Tuesday, October 14, 2008
Economy, uncertain financing delay plans for Brooklyn arena
NEW YORK -- 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 said a recent court ruling would delay the project by up to six months, meaning the Nets won't move in until least 2011. Groundbreaking has been pushed back until at least next year for the arena, which will cost more than three times what Ratner paid for the entire franchise. And the financial crisis has made it tougher to raise money, potentially jeopardizing a lucrative naming rights deal with Barclays Capital.
Ratner, who has fended off years of community resistance to his plans, remains optimistic.
"Let me be clear," he said last month, "that the project will go forward."
But financial experts and state and city officials who have heard the developer's private pleas for more government aid say the failing economy has created a far bleaker picture for Atlantic Yards.
Ratner is heavily dependent on a pending federal decision that could determine whether tax-exempt bonds can be used to finance the $950 million arena. But even if the bonds become available, the seized-up credit market could make it impossible to attract investors to the arena, financial experts say.
"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."
A leading critic of Atlantic Yards says the project is doomed.
"I think it's clear to everyone," said Daniel Goldstein of Develop Don't Destroy Brooklyn, a residents group suing to block the project. "This is just merely a fantasy that they're going to build this project. Yet they're moving forward as if everything's fine."
The downturn is threatening plans begun four years ago when Ratner, CEO of Forest City Ratner Cos., bought the Nets as a centerpiece of a 22-acre development on an old rail yard, industrial buildings and homes in Brooklyn. The megaproject would include an 18,000-seat sports and entertainment arena, 16 skyscrapers with hotel, office and retail space, 6,400 apartments and eight acres of open space.
Neighborhood groups vehemently protested, saying it would drive out middle-class residents and overwhelm the area with traffic jams and congestion. They have two lawsuits pending, including one challenging the state's right to use eminent domain to take over more than a dozen properties.
A groundbreaking for the arena had been planned for December but was delayed by a ruling last month in favor of the residents in that lawsuit.
Building has not started on any of the signature projects, and Ratner said earlier this year that the largest skyscraper -- Frank Gehry's "Miss Brooklyn" tower -- wouldn't begin construction until an anchor tenant is secured.
The arena's financing depends largely on the ability to issue up to $800 million in tax-exempt bonds.
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 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 a $400 million deal to name the arena the Barclays Center, remains committed to the project, spokesman Brandon Ashcraft said.
But parts of that deal are contingent upon the timing of the arena's construction.
So is aid from New York City; the city and state have each contributed $100 million in subsidies, with penalties attached if Atlantic Yards doesn't complete the first phase of the project on a set schedule.
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."
Even a favorable ruling that would allow Ratner to sell bonds for the arena may not help in an economy where investors are wary of large-scale projects with uncertain completion dates, bond and sports finance experts said.
"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."