21 March 2008

Nets' project faces delay

From at least a business and economic standpoint, the Atlantic Yards project in Brooklyn is one to watch as a forerunner of the A's ballpark village. While its scope and associated controversy have been far greater, Atlantic Yards still bears watching due to its basic similarities. Thanks to the economic downturn - er, recession, the first ancillary phase of the project faces delay.

Like the ballpark village, Atlantic Yards is a large mixed-use development with a sports venue as its centerpiece. Proceeds from the development are to be used to pay for a sizable portion (but not all) of the arena, called Barclays Center. Over 10,000 housing units would be built. The 22-acre site includes the 8.4-acre Vanderbilt Yards, an old depot for the Long Island Rail Road.

Barclays Center is to become the first major sports facility built in Brooklyn since the Dodgers left Ebbets Field. The tie-in is that the developer, Forest City, is run by Bruce Ratner, who a few years ago bought the NBA's New Jersey Nets. Upon completion of Barclays Center, the Nets are to move to Barclays Center and be renamed the Brooklyn Nets.

Controversies surrounding the project have been well chronicled, from the $300 million in tax-exempt bonds used and subsidies given to the always popular use of eminent domain within the long-developed borough. No place in the U.S. is like New York City in terms of how massive projects like this manage to get rammed through the public process via big machine politics. Similar issues were brought up for both of the new baseball stadia being built now.

Surprisingly, the arena is expected to push forward with construction starting early next year and opening in time for the start of the league's 2010-11 season. I suppose the thinking here is that construction costs will only go up so they might as well get started now even if the debt service piece is still uncertain. The project was originally announced in 2003, with an expected 2006 opening (overly optimistic due to process matters). Despite public pronouncements about the groundbreaking and opening dates, it's likely the opening date could slip further.

Atlantic Yards could serve as something of a harbinger for the A's ballpark village. Private financing and the flexible timeline the A's have floated can help insulate them from the recession. One or two years is plenty of time for a proper economic rebound, and that's already baked in to the plan. Should our economic difficulties continue for a protracted period, Wolff/Fisher may have to consider major changes in the project's composition. On the other hand, if it continues over the length of a presidential term we'll have a lot more to worry about than a baseball stadium.


lumi said...

$305 million is only the combined CASH subsidy contributed by NY City and State.

The value of the tax-exempt bonds, plus affordable housing and brownfield clean-up subsidies and a litany of other exemptions [mortgage-recording tax, property-tax, payments in lieu of taxes (PILOTs) etc.] will bloat the total tax-payer bill well over a BILLION dollars, maybe even as high as TWO.

monkeyball said...

Coupla questions:

1. I'm not sure I understand in principle how private financing necessarily is an insulator from the current recession/credit crunch -- I would think that public financing, as much of a pain in the ass as it is to secure, would be a better credit hedge as it's not tied in as volatile a fashion to market conditions/forecasts. (Though, of course, the credit crisis makes massive public financing, without a massive federal tax increase in '09, unlikely in the near-term.)

2. Do I infer from your comments about the prospects for the A's stadium that you're now leaning toward the current/projected economic circumstances taking a bite out of the scope of the project?

Marine Layer said...

Even public financing isn't entirely insulated from external factors. San Diego recently refinanced Petco Park's bonds after their pension scandal kicked the original rate upwards. Barring political scandal, it's far safer than private financing because it's based on municipal bond rates and doesn't require the borrower to explain how the debt is being serviced. Plus it's tax-free.

The Dallas Cowboys' stadium is facing this problem even as it's near completion. Jerr-uh Jones hired two firms to insure the private portion of their stadium debt. Those firms are facing lower bond ratings thanks to their heavy investments in subprime mortgage companies. That could drive their rates up - which they would pass along to the their customer, Jerr-uh.

A protracted economic slump will force Wolff/Fisher to consider changing scope. Problem with that is a major change would likely require an amended or new EIR. They don't want to go that route, so they're really hoping things turnaround in the next 12-18 months.

monkeyball said...

Thanks, ML. As always, I appreciate your explanations.