg, Governor David Paterson, ESDC Chair Marisa Lago, NYC EDC President Seth Pinsky

Candidates for City Comptroller: David Yassky, David Weprin, Melinda Katz, John Liu

Assembly Members Jim Brennan, Hakeem Jeffries and Richard Brodsky.
Senators Bill Perkins, Velmanette Montgomery, Eric Adams and Daniel Squadron.

NY City Council Economic Development Committee Chair and Members:
Thomas White, Alan Gerson, Letitia James, Annabel Palma, Diana Reyna, Albert Vann, David Weprin, David Yassky

NY City Council Finance Committee Chair and Members:
David Weprin, Maria Baez, Gale Brewer, Leroy Comrie, Jr., Bill de Blasio, Lewis Fidler, Dennis Gallagher, James Gennaro, Vincent Gentile, Alan Gerson, Eric Gioia, Vincent Ignizio., Robert Jackson, Oliver Koppell, James Oddo Diana Reyna, Joel Rivera, Helen Sears, Peter Vallone, Jr., Albert Vann, David Yassky

Posted by eric at 10:41 AM

March 21, 2009

Towering inferno

Gumby Fresh

Gari N. Corp, who somehow manages to make things like tranches and subordinated debt sound droll, ponders what the Beekman Tower haircut portends for New York City's other Bruce Ratner — Frank Gehry collaboration.

What does this mean for the Atlantic Yards situation? The differences are legion, in particular the fact that probably the first bit of AY to come to market is the arena, which will have a different, though not necessarily better, economic profile than Beekman. But the fact that a project with this bank letter of credit enhancement is struggling quite probably blocks off the last best hope of finding someone to guarantee the AY bonds, since the bond insurers really aren't that interested in terrible basketball team relocations right now. A commenter ages back pointed to the Beekman financing as one model for what FCR might do on AY. I think by now it's a shining example of the perils of applying such a solution to the doomed Brooklyn arena.

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Posted by eric at 12:40 AM

March 19, 2009

Under fire, Finance Commissioner Stark gives up moonlighting job; won't talk about conflict-of-interest situation

Atlantic Yards Report

Norman Oder rounds up coverage of revelations that NYC Finance Commish Martha Stark has a second job (a no-no for City department heads) and ingnored ethical concerns over a subordinate.

In October, New York City Finance Commissioner Martha Stark seemed unflappable when she testified before a Congressional subcommittee regarding the valuations for the Yankee Stadium site, valuations that critics believed were "gamed" to ensure sufficient PILOTs (payments in lieu of taxes) to repay construction bonds.

Despite Stark's confidence, there was still a big gap between her explanation that, when choosing comparable sites for an assessment, the first priority is proximity, and the city's practice, which included a vastly non-comparable site in Alphabet City, more than seven miles away.

Should the Atlantic Yards arena proceed, Stark's department will have a crucial role in ensuring an assessment commensurate with the bonds. This week, there are new reasons to question Stark's judgment and integrity.

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Posted by lumi at 5:15 AM

March 18, 2009

Forest City borrows $20 million from NBA lenders to counter Nets' losses

Atlantic Yards Report

Norman Oder translates yesterday's Forest City press release.

Despite suffering serious losses, more than $30 million a year, the owners of the New Jersey Nets have adjusted a key loan that could help the team limp toward a transition to a new Brooklyn arena.

The Forest City Enterprises press release issued yesterday sounds like gobbledygook....

...[A]s far as I can tell, it means that the owners of the Nets had already borrowed $65 million and not only extended that loan, but lowered the principal on it by taking out a separate $20 million loan.

Reasons to hang on

And, among the 12 teams in the 30-team league that were interested in a loan, the Nets borrowed the maximum. Remember, Forbes reported in December that the Nets were among only seven teams that declined in value, and the Nets experienced the largest retreat, of 13%.

A new arena paid for by naming rights (and maybe just taxpayers), with many luxury suites, would raise the value of the team enormously. That's why, as Forest City Enterprises struggles financially, selling off viable properties, Atlantic Yards likely will be held until the bitter end.

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Posted by eric at 11:01 AM

FCE Press Release: Forest City Announces Extension of Credit Facility for NBA Nets

CLEVELAND, March 17 — Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) announced today that Brooklyn Basketball, LLC, in which the Company has an equity interest, has secured an extension of a $65 million credit facility related to the National Basketball Association (NBA) Nets professional basketball team. At closing, Brooklyn Basketball reduced the principal of the facility to $45 million through a $20 million add-on facility funded by a routine borrowing by the team under the NBA's League-wide Financing Facility.

The credit facility, through JPMorgan Chase Bank, N.A., has been extended to September 9, 2010, with a second extension available to June 9, 2011. The $20 million add-on is a combination of five-year and seven-year fixed-rate notes.

"This is another example of our companywide strategy of proactively managing debt maturities across the full range of our business interests," said Charles A. Ratner, Forest City president and chief executive officer. "As always, we appreciate the support of our lenders in this effort, and I congratulate our internal team that secured the extension."

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NoLandGrab: "Lah-di-dah, we're just routinely borrowing more money to pay the Nets' bills. Nothing unusual here."

Forest City CEO Chuck Ratner would have us believe that this is just "another example of [Forest City's] companywide strategy of proactively managing debt maturities." But borrowing money to keep an NBA team operating (one that loses a lot of money) is hardly routine for a real estate development company. And neither is having to borrow a lot of money to help a dozen franchises routine for a professional sports league.

By the way, it comes as no surprise that the Nets were among the NBA's desperate dozen.

Posted by eric at 10:21 AM

March 1, 2009

NBA lines up $200 million for teams

AP via ESPN.com

In a "show of strength" (their words, not ours), the NBA is borrowing money to help keep a dozen struggling franchises afloat.

The NBA has lined up $200 million to distribute to teams interested in additional cash, which the league considers a sign it remains strong in a slumping economy.

Between $13 million and $20 million will be available to each of 12 teams that have expressed interest in the funds, commissioner David Stern said Thursday. The money can be used for any purpose, including helping teams deal with operating losses incurred because of the economy.

It should not, Stern said, be construed as a bailout. At a time when credit markets have been frozen, investors saw the NBA as a safe bet.

"It's exactly the opposite" of a bailout, Stern told The Associated Press "This was a show of strength in the creditworthiness of the NBA's teams."

Are Bruce Ratner's Nets, whose losses this season project in the $20—$30 million range, among the dirty dozen? We don't know, because...

The NBA declined to name the teams interested in the money.

However...

The 12 interested teams aren't necessarily those in the worst financial shape.

"Many of them are doing well," Stern said.

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NoLandGrab: In the Alice in Wonderland world of the NBA, "doing well" apparently means "needing to borrow between $13 million and $20 million." It's safe to say that we've learned nothing from the sub-prime lending mess.

Posted by eric at 10:00 AM

February 25, 2009

The Developers’ Bailout

City Journal
by Nicole Gelinas

Free-marketeer Nicole Gelinas eviscerates the plan put forth in Saturday's Daily News by former ESDC honcho Avi Schick for bailing out the imploding commercial real estate industry, which seems to be a recipe for creating a new, unsustainable bubble.

In yesterday’s Daily News, Avi Schick—the former head of Albany’s economic-development agency, the Empire State Development Corporation—unveiled a truly awful idea. And that’s really saying something these days. Schick wants to use taxpayer-guaranteed state and city pension funds to prop up the city’s teetering commercial real estate. His proposal would likely exacerbate our commercial real-estate problems, while imperiling pension funds and thus tax dollars.
...

What’s wrong with this idea? It’s hard to know where to start. First, subsidizing new construction would add to a growing glut of empty real estate in New York. “Building values are dropping as unemployment worsens, offices empty, rents decline, credit remains tight and buyers expect higher rewards for taking on more risk,” the New York Times reported last week. The commercial vacancy rate has risen from under 6 percent to double digits in less than a year. Why create even more “critical real estate and development projects” that nobody wants?

Second, preventing buildings from falling into default isn’t the noble goal that Schick suggests. When buildings default, their prices fall, and that leads to lower rents for tenants. Over the past several months, office-building values in New York have fallen off a third or more, and office rents have dropped nearly 16 percent. This correction is necessary. For the past few years, the Manhattan real-estate market had sizzled as hedge funds, banks, finance-related law firms, and the like paid escalating amounts for premium space. In 2005, 2006, and early 2007, owners bought buildings—and lenders financed them—based not on income from current rents, but on the expectation of ever-rising rents.

Now, every Wall Street firm and nearly every commercial bank that has failed, or nearly failed, needs to shed office space. Citigroup, Merrill Lynch, Lehman Brothers, Bear Stearns—their imploded profits have all left behind acres of empty space overlooking midtown and downtown Manhattan. Wall Street may not regain anything close to its super-profitable bubble-era form; and though New York, provided it keeps up public safety and the like, certainly can attract new industries to replace Wall Street, those industries almost certainly won’t be so flush with cash, so lower rents are inevitable. The commercial real-estate market needs to purge itself of its speculative assumptions built on twin bubbles in credit and in the financial industry—and that will hurt.

The good news, though, is that lower commercial rents are not a bad thing for New York. Excessively high commercial rents benefit only owners. They hurt tenants, and thus the city’s attempt to diversify itself and move away from a financial industry that has imploded. Anything that New York City and State do to prop up commercial prices thus will not only delay the industry’s recovery; it will injure the rest of the city’s economy, too.
...

One final problem: who will decide which real estate projects are “critical”? Schick notes loftily that “lobbying must be prohibited. . . . If pension funds are on the line, it must be all about the numbers, not who you know.” The state pension fund, though, has a history of allegedly choosing managers based on political contributions, as investigations into former New York State comptroller Alan Hevesi have shown. Plus, developer Bruce Ratner is lobbying heavily for federal “infrastructure” stimulus money for his Atlantic Yards condo and basketball-stadium project—a centrally planned Brooklyn boondoggle that already benefits from hundreds of millions of dollars in public subsidies.

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Atlantic Yards Report, Avoiding AY example, Schick, former ESDC leader, proposes "transparent" investment fund for commercial real estate

Norman Oder picks up the Atlantic Yards thread from Gelinas, and expands on it.

Schick's idea has drawn severe criticism for ignoring market issues and for serving to further the interests of Daily News publisher, Mort Zuckerman.

But first let me point out how Schick's guidelines for public investment set out--at least on paper--a severe contrast with the way his former agency has shepherded the Atlantic Yards project.

Contrast with AY: transparency

Schick recommends:
* Investment guidelines, including the expected cost, timing and return, must be publicly articulated before any financing is provided. This transparency will help guarantee that investment decisions will be guided by professionals, not politics.

Only a vague "expected" timeline was provided by the ESDC in its approval of the Atlantic Yards project, and there was no assessment of the expected return--an issue in eminent domain case heard in state appellate court Monday.

In other words, Schick is setting out a higher standard. And while the justification may be a larger percentage of direct public investment in a project, the widespread special benefits for the Atlantic Yards project constitute a significant amount of publicly provided advantage.

Contrast with AY: no lobbying

Schick writes:
* Lobbying must be prohibited. The news that the banks receiving TARP money lobbied Treasury was one more sign that it was still business as usual in D.C. If pension funds are on the line, it must be all about the numbers, not who you know.

"Who you know" has been a watchword of developer Forest City Ratner, which has long been one of the state's top spenders on lobbying and has a particularly cozy relationship with all-powerful Assembly Speaker Sheldon Silver.

Lately, the developer has deployed former Senator and uber-lobbyist Al D'Amato, apparently to direct federal stimulus funds to the Atlantic Yards project.

Contrast with AY: equity stake

Schick writes:
* The fund must be given an equity stake in projects that obtain financing. The government will create substantial value by establishing this fund, entitling it to capture a portion of those profits when it exits the investment.

As noted above, while this may represent a larger percentage of direct public investment in a project than in Atlantic Yards, the widespread special benefits for the Atlantic Yards project constitute a significant amount of publicly provided advantage.

Indeed, Schick's formulation highlights Brooklyn Borough President Marty Markowitz's stunning willingness to direct federal money to the project without any attendant public share.

NoLandGrab: Trying to pump more air into a bursting bubble with public money seems like the just the thing a former ESDC president would propose. And forgive us if we find his calls for "transparency" a wee bit comical.

Posted by eric at 10:32 AM

February 19, 2009

More Bad News for Bruce…

Newark, NJ Commercial Real Estate Blog

This blog entry gives the briefest of commentaries on yesterday's New York Post story about how the MTA will not use any of its federal stimulus dollars for the benefit of the proposed Atlantic Yards project.

“Brooklyn’s flagging Atlantic Yards project took another hit yesterday when Metropolitan Transportation Authority honchos confirmed the agency won’t dish out any of its allocated federal stimulus funds to aid developer Bruce Ratner. “

The New York Post reports that the troubled project is facing even more trouble as Bruce Ratner is seeking any source of funding he can. I mean I feel bad for the guy I do, but, the Newark Nets has a ring to it…''''

link

Posted by steve at 6:01 AM

February 18, 2009

As Other NYC Projects Falter, Atlantic Yards Still on Track

Commercial Property News Online
by Barbra Murray

That headline is a bit hyperbolic — the Atlantic Yards project is hardly "on track."

Amid a flurry of announcements of delayed projects in New York City, Forest City Ratner Cos. has orchestrated the $161.9 million refinancing of a loan connected to its $4 billion Atlantic Yards project in Downtown Brooklyn. Gramercy Capital Corp., which made the original loan to Brooklyn-based FCRC for the purchase of land for Atlantic Yards, provided the refinancing along with a group of co-lenders.

The project site is in Prospect Heights, not Downtown Brooklyn.

Timing of the deal was just right, as the loan was scheduled to be repaid this month; the new loan is due in February 2011.
...

While FCRC was successful in arranging a big refinancing transaction in the midst of one of the most challenging economic periods in memory, the company concedes that its drive to move forward with Atlantic Yards has not gone unhindered. "The economy has impacted all development activity--certainly tenant interest and the ability to access credit markets--and we certainly aren't immune to that," a spokesperson told CPN. And there are other issues preventing the Atlantic Yards project from progressing smoothly. "There are a couple of lawsuits pending by the opposition, but we've cleared many hurdles on that front and are confident that we will be able to clear the remaining hurdles."

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NoLandGrab: It's rare for Forest City to mention the economy as an obstacle before lawsuits — they usually claim the latter are the only things standing in their way.

Posted by eric at 10:03 AM

Coalition Rejects Idea Of Stimulus for Ratner

Brooklyn Daily Eagle

BrooklynSpeaks, a coalition of community and civic groups in the areas near Downtown Brooklyn, Tuesday called on Governor Paterson not to grant federal stimulus funds to Forest City Ratner for the Atlantic Yards project.
...
The Straphangers Campaign came out with a similar statement Tuesday, saying, “There are many very worthwhile transit projects more deserving of federal stimulus funds.”

A representative of Forest City Ratner wouldn’t comment on the stimulus issue.

© Brooklyn Daily Eagle 2009 All materials posted on BrooklynEagle.com are protected by United States copyright law. Just a reminder, though -- It’s not considered polite to paste the entire story on your blog. Most blogs post a summary or the first paragraph,( 40 words) then post a link to the rest of the story. That helps increase click-throughs for everyone, and minimizes copyright issues. So please keep posting, but not the entire article.

FAIR USE NOTICE
This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. Material from diverse and sometimes temporary sources is being made available in a permanent unified manner, as part of an effort to advance understanding of the issues associated with Bruce Ratner's Empire State Development Corporation-sponsored Atlantic Yards project. It is believed that this is a 'fair use' of the information as allowed under section 107 of the US Copyright Law. In accordance with Title 17 USC Section 107, the site is maintained without profit for those who access it for research and educational purposes. For more information, see: www.law.cornell.edu/uscode/17/107.shtml.

Posted by lumi at 4:38 AM

February 14, 2009

Atlantic Yards Lives!

Curbed

Curbed takes some heat in the comment section of this item for mentioning the upcoming hearing for the "imminent domain" case.

Developer Bruce Ratner, he of a little project in Brooklyn called Atlantic Yards that you may have caught wind of, reportedly has come to terms with its lender that will allow Ratner to delay the repayment of a $177 million loan that was coming due this month for two years. Next obstacle for the megaproject that won't die: that pesky lawsuit challenging the use of imminent domain at the project, which will be heard starting February 23. [CityRoom]

link

Posted by steve at 8:15 AM

Atlantic Yards Buys More Time, Ratner Wants Stimulus Money

Gothamist

This item summarizes the most recent Atlantic Yards news: Ratner has been able to renegotiate his loan from Grammercy Capital. Meanwhile, the developer has until the end of 2009 to get the development started in order to take advantage of tax-exempt bonds and a redesigned arena plan has not yet appeared. Follow the link the read of the upcoming hearing for the eminent domain case and how former Senator Alfonse D’Amato is lobbying in Washington to get stimulus money for the boondoggle.

Developer Bruce Ratner's embattled, $4.2 billion plan to build a Nets basketball arena, office towers and thousands of apartments in Brooklyn is staying alive, at least for now. This month was critical for Ratner because a $177 million loan from Gramercy Capital Corporation for the 22-acre property was due. Considering that the developer still hasn't paid the MTA some $100 million for the Vanderbilt Yards site, it seemed doubtful that he'd be able to make the nut.

And he hasn't! But the Times reports that Ratner's company Forest City has just bought more time from Gramercy Capital, working out a deal to make a $15 million payment immediately, as well as additional large payments in the future, in return for a two-year extension. Of course, many obstacles remain. Because of a recent ruling by the IRS, Forest City has only until the end of the year to use special tax-exempt bonds for the arena, which was originally pegged at $1 billion. Ratner's now leaning on designers to cut that cost in half because investors aren't coming forward to finance the thing.

link

Posted by steve at 8:00 AM

February 12, 2009

Ratner Shouldn't See A Dime Of Stimulus Money

Joshing Politics

This blog entry speaks to those who believe that Federal stimulus money would be well spent on the proposed Atlantic Yards project.

With so much money at stake in the stimulus, there is no shortage of people looking not only to get work to feed their families but to enrich themselves at the expense of the public. Senate Republicans have already reduced the amount of funds to build infrastructure in the name of tax cuts for the rich. If the Senate bill was signed by Obama as is, 42% of that stimulus would be tax cuts and mostly helping those who are on the wealthier end of the spectrum. With that, the remaining funds need to be protected from greedy developers such as Bruce Ratner. While Ratner lobbies for his own ends, the community must fight back.

...

Eminent domain was intended for projects that benefited the entire community and not a few wealthy financiers in the process. Rebuilding roads, laying new water pipes, building more mass transit lines and creating more accessability to broadband internet is what Obama had envisioned. Creating a new energy grid that utilizes green, renewable energy is also a part of that plan. I seriously doubt the names "Bruce Ratner" or "Atlantic Yards" had ever entered the President's mind.

link

Posted by steve at 5:33 AM

January 22, 2009

Marching (Lower) in Lockstep

BARCFCEQuotes.jpg

A peek at the latest quotes for Barclays and Forest City Enterprises early this afternoon showed that shares in the two companies had declined an eerily similar 10.44%. We should note that the 59.20 quote for Barclays is British pence (about 81 cents), while the FCE quote is in greenbacks.

Could it be the curse of Atlantic Yards?

Posted by eric at 12:51 PM

December 27, 2008

Three From Atlantic Yards Report

Atlantic Yards Report

With $5B in NYC development on hold or dead, could union accord with contractors jump-start projects?

In light of the increasing financial impossibility of starting large development like the proposed Atlantic Yards project, New York's construction unions are looking to assist funding projects and are also negotiating with developers to lower labor costs by as much as 25%.

Included in this entry is an excerpt of an interview of Ed Malloy, President of the Building and Construction Trades Council and Louis Coletti, chief executive of the Building Trades Employers’ Association, on the Brian Lehrer show.

Interviewed on WNYC's Brian Lehrer Show on Wednesday, Malloy and Coletti were optimistic when asked to predict the situation with construction jobs in a year.

Coletti said, "There's two scenarios. If we're unable to reach an agreement, I think this could be the deepest recession bordering on depression that we've ever seen in this industry. With an agreement, I think that we can minimize the unemployment. We have to keep in mind, what Ed said before, is we're coming off the best five years that this industry has ever seen."

Malloy was unequivocal: "Recovery under way."

Neither discussed Atlantic Yards specifically; it's likely that even a $300 million fund would be parceled out to many projects. But the labor concessions would benefit many more projects, including AY, lowering the overall cost and speeding the construction timetable.

In other words, if the money were available--and that's hardly a given--maybe the arena could be built in less than 32 months.

Ex-commercial banker: Don't bail out America's "credit-drunk" commercial landlords and real-estate bankers

An expert on commercial property lending, in a letter published in yesterday's Wall Street Journal, suggests that commercial-property developers should be ashamed at asking for a federal bailout. Mike Offitt wrote, in part:

Unlike residential borrowers, most commercial landlords don't live in their buildings, and unless they are pleading stupidity, they understood perfectly, as did the lenders themselves, that the loans they were seeking from overeager conduit and securitization lenders were too generous. They decided to roll the dice and got rich with these cheap and easy funds. Now they are asking their formerly rich Uncle Sam to bail them out as their loans come due.

As the founder and former head of Deutsche Bank's commercial lending unit, and former senior trader of CMBS and commercial loans for Goldman, I am well aware of the perils of letting commercial-property borrowers fail: Either their lenders will have to extend them new terms, or they will face bankruptcies and tax recapture issues. Their bankers or securities holders will have to take losses and new investors will get to buy their holdings at deep discounts. Any other solution would be a travesty. The only thing more startling about the suggestion that the Treasury bail out the likes of William Rudin, Stephen Ross and Steven Roth is that they had the nerve to raise it. Washington should focus on making REMIC and securitization laws more flexible to allow extensions of loans or collateral substitution, not giving America's credit-drunk landlords and real-estate bankers a mulligan on the taxpayer dime.

Did Gehry lay off staff working on AY or just move (most of) them?

Exactly what is the status of Frank Gehry's design team for the proposed Atlantic Yards project?

Did architect Frank Gehry lay off two dozen staffers working on Atlantic Yards, as reported by the Wall Street Journal and the Daily News?

A commenter on the Brooklyn Paper's web site had a slightly different take: El Sonrisas from Los Angeles says: The layoffs were not exclusively of the team, most people from the Brooklyn team remain working for Gehry Partners. The layoffs were across all projects and all ranks. Most people from the Brooklyn project, whom still work at Gehry's, were simply relocated to other projects.

If that's true, it would be much easier for Gehry to reconstitute the team should the project get back on track (and he gets paid).

Posted by steve at 9:20 AM

December 22, 2008

Not Worth the Paper They're Printed On

The Washington Post
by Steven Levingston

One of the world's most-respected investment-research firms doesn't think the company behind Atlantic Yards is in very good shape.

Morningstar tried to put it delicately and hedged enough to say things could change, improving the companies' fortunes, but in the end there was no polite way out: "If we think a stock is worthless, there's no point in saying otherwise," the investment research company said in a recent report.

The company presented five stocks that its team of analysts deemed to have a fair value of zero. Morningstar stock analyst Matthew Coffina pointed out that the company made similar calls on several stocks in mid-2005, with mixed results. Back then, two companies whose stocks it targeted, Delphi and Delta Air Lines, filed for bankruptcy protection. Three others, Great Atlantic and Pacific Tea, Elan and AK Steel, soared afterward before plummeting again. "I'd ... like to emphasize the perils of making $0 fair value calls," he writes.

That said, he also says it's important to point out that if shareholders can sell what Morningstar deems a worthless stock now for, say, 50 cents, they have gotten themselves a good deal. In introducing the worthless stocks, Coffina said, "We think equity holders in the following companies would be better off investing in dinner and a movie, as a break from this wretched economy."
...

Forest City Enterprises: Severe financial distress, slowing operating cash flow, may need to refinance debt at high rates.

article

NoLandGrab: Despite Forest City Enterprises' precarious financial state, New York State and New York City elected officials still seem intent on throwing precious public dollars at the company's Atlantic Yards project, while paying lip service to the need for drastic belt-tightening.

Posted by eric at 11:34 AM

Developers Ask U.S. for Bailout as Massive Debt Looms

The Wall Street Journal
by LingLing Wei and Jon Hilsenrath

What took them so long? Used to printing money and responsible in large part for the global credit crisis, the real estate industry now wants the taxpayers to bail them out. You can bet that Atlantic Yards developer Forest City Enterprises will be near the head of the soup line.

With a record amount of commercial real-estate debt coming due, some of the country's biggest property developers have become the latest to go hat-in-hand to the government for assistance.

They're warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years -- with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off.

Unlike home loans, which borrowers repay after a set period of time, commercial mortgages usually are underwritten for five, seven or 10 years with big payments due at the end. At that point, they typically need to be refinanced. A borrower's inability to refinance could force it to give up the property to the lender.
...

Real-estate owners are pressing the government to take preemptive action before thousands of properties begin to fail. Among those who have been active in the lobbying effort: William Rudin, whose family is a large Manhattan office-building owner, Stephen Ross, chief executive of The Related Cos., a major U.S. developer, and Steven Roth, chief executive of office and retail landlord Vornado Realty Trust.

article [Subscription required]

NoLandGrab: Forest City Enterprises has a $177 million AY-related debt obligation to Gramercy Capital coming due in early February, and you can bet they don't have the cash to pay it off.

Posted by eric at 10:31 AM

December 19, 2008

Good timing, bad timing on AY naming rights deal, arena subcontractors, and construction materials

Atlantic Yards Report

Apparently, there's an upside to the current market turmoil:

The Barclays Center naming rights deal for the Atlantic Yards arena, announced in January 2007, was clearly good timing for the Nets, with a record deal reported at $400 million over 20 years.

When Barclays announced its recommitment last month, neither the bank nor Forest City Ratner made clear that deal had been maintained at the same dollar value. I had suggested that Barclays had had some leverage to renegotiate.
...
The announced cost projected for the planned Atlantic Yards arena went up 50% since project approval in December 2006. Then again, in the last few months, the number likely has declined from the $950 million figure disclosed in March.

article

Posted by lumi at 5:12 AM

December 17, 2008

Atlantic Yards Becomes a Question Mark

Based on "multiple people familiar with discussions," The NY Observer's Eliot Brown is reporting that Atlantic Yards developer Bruce Ratner has cash flow problems and the near future doesn't look any better.

From the MUST-READ ARTICLE:

Bruce Ratner, the Brooklyn-based cousin of Chuck Ratner who runs Atlantic Yards, seems to be rushing to patch a leaky dam. According to multiple people familiar with discussions, his subsidiary company, Forest City Ratner, is attempting to cobble together extra money; trying to speed up tens of millions of dollars it is owed by public entities; delay tens of millions in payments it owes to both the public and private sectors; and tack on new subsidy programs for the housing piece of the project. Earlier this month, Bruce Ratner abruptly shut down preliminary construction efforts related to the NBA arena in an apparent attempt to preserve cash.
...

For now, with Forest City still planning to build at some point, the question becomes how long the developer can keep doling money out without seeing any come back in. Forest City is awaiting what is likely the last major court challenge to the use of eminent domain, with a decision expected in the first half of 2009. But even if that concludes in its favor, as many legal experts expect it will, the developer may very well have an additional wait ahead of it. At this point it is unclear—many would say unlikely—that in six months to a year, investors would be willing to provide the nearly $1 billion in bonds needed for an arena or other financing for high-rise residential developments.

All the while, the company is signing checks. Bruce Ratner bought the Nets in 2004 for the purpose of moving them to a new arena at Atlantic Yards. For now, paying rent in someone else’s arena, Forest City reported losses of more than $30 million on the Nets in the first nine months of 2008.

Since Atlantic Yards was originally a highly leveraged project with small returns for the public, things don't look any rosier going forward.

Atlantic Yards Report, In AY as "question mark," Observer breaks news that Ratner's renegotiating subsidy deals

In light of the revelations reported by Eliot Brown, Norman Oder asks some key questions:

While no official would comment on the record, it's all worth much more scrutiny.

Why should FCR not have to pay the MTA in timely fashion if that was part of the original deal (and the payment less than half the appraised value)? Will FCR even build a permanent new railyard or just leave the MTA with the interim, temporary yard?

Why should the cash-strapped city give FCR a special deal when so many programs are hurting?

And shouldn't there be transparency regarding the Atlantic Yards affordable housing? How would the subsidies compare to those for other projects?

Posted by lumi at 5:23 AM

December 8, 2008

Forest City Enterprises suspends dividends

Real-estate developer Forest City Enterprises suspends dividends to maintain liquidity

AP via Yahoo! Finance

Forest City Enterprises Inc., which develops commercial and residential real estate, said Monday its board voted to suspend quarterly cash dividends on its Class A and Class B common shares.

The suspension will take effect after the 8-cent per share dividend payment scheduled for Dec. 15.

"In the current economic and financial market conditions, maintaining liquidity is our highest priority," said President and Chief Executive Charles A. Ratner in a statement. "The board felt this was an appropriate action to preserve cash."

Ratner said the board will reevaluate its decision when economic and market conditions improve.

In October, Standard & Poor's Rating Services cut the Cleveland-based real-estate developer's credit ratings further into junk, or noninvestment grade, status.

article

NoLandGrab: Hmm, must be those pesky lawsuits again.

Posted by eric at 11:43 AM

December 3, 2008

Delay of game? Orlando leaders play catch-up on venues financing

Orlando Sentinel
By Mark Schlueb and David Damron

Could the fact a bond issue for stadium upgrades in Orlando has stalled portend doom for Bruce Ratner's chances of getting financing for a new arena in Brooklyn for the NJ Nets?

Renovation of the aging Florida Citrus Bowl stadium won't begin until at least 2010 -- a year late -- and may have to wait even longer, Orlando officials acknowledge.

A global credit crunch has made the sale of a bond issue almost impossible, they say. Worse, a bleak tourism forecast raises questions about the reliability of the revenue source that's supposed to fund the $175 million project.

The city had planned to sell $150 million worth of bonds early next year to help finance construction of a long-planned downtown performing-arts center and also raise the first $21 million for renovations of the Depression-era football stadium.

But the bond issue has been postponed indefinitely, and officials are now looking to sell short-term notes to keep the projects moving.

"Just as our finance team was starting to meet, the financial markets blew up. The interest rates were through the roof," Orlando Chief Financial Officer Rebecca Sutton explained.

article

Posted by lumi at 4:30 AM

December 1, 2008

City residents feel economy's pain

Respondents to a recent poll say the city's economy is in poor condition and 40% fear for their jobs, while 80% say they have already cut back on spending this year

Crain's NY Business
by Matthew Sollars

Wall Street's worst collapse since the Great Depression has put a scare into New Yorkers, with nearly 40% believing their jobs are at risk, a new Crain's New York Business poll shows.

A growing fear that job losses will ripple throughout the city is also causing residents to pull back on their spending—nearly 80% say they have already done so—just when the city's retailers are entering the critical holiday selling season.

"New Yorkers are hurting and scared," says Craig Charney, president of Charney Research, the firm that conducted the poll. "These numbers are startling and far worse than anything we've seen, even in the last recession."

article

NoLandGrab: One New Yorker not fearing for his means of support is developer Bruce Ratner, since no city or state official has made even a peep about cutting support for his Atlantic Yards project, even as everyone else is expected to make do with less. It's another case of Atlantic Yards YES, everything else NO!

Posted by eric at 10:40 AM

November 21, 2008

Commercial Mortgages With Poor Forecasts Roil Bonds

Bloomberg News
By Sarah Mulholland

Trouble in the commercial real estate credit market is being caused by bonds issued for projects with revenue projections based on fiction:

Mortgages on offices, shopping malls and hotels that were based on projections of soaring income during the real estate boom are roiling the bond market.

A $209 million loan made by JPMorgan Chase & Co. to finance the Westin La Paloma Resort & Spa in Tucson, Arizona, and the Westin Hilton Head Island Resort & Spa in South Carolina, is near default after cancellations sapped revenue, according to Standard & Poor’s. In southern California, the owner of the Promenade Shops at Dos Lagos missed two payments, according to analysts at Deutsche Bank AG.

Both loans were given to borrowers based on estimates that rents and hotel revenue would rise, and then were packaged with similar debt into a $1.16 billion bond sold by JPMorgan to investors. So-called pro-forma loans outstanding total more than $40 billion, according to Barclays Capital, all of which were put into securities. Concern that the Westin Portfolio and Promenade debt may be the first of many of those loans to default sent yields on commercial-mortgage backed securities to record highs relative to benchmark interest rates.

“These kinds of loans written during the height of the real estate boom could be the first to have problems,” said Christopher Sullivan, who oversees $1.3 billion as chief investment officer at United Nations Federal Credit Union in New York. “They were underwritten with outlandish expectations on rents and property appreciation that will turn out to be fiction.”

article

NoLandGrab: We don't have a grasp on Forest City Enterprises's revenue projections because a detailed analysis has never been released to the public, despite billions of dollars of direct and indirect public subsidies.

Suffice it to say, in the current credit market, investors will favor non-fictional revenue projections.

Posted by lumi at 5:04 AM

November 11, 2008

Goldman Sachs tilts toward losses

Crain's NY Business
By Aaron Elstein

We are not certain how the financial condition of Goldman Sachs might affect the financing of Bruce Ratner's new arena for the Nets, except to say that the company is supposed to issue and find buyers for the triple tax-exempt arena bonds, if and when the legal encumberances to the project are finally cleared.

When it unveils its fourth-quarter results next month, Goldman Sachs Group Inc. is expected to post its first loss since going public in 1999. As investors brace for bad news, its stock has sunk by 25% in the past week alone, including a 10% drop on Monday morning. The shares are now down 67% so far this year—only marginally better than peers Merrill Lynch & Co. and Morgan Stanley.

Barclays Capital analyst Roger Freeman on Monday added to the gloom by forecasting Goldman would post a loss of $2.50 a share, or about $1 billion, due to losses in private-equity investments and real estate. Mr. Freeman had been forecasting a profit of about $1.1 billion. Other analysts predict substantial withdrawals from Goldman’s asset management unit, which invests heavily in hedge funds. Trading remains dormant in all but the safest securities.

Preparing for tougher times, Goldman last week shed about 10% of its 32,600-employee workforce, including prominent research analysts Bill Tanona, who covered financial institutions; newspaper analyst Peter Appert; and General Electric analyst Deane Dray. Up to another 7,000 job cuts loom as Goldman pares costs to match revenues which are expected to fall 35% this year, according to Thomson Reuters, while profits could plunge by 55%.

To date, Chief Executive Lloyd Blankfein has deftly steered his firm through the market’s storms. Goldman has yet to lose a dime during the yearlong financial crisis despite having recorded $5 billion in asset write-downs, according to Bloomberg data. Those losses, however, are a fraction of those taken by Merrill Lynch, Morgan Stanley, or Citigroup Inc.

But Goldman’s days of coining profits may be coming to a halt temporarily because the firm is more exposed than its peers to sinking stock markets around the world, analysts say.

article

Posted by lumi at 5:25 AM

November 5, 2008

AY supporter Thompson clarifies position: no more subsidies

Atlantic Yards Report

Thompson two weeks ago was less equivocal (though he wasn't queried specifically about subsidies), saying, "If those projects made sense two-three years ago, when things were booming, they make sense during slower economies, also."

Maybe he's thinking more like Newark Deputy Mayor Stefan Pryor, who said last week about municipal decisionmaking, "We want to look for the least necessary insertion of subsidies."

article

Posted by eric at 8:59 AM

New York City’s CFO On Bears and Bloomberg

NY Observer

From reporter Eliot Brown's interview with NYC Comptoller William Thompson and likely mayoral candidate:

The Atlantic Yards project in Brooklyn faces some clear challenges, and the developer has asked for more than $100 million in additional assistance from the city. Do you think the project should get more government assistance if it can’t go forward otherwise?

No. I think that that project has received a lot of government assistance to this point. It’s a project I supported in its original form. It continues to morph and change, and that may be one of the projects that you have to reevaluate on a staged basis before you move forward. It is still a project that I support, but it continues to change.

article

Posted by eric at 8:46 AM

October 30, 2008

New Jersey Nets owner Ratner denies talks with investors

The Star-Ledger
By George E. Jordan

Bruce Ratner is denying reports that he spoke with investors from Russia and Dubai and has reiterated that the NJ Nets franchise is not for sale.

However, another source has come forward and confirmed earlier reports and adds that overseas investors ARE interested in the project as a real estate deal, but Ratner is hoping to unload the team as part of the deal.

Nets owner Bruce Ratner said Wednesday that he welcomes hearing from potential investors from around the world interested in buying into his NBA franchise and its planned Brooklyn arena.

But Ratner denied a report that he is already entertaining overtures from investors in Russia and Dubai as potential sources of ready cash for the team and the Atlantic Yards project that includes the arena.

Yahoo Sports, citing two unnamed NBA sources, reported Wednesday Ratner is talking, or has spoken with, separate investor groups from Dubai and Russia that want to buy the team and take control of Atlantic Yards.

The Star-Ledger spoke with another person who said Ratner has been in contact since last summer with foreign investors. "It's absolutely true," said the person, who claimed knowledge of the talks but sought anonymity because he was not authorized to speak for the developer.
...
The Nets released a separate statement Wednesday night that said the "Nets are not for sale."
...
The person contacted by The Star-Ledger said investors from Asia, Russia and the Middle East are shopping for deals in New York City. The source said the foreign investors were more interested in Atlantic Yards than the NBA franchise.

"There's no mystery about where financing is at now. The Russians and Asians are strong and the Arabs are very strong, and they've got into a head-to-head battles over real estate in New York," the person said.

"So the Asians have cash. The Arabs have cash and Russians have cash. They want to buy the real estate, not the basketball team. But Ratner is trying to get them invested in the basketball team as well as the real estate."

article

NoLandGrab: It's ironic that the NJ Nets was originally the red herring to get the land deal, but now it's the project's ball and chain.

Posted by lumi at 5:56 AM

Bruceski's Netskis

Gumby Fresh

With wads of cash, Russian oligarchs have been sniffing around for new opportunities. But what does that have to do with Atlantic Yards, American sports culture, Barclays Bank, the price of oil, and baths in Midwood?

Here's an excerpt, but we recommend clicking through to get Gumby's perspective, which leads him to ruminate, "I can't help but think that the end-game for Atlantic Yards is looming."

But Bruce, if he had the faintest sense, would not have allowed the faintest hint of a rumour, true or not, that he planned to seek foreign capital to see the light of day. It's not so much that the sports fans of the Greater New York are not a xenophobic bunch (I'm thinking of you, drunken fans on the Mets' Loge level). But they're comforted by the idea that the extortionate seat and concession prices they bear are essentially being recycled within their community by local ownership.

There's appropriate symmetry to the move. Barclays Capital, which, at least for the next month or so, owns the naming rights to the arena, is also looking for Russian cash, and displaying a similar lack of tact when doing so. Barclays, see, wants to keep paying humungous bonuses to senior management, and cannot do so if it is forced to go to the UK taxpayer for more equity. But it needs to raise more equity so as to benefit from UK guarantees of its debt and deposits.

Posted by lumi at 5:41 AM

October 27, 2008

My Arena Bonds $1 billion's-Worth

Gumby Fresh

It's one thing for the IRS to give the nod to Bruce Ratner to seek triple tax-exempt bond financing for a new arena, but where is an overdeveloper supposed get these bonds and what are his prospects in a marketplace where investors are sitting on their hands?

Here are excerpts from Gumby's menu options for Bruce:

Let's look at the appetite for the arena's debt.... Here the omens are still fairly horrible. Broadly speaking, Ratner and his dudes at Goldman Sachs have four financing options:

1) Borrow the money directly from a bank. Tricky. We're mostly talking about foreign banks that would be lending him money, the same ones that are still on their knees and trying not to keel over, and such an option would not involve the use of a tax exemption, which Ratner's pretty much got in the bag now.
...
2) Go to a bond insurer to insure a tax-exempt bond issue. Things have been a wee bit quieter here.
...
3) Get a bank to insure the bonds. The Beekman Tower option. See above. You would get the tax exemption in this instance, but the capacity of the banks to support such a foolhardy venture as moving a second-tier franchise to a horrendously expensive arena in a crowded market in the middle of a downturn would be limited.

4) Issue the bonds without any kind of enhancement. Or, could Goldman Sachs threaten enough of their municipal bond salesmen with firing to get the bonds to clear? Again, tricky. The universe of buyers for highly illiquid, low-investment grade infrastructure bonds is small and incestuous.

article

Posted by lumi at 5:52 AM

October 25, 2008

Testy Kucinich presses city officials on “gaming” Yankee Stadium assessment; big disagreement over “smoking gun”

Atlantic Yards Report

A Congressional subcommittee hearing, “Gaming the Tax Code: Public Subsidies, Private Profits, and Big League Sports in New York", was held yesterday by Rep. Dennis Kucinich. The hearing was mostly concerned with how Payments in Lieu of Taxes (PILOTs) are being used to to enable federal funds to finance the new Yankee Stadium. A similar financing scheme is being used to pay for the proposed Nets arena.

During a charged but inconclusive Congressional subcommittee hearing yesterday, a sometimes testy Rep. Dennis Kucinich pressed officials from the New York City Department of Finance (DOF) and New York City Industrial Development Authority (IDA) on how and why an assessment for the land under Yankee Stadium leaped sixfold in a day.

...

During a charged but inconclusive Congressional subcommittee hearing yesterday, a sometimes testy Rep. Dennis Kucinich pressed officials from the New York City Department of Finance (DOF) and New York City Industrial Development Authority (IDA) on how and why an assessment for the land under Yankee Stadium leaped sixfold in a day.

The hearing aimed to examine whether city officials improperly reported to the Internal Revenue Service and prospective bond purchasers inflated values for land and buildings in order to secure more tax-exempt bonds for the construction of a new Yankee stadium. City officials said no, that in part the value was related to the cost of the expensive new building--but they couldn’t fully defend using comparable assessments from as far away as Alphabet City in Manhattan.

Atlantic Yards was hardly mentioned, but IDA head Seth Pinsky emphasized that city and state officials considered the new regulations more important to get the arena built than to get additional bonds for the two baseball stadiums, which are already under construction.

link

Posted by steve at 9:28 AM

October 24, 2008

As Forest City's stock price drops another 40%, rating agency expresses concern, including about AY

Atlantic Yards Report

Norman Oder follows up on Standard & Poor's downgrade of Forest City debt.

Less than two weeks ago, Forest City Enterprises (FCE), parent company of Atlantic Yards developer Forest City Ratner, saw its stock price close at $19.79, less than a dollar over the low point of its 52-week range. (Five-year chart at right from Oct. 11 post.)
...

Now the stock has declined nearly 40%, to $11.91--note that the lowest level of the chart at right, as opposed to the one at top, is $10.

At the same time, rating company Standard & Poor's has cut Forest City's credit rating, citing "concerns about Forest City's debt load and the company's ambitious development plans in a weak economy," according to the Cleveland Plain Dealer.

"Standard & Poor's analysts expressed concern about projects including Forest City's high-profile and controversial Atlantic Yards development in Brooklyn," the newspaper noted. The AP added, "S&P lowered Forest City's corporate credit rating and its rating on senior unsecured notes further into junk, or non-investment grade, status."

article

NoLandGrab: Click here for a current Forest City Enterprises stock quote.

Cleveland Plain Dealer, Forest City reassures investors after ratings cut

Forest City Enterprises said it can manage its debt and increase its liquidity after Standard & Poor's Rating Services cut the company's credit ratings.

The real estate developer, based in Cleveland, released a statement Thursday after Standard & Poor's reduced ratings on Forest City's corporate credit and senior unsecured notes.The ratings agency lowered its ratings based on concerns about Forest City's debt load and the company's ambitious development plans in a weak economy.

Posted by eric at 11:12 AM

October 23, 2008

Ratner Would Fall Short On His Bonds Under Old and New IRS Rules

Develop Don't Destroy Brooklyn

DDDB does some calculations regarding projected Payments in Lieu of Taxes (PILOTs) for the planned Atlantic Yards arena. According to IRS rules, such payments must be "commensurate" with the foregone property tax.

Ratner would be seeking to pay for the bond with about $40 million per year in PILOTs, while his property tax would be only $8 million or less.

That's not commensurate.

article

Posted by eric at 2:10 PM

October 22, 2008

Tax-Exempt Bonds: The Evening Wrap

Here's the rundown on today's coverage of the IRS's decision to tighten a "loophole" on the use of PILOTs to finance arenas and stadia — only the Yankees, Mets and, maybe, the Nets, have slipped the knot.

IRSlogo.gif

Gothamist, Atlantic Yards Project Gets Big Bond Break from IRS

These New York teams may be hard-pressed to find investors who will buy the bonds, given the current Wall Street turbulence. Not so incidentally, the ruling comes four days before Yankees president Randy Levine and city officials are expected to testify at a Congressional hearing investigating the tax-exempt financing of the new $1.3 billion Yankee Stadium. Representative Dennis Kucinich, who is holding the hearing Friday, has threatened to prosecute officials if they lied about the value of the land the new stadium occupies.

State Assemblyman Richard Brodsky, a Westchester Democrat, slammed the IRS decision, telling the Times and the AP, "This is the same kind of socialism for the rich, and capitalism for the rest of us that’s gotten us into the current economic mess...The rules don't apply if you've got enough juice."

Curbed, Atlantic Yards Crap Tossing V.3.5: Financing Edition

The IRS issued a ruling yesterday that has monstrously huge implications for anyone that will ever want to build a stadium or arena ever again (don't go to sleep yet...this is big). You wouldn't know it in NYC, though, because even though it impacts the new Yankee Stadium and Citi Field, it's playing out as an Atlantic Yards story. At issue is whether tax-free financing can be used to build Frank Gehry's $950 million arena. (Leaving aside the issue as to anyone will ever finance a facility that is sure to go above $1 billion given traditional Gehry cost overruns in the middle of one of the most massive credit meltdowns in history.) The ruling creates a loophole for projects that are "substantially in progress," while banning it for new ones.

The Angry New Yorker, Tax Free Stadiums

Hey if I want to build myself a new house, think I can get me some tax free bonds to pay for it?

Brownstoner, Treasury Dept. Hooks Up Ratner Big-Time

One potential snag for FCR: The new regs require that the bonds be issued by December 31, 2009.

Gowanus Lounge, So, Does Mr. Ratner Get Tax-Free Bonds for Atlantic Yards?

The key phrase is that it grandfathers in projects “substantially in progress.” We can see lawyers and bureaucrats arguing this point about Atlantic Yards until we live in Green-Wood Cemetery.

Be sure to check out Gowanus Lounge's reflections on the ethics of subsidizing arenas.

Develop Don't Destroy Brooklyn, Ratner Spokesman Vs. Treasury Department Spokesman on IRS Regulation

Bloomberg News, New York Yankees, Mets Get Approval for Tax-Exempt Bond Funding

Village Voice [Runnin' Scared blog], Atlantic Yards Gets Tax Break, Or Not

The Times spoke to Daniel Goldstein of DDDB, who "said it appeared to him that federal tax officials went out of their way to help the developer," the paper writes, "which he said 'makes no sense' when the federal government is in the midst of a costly bailout of the banking industry." Actually it does make sense: the bailout is an attempt by the powerful to restore a failed, obviously unsustainable confidence scheme to viability; this tax break (if it is a tax break), ditto.

Posted by eric at 9:18 PM

Treasury Gets Tough On PILOTs

Tighter Regs Issued As House Panel Opens

The Bond Buyer
by Peter Schroeder

Some industry insight into yesterday's IRS ruling, including the news that said ruling increases the risk for buyers, which might in turn make the bonds tougher to sell — unless you're George Steinbrenner, Fred Wilpon, or Bruce Ratner.

The Treasury Department yesterday issued more restrictive final regulations for bonds issued by payments in lieu of taxes, just three days before a House panel is scheduled to hold a hearing questioning the use of PILOTs to finance the new New York Yankees stadium.

But the rules contain a transitional provision that appears to enable the New York Yankees, Mets and Nets to continue to issue PILOT bonds as planned without having to comply with the new rules.
...

David Caprera, a partner at Kutak Rock LLP in Denver, said the new regulations will require a shift in how many market participants view PILOTs.
...

Since the PILOTs must be tied to taxes, Caprera said the new regulations shift a small amount of risk to the bondholder, who cannot be guaranteed a fixed payment, and unexpectedly low tax revenues could jeopardize a timely payment.

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Posted by eric at 1:39 PM

Bailout! Feds save Ratner millions with new ruling

The Brooklyn Paper
by Sarah Portlock

"Joe the Plumber" has been all the rage for the past week. Now, courtesy of the U.S. Treasury Department, we bring you "Bruce the Plunderer."

bruceratner6.08.jpg

The Treasury Department has bailed out Bruce Ratner.

In a much-anticipated ruling issued late Monday, the federal agency exempted Ratner’s Atlantic Yards project from a ruling that bars the use tax-free bonds to finance stadium projects.

Atlantic Yards was apparently exempted because it is “substantially in progress” — a term defined as having received “preliminary approval of the government” and involved “significant expenditures” before Oct. 19, 2006; and having a finance plan in place that contemplated the use of tax-free bonds.
...

“It’s a slight of hand that allows the city to stick it to taxpayers on behalf of developers,” said Neil DeMause, author of “Field of Schemes,” which focuses on the massive public cost of stadium financing.

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Posted by eric at 1:11 PM

October 21, 2008

New IRS rules stoke Atlantic Yards fight

The Internal Revenue Service issued rules Tuesday on whether the Nets basketball arena planned for Brooklyn can access $800 million in triple tax-free bonds.

Crain's NY Business
by Erik Engquist

The Internal Revenue Service issued rules Tuesday that dictate whether the Nets basketball arena planned for Brooklyn can use $800 million in triple tax-free bonds. The developer, Forest City Ratner, says it can; arena opponents say it cannot.

A layman’s reading of the IRS rules seems to support the position of the developer and its partner in state government, the Empire State Development Corp.

The issue—which like everything else concerning Forest City’s Atlantic Yards project will probably be decided in a courtroom—could determine whether the arena gets built. Forest City has said it could get private financing to build the $950 million venue, but that might not be possible in the current credit market.

The IRS rules say one condition that the arena must have met is that “a governmental person took official action evidencing its preliminary approval of the project before October 19, 2006.” The board of ESDC, the state’s development agency, approved the general project plan of Atlantic Yards in July 2006.

But the arena’s opponents will likely challenge that stipulation.

“The general project plan wasn’t legally binding, and it wasn’t anything that [Forest City Chief Executive Bruce] Ratner could legally rely on to do his project,” said Daniel Goldstein, a spokesman for project opponents.

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NoLandGrab: So if Atlantic Yards already had "preliminary approval" in July of 2006, why did we all stand in line for hours for the public hearing for the Draft Environmental Impact Statement on August 23, 2006, endure a fractious, mismanaged hearing, and submit volumes of written testimony?

We knew the whole process was bogus, but this takes the cake.

Posted by eric at 9:41 PM

Tax snag arises in Brooklyn Nets development

Reuters
by Joan Gralla with Ilaina Jonas

Does she or doesn't she?

Some media outlets are reporting that today's IRS ruling on the use of tax-exempt bonds applies to Bruce Ratner's Atlantic Yards arena, while DDDB contends that it doesn't. Reuters plays it down the middle.

Brooklyn's Atlantic Yards developer Forest City Ratner Companies on Tuesday said it believes it will be able to get the benefit of tax-free debt under new Internal Revenue Service regulations that govern so-called payments in lieu of taxes.

But a civic group, called Develop Don't Destroy, which in the past has sued to block the project that includes an arena for the Nets basketball team, hotel and apartments disagreed, saying the new tax rule "disqualifies" this debt.

The developer is seeking as much as $950 million of municipal bonds that will be repaid by so-called payments in lieu of taxes.

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Posted by eric at 9:24 PM

DDDB PRESS RELEASE: Bruce Ratner's Barclays Center Arena Not Qualified for Tax-exempt Bonds Under Today's IRS Ruling

New York, New York -- The IRS today issued a long awaited decision on the regulation of triple tax-exempt bonds. Forest City Ratner’s Atlantic Yards Barclays Center Arena is reliant on $800 million in triple tax-exempt bonds.

Today’s ruling, including the rule titled “transitional rule for certain projects substantially in progress,” disqualifies the developer, Bruce Ratner, from getting these bonds for his $950 million arena.

"Ratner does not qualify for the tax-exempt bond he wants under the IRS ruling's requirements. There was no official government action on the Atlantic Yards arena prior to October 19, 2006 as required by the ruling. The project's approval was in December, 2006. There were also no 'significant expenditures' on the arena prior to the October date as required by the ruling," said Develop Don't Destroy Brooklyn spokesman Daniel Goldstein.

The IRS ruling can be downloaded at:
http://www.dddb.net/documents/IRS/IRS_REG.PDF

The relevant clauses follow:

(3) Transitional rule for certain projects substantially in progress.

Paragraph (k)(1) of this section does not apply to bonds issued for projects for which all of the following requirements are met:

(i) A governmental person (as defined in §1.141-1) took official action evidencing its preliminary approval of the project before October 19, 2006, and the plan of finance for the project in place at that time contemplated financing the project with tax-exempt bonds to be paid or secured by PILOTs.

(ii) Before October 19, 2006, significant expenditures were paid or incurred with respect to the project or a contract was entered into to pay or incur significant expenditures with respect to the project.

(iii) The bonds for the project (excluding refunding bonds) are issued on or before December 31, 2009.

link

Posted by eric at 9:04 PM

New Treasury Department regulations would grandfather in tax-free bonds for Atlantic Yards arena

Atlantic Yards Report

The White House has thus far been unwilling to endorse a new stimulus package for the American people, but Norman Oder has breaking news of a Treasury Department stimulus for billionaire team owners.

In a big boost for developer Forest City Ratner, worth perhaps $165 million, the U.S. Treasury Department has issued a regulation (PDF) that would grandfather in tax-exempt bonds for the planned Atlantic Yards arena under a rule the Chief Counsel of the Internal Revenue Service (a bureau of the Treasury Department) called a “loophole.”

The Treasury Department, not heeding a request from Rep. Dennis Kucinich (D-OH) to delay action until his inquiries into sports facility finance issues are concluded, on Monday filed a new regulation that, in fact, would eliminate the loophole for new projects. However, a “transitional rule for certain projects substantially in progress” would allow tax-free bonds for the arena, as well additional tax-free bonds for new stadiums under construction for the Yankees and Mets, as requested by city and state economic development agencies.
...

"The IRS's attempt to favor Bruce Ratner to the tune of an estimated $165 million on the backs of federal taxpayers, for a project that does nothing for those taxpayers, is obscene and offensive in the midst of an historic $700 billion bailout and a national fiscal crisis," commented Develop Don't Destroy Brooklyn (DDDB) spokesman Daniel Goldstein.

Bettina Damiani, Project Director of Good Jobs New York, noted that part of the regulation seems written to help the three sports teams: "The mumbo jumbo language that will help the NYC applicants borders on the comical. Isn’t it interesting that in the midst of what some people have called a global economic crisis, officials found the time to give more tax breaks to rich sports franchises?"

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Posted by eric at 4:27 PM

October 15, 2008

Economy, uncertain financing plague Brooklyn arena

From the Associated Press, via San Diego Union-Tribune
By Amy Westfeldt

This report was picked up by media across the nation, including during yesterday evening's local-news break on WNYC, today's metroNY (right), and in brief in today's amNY:

Bruce Ratner's $4 billion dream for a new Brooklyn will have to wait, at least until next year.

The New Jersey Nets owner and developer has been plagued by a string of problems that have delayed his plans for a new NBA arena, office towers and thousands of apartments in Brooklyn.

Ratner continues to blame a recent court ruling for delays, but financial experts paint a fairly grim picture regardless of the local opposition to the project:

“It's got more of an economic stall than a political or a legal stall,” said Michael Rowe, a sports management expert and former president of the Nets. “I think he missed the curve on when that project was financially viable and now he has to wait for it to come back.”
...
The Internal Revenue Service in 2006 proposed tightening the regulations of tax-exempt bonds to severely limit their use to pay for sports stadiums. A final decision, which could affect the arena as well as the bonds used to build stadiums for the Yankees and the Mets, is still pending. An IRS spokesman wouldn't say when a ruling is expected.

Goldman Sachs Group Inc., the lead bond underwriter for Atlantic Yards, declined comment on prospects for the arena financing. Barclays Capital, which signed to a $400 million deal to name the arena the Barclays Center, remains committed to the project, spokesman Brandon Ashcraft said.
...
Ratner has appealed to government officials, citing the difficulties of financing the project in a downturn, but no more help has been promised.

“Without relief from the IRS, the project will be significantly more expensive, and even more challenging,” said Janel Patterson, spokeswoman for the city's Economic Development Corporation. “But we all remain committed to seeing the project move forward.”
...
“In this credit climate, it's going to be very challenging,” said Marc Ganis, a sports finance expert in Chicago, though he and others think Ratner will eventually succeed. “It's made lending far more challenging and far more expensive, at least in the sports industry.”

Atlantic Yards Report, The AY inevitability meme turns; will a "plagued" project "eventually succeed"?

Though Norman Oder finds the Associated Press reporter Amy Westfeldt's skepticism of Ratner's recent statement noteworthy, he doesn't think the doom-and-gloom scenario is on the mark:

In the closing paragraph, in fact, the article quotes Marc Ganis, a sports finance expert in Chicago, as saying the project is seriously challenged, though he and others think Ratner will eventually succeed.

So it's a bit presumptuous for the project's leading opponent, Daniel Goldstein of Develop Don't Destroy Brooklyn, to say "This is just merely a fantasy that they're going to build this project. Yet they're moving forward as if everything's fine."

Sure, it's a fantasy that FCR would build the project at the timing and scale as announced. But, as I've written, the project--at least the arena--is very much in play. Yes, the Barclays Center naming rights deal was tied to gaining financing by November, but Barclays has said it's still committed to the project.

And, while the AP cites "penalties" attached to delays in the project, the article doesn't mention that those penalties are hardly punitive.

Posted by lumi at 6:48 AM

October 8, 2008

The Financial Crisis and Atlantic Yards

Picketing Henry Ford

phf-logo.gif Is Bruce Ratner's Atlantic Yards a symptom or victim of the global fiscal crisis? As confidence in "ficticious capital" evaporates, where does that leave confidence in a pie-in-the-sky project?

In a world where government outsources the monitoring of new-fangled securities and megaprojects that are too big to fail, "to the firms that are to be monitored," on the principle that corporate self-preservation instincts will preclude these companies from doing anything catastrophically stupid (just ask Lehman, Bear Stearns, and Merrill), conditions are ripe for the "promulgation of a development plan so in love with its own rectitude due to its supposed community benefit"... and for another post on Picketing Henry Ford.

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Posted by lumi at 5:23 AM

October 3, 2008

Governor wants $2 billion in budget cuts

Gov. David Paterson is calling the Legislature back for another budget-cutting session in November.

Crain's NY Business
by Matthew Sollars

Gov. David Paterson is calling the Legislature back for another special budget session on Nov. 18 and has asked Assembly and Senate leaders to submit $2 billion worth of proposed cuts.

At a meeting in New York City this morning to discuss the state’s budget outlook, Mr. Paterson said the economic crisis requires “drastic action.”

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NoLandGrab: Probably nothing as "drastic" as putting the kibosh on Bruce Ratner and his Atlantic Yards plan, however. Bruce and his mega-project seem to be in some sort of "lock box."

Posted by eric at 4:49 PM

Failed Deals Replace Boom in New York Real Estate

The NY TImes
By Charles V. Bagli

Though this article from yesterday's Times does not mention Bruce Ratner's controversial Atlantic Yards project, it goes a long way in explaining the implications of the credit crisis on the local commercial and residential real estate market, and is a must-read for those who are trying to understand the possible effects on Ratner's megaproject:

Developers are complaining that lenders are now refusing to finance projects that were all but certain months or even weeks ago.

While Ratner is searching for an anchor tenant for Building One (formerly known as "Miss Brooklyn")...

Examples of aborted deals and troubled developments abound. Last Friday, HSBC, the big London-based bank, quietly tore up an agreement to move its American headquarters to 7 World Trade Center after bids for its existing home at 452 Fifth Avenue, between 39th and 40th Streets, came in 30 percent lower than the $600 million it wanted for the property.

A 40-story office tower under construction by SJP Properties at 42nd Street and Eighth Avenue for the past 18 months still does not have a tenant.

Ratner has already expressed some marketplace flexibility by issuing two configurations of Atlantic Yards, one devoting more space to commercial tenants, the other favoring more residential space. But Charles Bagli reports that the credit crisis affects both the commercial and residential properties:

Some developers who are currently erecting condominiums are trying to convert to rentals, while others are looking to sell the projects.

Existing bond-financing is also being affected:

Commercial properties are not the only ones facing problems. On Friday, Standard & Poor’s dropped its rating on the bonds used in Tishman’s $5.4 billion purchase of the Stuyvesant Town and Peter Cooper Village apartment complexes in 2006, the biggest real estate deal in modern history. Standard & Poor’s said it cut the rating, in part, because of an estimated 10 percent decline in the properties’ value and the rapid depletion of reserve funds.

The rating reduction shows the growing nervousness of lenders and investors about such deals, which have often involved aggressive — critics say unrealistic — projections of future income.

Posted by lumi at 7:48 AM

October 1, 2008

Wall Street crisis puts Nets' future Brooklyn home in jeopardy

The Star-Ledger
By Ian T. Shearn and George E. Jordan

Four months ago, Goldman Sachs assured all financing would be in place for a $950 million professional basketball arena in Brooklyn by today.

Bruce Ratner, owner of the New Jersey Nets and developer of the ambitious, $4 billion Atlantic Yards project, said he was "inches away from completing the deal."

That was before prestigious investment firms started to fall and credit markets went into full-scale panic, triggering a financial crisis on Wall Street unseen since the Great Depression.

Tuesday, a spokesman for Goldman Sachs offered only a "no comment" when asked about the financing for the nearly $950 million arena, fueling persistent doubts about the viability of Ratner's plan, which has been systematically downscaled and delayed since it was first rolled out more than four years ago.

The result of the latest delay for New Jersey fans and residents:

That leaves the Nets playing at the aging Izod Center in the Meadowlands for at least the next three years, which will perpetuate competition with the Prudential Center hockey arena in Newark.

While the November deadline approaches for the Barlays Bank naming-rights deal for the Brooklyn arena:

Neither Barclays nor the Nets responded to email requests for interviews.

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Atlantic Yards Report, Star-Ledger: Goldman Sachs mum on AY arena financing

Norman Oder adds some additional analysis to the Star-Ledger article:

But the big question, as a lawyer quoted by the newspaper says, is whether tax-exempt financing will be available, since it remains attractive in this investment climate. The Internal Revenue Service has been asked by the city and state to grandfather in arena financing under more lenient rules than proposed; an IRS official said regulations would be issued "soon."

Meanwhile, Rep. Dennis Kucinich (D-OH), chair of the Domestic Policy Subcommittee of the Oversight and Government Reform Committee, has asked the IRS and Treasury Department to desist from approving any more sports facility deals based on PILOTs (payments in lieu of taxes), pending further clarification of their policies, a subject of an ongoing subcommittee investigation.

Posted by lumi at 7:04 AM

September 29, 2008

Atlantic Yards Faces Another Delay

City Room [NY Times Blog]
by Charles Bagli

The developer of the ambitious Atlantic Yards arena and residential complex in Brooklyn said Monday that the project could be delayed for another six months after a state appellate court failed to dismiss a court challenge brought by opponents of the $4 billion project.

Earlier this month, the developer Bruce C. Ratner vowed that he would break ground in December on the long delayed project, where he plans to build an office tower, 15 apartment buildings and a basketball arena for the Nets.

The developer has fended off a number of lawsuits brought by critics of the project over the past two years. He and state officials had expected that the state Appellate Court would also dismiss the latest suit, which sought to block the state from using eminent domain to seize private property for Mr. Ratner’s project.

Instead, the court denied a motion to dismiss the suit, opening the door for oral arguments in the case next spring.

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NoLandGrab: Ratner and the Empire State Development Corporation rolled the dice, and they crapped out. If they hadn't gambled on a dismissal, they could have moved the case along much more quickly. Is it possible that deteriorating conditions in the lending market forced them into making a bad bet?

More coverage...

TheDeal.com, Barclays deals with Lehman staff, plans to hire 1,500 more

Off the beaten track, Barclays gave a shout-out to Brooklyn, saying it remains committed to a proposed basketball arena at the Atlantic Yards despite an unfavorable court ruling on the $950 million project.

Runnin' Scared [Village Voice blog] Setback for Atlantic Yards: Motion to Dismiss Denied

The Stop Shopping Monitor, Major setback for Atlantic Yards

Newark Star-Ledger, Nets' move to Brooklyn may face further delay

The Knickerblogger, Ratner Suffers Setback, the Conspiracy Theory Version

Posted by eric at 5:48 PM

Barclays committed to Brooklyn arena

Court setback imperils Atlantic Yards ground breaking but bank statement is a boost.

Crain's NY Business
by Matthew Sollars

Barclays Bank says it is committed to the planned basketball arena at the Atlantic Yards project despite a court setback which imperils a planned ground breaking.

A state Appellate Court panel Monday rejected a plea by the state’s Empire State Development Corp. and Forest City Ratner to dismiss a lawsuit alleging the use of eminent domain violates the state constitution. A group of 9 property owners and tenants opposed to the project filed the state suit after a similar lawsuit arguing eminent domain violated the U.S. Constitution was rejected by the U.S. Supreme Court in June.
...

“While the Appellate Division Second Department’s decision to hear the case may delay the project for approximately six months let me be clear that the project will go forward,” Mr. Ratner said, in a statement.

The developer also stressed that the project could boost the city during an economic downturn. "Atlantic Yards will be built and it will create thousands of needed jobs and affordable homes," he said.

Barclays Bank has agreed to pay an estimated $20 million per year for the naming rights to the proposed arena, and is believed to have a clause which allows it to back out the deal if construction on the arena is not started by the end of November.

“We look forward to breaking ground with our partners in Brooklyn,” said a Barclays spokesman.

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NoLandGrab: Talk is cheap. Let's see what Barclays does when the end of November comes around — will they be donning hard hats and wielding silver shovels in Prospect Heights, or mailing in their cancellation notice while trying to grapple with the increasingly grave global financial crisis?

Posted by eric at 4:23 PM

September 28, 2008

How's That Anchor Tenant Search Going for Ratner's Atlantic Yards?

Develop Don't Destroy Brooklyn

Atlantic Yards developer Bruce Ratner has said in the past that his firm would not build the proposed project's signature tower "Building 1" née "Miss Brooklyn" until there is an anchor tenant. That proposed building would include 650,000 sf. of office space.

How is that going to fly when it is reported that the downtown Manhattan real estate market is faring badly, let alone the "near Downtown Brooklyn" market? Ratner has resorted to direct mail solicitations this year, but DDDB thinks he might have to go further:

If cold calling and networking parties don't work, what's next: begging on hands and knees in-person?

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Posted by amy at 2:48 PM

September 26, 2008

On the Edge

The Brooklyn Paper
By Gersh Kuntzman

This article talks about how Brooklynites are worried over the financial problems emanating from Wall Street. Included is this moment from the Brooklyn Chamber of Commerce's annual meeting when the new head of the ESDC, Marisa Lago, was introduced:

The Brooklyn Chamber of Commerce had the unfortunate luck to be holding its annual meeting on Wednesday, just as the full extent of the Wall Street collapse sank in.

At the St. Francis College podium in Brooklyn Heights, Chamber officials tried a little gallows humor.

When he introduced Marisa Lago, the new head of the state agency overseeing Atlantic Yards and Brooklyn Bridge Park, outgoing Chamber Chairman Dan Holt sarcastically said, “She probably couldn’t have picked a better time” to start that job.

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NoLandGrab: Despite the financial difficulties, this could be a very good time for Marisa Lago to be starting a new position, if ESDC (whose job it is to encourage economic activity in the State) was to recognize that the proposed Atlantic Yards development will have little or no economic benefit for Brooklyn.

Posted by steve at 4:55 AM

September 23, 2008

Brodsky: "nothing like professional sports to make public people nutty"

Atlantic Yards Report

Last Thursday, the Domestic Policy Subcommittee of the Oversight and Government Reform Committee, chaired by Rep. Dennis Kucinich, held a hearing called “Gaming the Tax Code: Public Subsidies, Private Profits, and Big League Sports in New York.”

Today's Atlantic Yards Report continues its coverage of the hearing and asks:

Why use public money for professional sports facilities?
What tangible benefits result from this kind of investment?
Where's the integrity of a process that isn't honest and open about the first two questions?

Assemblyman Richard Brodsky testified as to how all logic seems to fly out the window when it comes to public subsidies for professional sports:

"[T]here is nothing like professional sports to make public people nutty," Brodsky declared, aiming to explain why private sports teams get tax breaks and subsidies they don't deserve.

Also included is a quote from New York University law professor Clayton Gillette, who testified that, whether or not a city determines any benefit from building a professional sports venue, local, not federal funding, should be used:

"Congressman, I want to be a little more reluctant than my colleagues on the dais up here and say, it depends on who the ‘we’ is. That is, a particular municipality or municipal officials going through a process that reflects the true preference of their constituents, decides that the absence of economic benefits notwithstanding, the kinds of more ephemeral benefits that Assemblyman Brodsky and Professor Humprheys are referring to, warrant a particular use of public money, then I, a fan of local autonomy, say that’s just fine, but--that public money should be the municipality's public money, if that’s a municipal decision."

"So if you mean by ‘we’ is the municipality actually internalizing all the economic effects of the decision, I have less difficulty, even though I might disagree," he continued. "What I do disagree with is the notion that, simply because a municipality says, we believe that as local residents that this is in our local interest, that that necessarily entails the use of a federal tax exemption so that nonresidents of that municipality are required to subsidize the local decision...."

A change in rules regarding use of Federal funds to subsidize professional sports facilities would drive up the cost of building the proposed Barclays Center arena for developer Bruce Ratner.

link

Posted by steve at 6:41 AM

September 17, 2008

Events, Dear Boy

Gumby Fresh

The Atlantic Yards blogosphere's resident debt-finance expert owns up to the fact that even experts make mistakes.

It's interesting that no matter how infrequently I post, it's still possible for me to drop a decent-sized clanger with pretty decent regularity. I refer, of course, to the post below, where I confidently predicted that Barclays had lost interest in the idea of building up a US brokerage business, and that financing conditions for the Atlantic Yards arena were still benign.

So, that was about 1.5 clangers. Barclays, of course, has decided to double down its bet on a presence in the US capital markets by tearing a few strips off the Lehman Brothers corpse, although how the Lehman* purchase helps it build up a retail business in the US escapes me. It's clear that John Varley and Bob Diamond have decided to fling the money of the good depositors in the banks' UK operations at empire-building in New York.
...

The .5 clanger is that financing conditions have headed south again. Now right now, investors love them bonds, and the "Barclays Center" (that dare not speak its name) would probably be financed using bonds. But the bonds that they love are mostly low-risk stuff, and highly-leveraged construction financings for speculative team moves don't count.

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NoLandGrab: One interesting news item that popped up over the weekend was the explanation that Barclays backed out of a full takeover of Lehman because the U.S. government wouldn't cover the losses — like their naming-rights partner Bruce Ratner, they apparently know it's better to risk the taxpayers' money than their own.

Posted by eric at 6:46 PM

Yankee Stadium & Atlantic Yards Follies Update

Curbed

Two of the city's big three stadium and arena projects are in the news again this week (sorry Citifield, you're getting a pass, except for the Shea Stadium foul pole being up for sale). The Yankee Stadium woes and Atlantic Yards woes are different, yet similar.

link

Posted by eric at 12:35 PM

September 16, 2008

Wall Street meltdown may swamp all New Yorkers

amNY
By David Freedlander, Garett Sloane, and Galen Moore

Atlantic Yards gets an honorable mention in an article about the cascading effects of this weekend's events on Wall St., which includes the local housing and commercial real estate market:

WallSt-amNYa.jpg

The crisis that wiped out the venerable Lehman Brothers and left two others financial giants struggling for life threatens to cascade across all sectors of city life, from the restaurant business to the pace of rebuilding at the World Trade Center, observers say.
...
The continued march of bankers with boxes -- not into new homes but out on the street looking for jobs -- will certainly soften the city's real estate market.
...
The fall of Lehman Brothers will also take its toll on commercial real estate, with oversupply possibly bringing prices down.
...
And that's not to mention possible office consolidations from the merger of Merrill Lynch with Bank of America, set against the general downsizing throughout the financial industry.
...
If the housing market softens, developers may get jittery and be less willing to finance all the new buildings going up, leading to lots of empty lots. And big projects like the new World Trade Center and the Atlantic Yards could grind to a halt, according to Chris Jones, a researcher at the Regional Plan Association, should financing becomes more difficult and tax revenues dry up.

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Posted by lumi at 5:01 AM