Tuesday, March 31, 2015

Atlantic Yards, Pacific Park, and the Culture of Cheating

I offer a framework to analyze and evaluate Atlantic Yards (in August 2014 rebranded as Pacific Park Brooklyn) and the Barclays Center: Atlantic Yards, Pacific Park, and the Culture of Cheating.

Note: this post is post-dated to remain at the top of the page. Please send tips to the email address above, rather than posting a comment here.

model shown to potential immigrant investors in China in 2014,
though not shown publicly in Brooklyn.

Tuesday, March 03, 2015

From the latest Atlantic Yards/Pacific Park Construction Alert: installation of piles in railyard; temporary re-striping of intersection; weekend/night work in railyard

From the latest Atlantic Yards/Pacific Park Brooklyn Construction Update (in full at bottom), covering this week and next and issued yesterday by Empire State Development after preparation by Greenland Forest City Partners, with new information bolded compared to the previous two-week report:

Arena Green Roof
o Deliveries to the Atlantic Avenue crane location will be made through the wide gate entrance along Atlantic Avenue. Delivery trucks will back into the gate; Flagmen will be present to direct traffic.
Note that the deliveries in the previous update indicated the B3 crane location at Dean and Sixth Avenue. Also note that the partial stop-work order temporarily suspending such deliveries went unmentioned. That seems to be a significant lapse.

LIRR Yard Activities - Block 1120 & 1121
• During this reporting period, installation and testing of 24” diameter caisson piles will commence in Block 1120.* Compressors located on the 6th Avenue Bridge will be utilized for this work.
Note that it was supposed to commence in the previous period. This could get loud.

LIRR Yard Activities – Atlantic Avenue
  • The east side pedestrian crosswalk across Atlantic Avenue has been temporarily restriped and barrels and timber curbs installed to better delineate the walk way to pedestrians crossing at this location. Permanent striping will be completed once weather permits.
The previous alert said the crosswalk had been restriped, but now it says that restriping is temporary.
• Temporary utility relocation work at the west portal will be ongoing during this reporting period.
Previously it said such work would commence.
• Preparations for temporary decking installation and tunnel girder installations will be on-going in the west portal area during this reporting period.
This is new.

LIRR Yard Activities – Night/Weekend Work
• LIRR personnel are scheduled to perform weekend work (with assistance from yard contractor) beginning the weekend of February 27th. Work will entail the re-routing of electrical cables within underground duct banks that provide power to the tracks in the yard. Work will take place at the northwest portion of Block 1120 and is expected to take a minimum of two (2) weekends to complete. Work will be continuous throughout the weekend, commencing Friday night through Monday morning, and is being done during weekend hours because it requires all power to the tracks to be shutdown. During nighttime hours, work area will be illuminated by rail yard lights.
Previously the work was to begin as early as the weekend of Feb. 20

B11 – 550 Vanderbilt Avenue
o Installation of foundation waterproofing and pouring of foundation walls will commence during this reporting period.*
This is new.

After worker death, DOB imposes partial stop-work orders regarding Barclays Center green roof; required revisions may come today

In the aftermath of the death of a ironworker working on the Barclays Center green roof Feb. 25--he was "crushed by a load of steel truss that fell off trailer while in the process of being delivered," according to the New York City Department of Buildings--the DOB imposed a stop-work order at the site, then amended it two days later, allowing work to resume "except no steel deliveries or erections allowed."

The partial suspension of work went unmentioned in the two-week Construction Update issued yesterday by Empire State Development after preparation by Greenland Forest City Partners.

Yesterday, the DOB issued a second partial stop-work order, indicating the need to "stop all hoisting operations" and to "provide revised rigging plan for frozen zone, loading/unlading areas."

Site issues


The Brooklyn Paper, which first reported on the suspended deliveries of steel, quoted Forest City spokesman Joe DePlasco yesterday: “We of course constantly review the site to make sure it complies with all safety requirements... The site is safe.”

The Brooklyn Paper noted that there is a federal investigation of the incident.

Note that the DOB web site also states that the Barclays Center site faces a "violation for failure to certify correction of Class 1 violation," with civil penalties due.

The web site does not indicate that the violation is related to the incident last week, and it isn't. It appears to be related to a contractor's failure to secure scaffolding.

What next?

DePlasco told me yesterday that "some of the work had already started, as the [Brooklyn Paper] piece said. The rest will resume at some point tomorrow."

That implies that the required revised rigging plan would come today.

I queried the DOB yesterday; spokesman Alex Schnell responded, "I cannot comment upon when the applicant will submit their amended plans, as that is the applicants responsibility. The partial stop work order in place now suspends hoisting operations."

(Note that the, under the DOB's terminology, as Schnell explained, "Resolved refers to action being taken on the complaint. It is resolved because the agency has taken action. The underlying conditions still need to be addressed before the PSWO [partial stop-work order] is lifted.")

About the incident

The Brooklyn Paper reported:
Peter Zepf, the 52-year-old worker, died when four steel beams rolled off of a truck as they were about to be attached to a crane, police said. Emergency responders arrived at the site at 1:33 pm and found him lying dead on the loading dock, according to a police report. Zepf was a member of the Ironworkers Local 361 union, and was working for a Massachusetts steel company contracted by Hunt Construction Group.
The federal agency in charge of work place safety is also performing an investigation into the incident, which could take several weeks, according to a spokesman. But that agency only issues fines, and cannot stop work.

Marketing begins for 550 Vanderbilt condo building; units start at $550K; marketing to China (and what about the tax break?)

Well, it's too soon for the lottery for affordable housing, but not too soon for Greenland Forest City Partners to start marketing the barely under-construction condos at 550 Vanderbilt, the first condo building at Atlantic Yards/Pacific Park.

And according to the teaser website, studios will start at $550,000, while the largest units, duplex 4-bedroom apartments, could reach $5.5 million. There will be 278 units in all.

For now, we don't know the size of a typical unit, nor its price per square foot.

None of the coverage, of course, mentioned the distortion in the rendering of the building. Nor the "carve-out" that maintains a 15-year 421-a tax break for this all-luxury building, with no requirement to provide affordable housing, after the state in 2007 otherwise reformed the law.



The $550,000 floor, actually, is a higher price than the $400,000 used in an unauthorized marketing effort by a Chinese company last year.

Marketing in China

The 550 Vanderbilt website also has a version in Chinese, and it's likely some fraction of the apartments will be marketed by the Greenland Group, the lead partner in Greenland Forest City, to the Chinese market. Consider this quote from the Real Deal's article on Chinese investment in New York:
[Jay] Neveloff, who represents Forest City Ratner in its partnership with Greenland, noted that condo projects now can actually offer a “double-edged advantage.” Not only do condos allow Chinese investors to get a piece of U.S. real estate, but they can also turn around and market those condos to potential buyers in China who increasingly want investments here, too.

“It creates a huge market for potential sales,” he said.

More on Chinese investment

The Real Deal reported on the boom in Chinese investment:
But while the appetite for New York real estate has been strong among Chinese investors for a while, it recently ramped up because of a unique combination of factors, notably a rapidly appreciating Yuan, the slowing Chinese economy, and high property prices and complicated ownership rules in China. In addition, the growing middle class in China is increasing turning to institutional investors (like insurance companies) to manage and invest their newly acquired wealth.
Still, those factors pale in comparison to recent regulatory changes in China — namely looser restrictions governing how much money Chinese companies can invest abroad.
...New York developers and property owners are already gaining in a big way, thanks to the aggressive bids from Chinese buyers that have helped to push up sale prices. “They’ll accept a lower rate of return for being in the New York market, which gives them an advantage. They’ll pay more, for good reason, than a private equity firm or investor will with a five- to 10-year horizon,” said Jay Neveloff, chair of the real estate practice at Kramer Levin Naftalis & Frankel. “It’s a great strategic move that gives them a significant advantage in buying properties.”
In many cases that long-term investment strategy has given them a leg up against competitors in New York, particularly private equity firms and REITs.

Monday, March 02, 2015

Post: potential owners for Nets include Chinese conglomerate, Qatari investment fund

The New York Post reports, in Play for Brooklyn Nets sale goes global, that "Chinese conglomerate Fosun and the Qatari government’s investment fund" are interested in buying the team from Russian billionaire Mikhail Prokhorov, who owns 80% of the team.

That's interesting, because presumably those buyers do not want a trophy property--as a billionaire like David Geffen, also reportedly interested--but rather a money-maker, and the team, though its value has risen, has been losing money.

Among the issues, apparently, are whether the National Basketball Association will require Prokhorov to sell the team along with his 45% share of the Barclays Center.

Also, Forest City Enterprises, which is selling its share of the arena and is talking to AEG, is reportedly awaiting the sale of the team. (It owns 20% of the team, as well.)

One logjam may be broken once the Atlanta Hawks are sold; the Post reports that the league "may not want prospective buyers to be split between the teams."

Looking back on NBA All-Star Weekend: a "neighborhood event" and a neighborhood-impacting one

Buses lined up on Bergen Street and Sixth Avenue
The official word is that the NBA All-Star Weekend two weeks ago was great for locals.

The reality, as I've reported, is a little more complex, considering the thundering herd of buses delivering and picking up guests from the Barclays Center on Friday and Saturday nights.

And officials last week confirmed that things could have worked better.

The praise

“New York is used to hosting world-class sporting events, and with the help of the mayor’s office, the N.Y.P.D. and N.Y.F.D., and other key players, [the All-Star Game] was very integrated,” the NBA's Patrick Sullivan told BizBash, in How the N.B.A. Turned the 2015 All-Star Game Into a Neighborhood Event.

Barclays Center Community Affairs Manager Terence Kelly circulated a message:
While NBA All-Star 2015 was another big success on the books for Barclays Center, it was also another major showcase of the entire borough, with community events held at venues across Brooklyn, including:
- NBA House at LIU Brooklyn The historic Paramount Theatre was “transformed into basketball-themed activities showcasing the excitement of the NBA and the game of basketball for fans of all ages”.
- Day of Service at PS 9 Prospect Heights, Brooklyn Only a few blocks away from the arena, NBA All-Star Dwyane Wade, NBA Legend Jason Collins, Barclays Center & Brooklyn Nets CEO Brett Yormark and Brooklyn Borough President Eric Adams dedicated a new court and led students in an afternoon basketball clinic promoting a healthy, active lifestyle for children and families. (Jason posted some great pictures of the event – check them out HERE!)
- NBA All-Star Fit Celebration Amidst many first-time undertakings at NBA All-Star 2015, the league hosted basketball and fitness clinics in 100 public schools (20 per borough) during the NBA All-Star FIT Celebration on NBA FIT Friday, Feb. 13th – highlights from the other 99 schools can be found in the link! Thank you to the NBA, the NYC Department of Education & Kaiser Permanente for their support in bringing these special events to life.
Finally, I want to take this opportunity to thank the NYPD 78th Precinct, our neighbors and all civic leaders for their time and consideration in working with us to pull off this extraordinary event.
Digging deeper

I missed the meeting last Tuesday of the 78th Precinct Community Council, but got secondhand reports from a few attendees.

Captain Aaron Klein, the executive officer of the 78th Precinct, said that one road closure near the precinct was conveyed to the officers very close to the event. (He didn't express any consternation about it, I was told.)

Also, though bus drivers, after delivering their charges, were supposed to lay over in Red Hook before returning to the Barclays Center, a number left early, causing a much larger line-up than anticipated.

Kelly confirmed that was an issue, suggesting that the NBA may have worried about keeping VIPs waiting and suggested that it had been directed by the Mayor's office. He said they hoped to learn from the experience and do better next time. (That's the common mantra; while understandable, it belies the assurances provided before the event.)

Also, one manager from Modell's had apparently resisted a resident's request that very loud amplified music be turned off. The manager said they thought the store had a permit, but officers at the meeting said no such permit had been issued.

Sunday, March 01, 2015

As circus loads out tonight, Dean Street and Sixth Avenue at arena may face traffic freezes and vehicle restrictions

A message issued at 3:07 pm from Terence Kelly, Community Affairs Manager for the Barclays Center:
In the service of a safe and expeditious circus load-out in winter weather conditions, the NYPD will introduce and direct several temporary changes to vehicular traffic on the arena block later this evening.
Beginning at 6:30pm tonight, the arena block will see a heavy volume of circus trailers coming to load out the show. At times, there may be traffic freezes & vehicle restrictions on the following blocks:
- 6th Avenue between Atlantic Avenue & Dean Street
- Dean Street between Flatbush & 6th Avenues
All crosswalks will remain clear and fire lanes will be preserved at all times, with constant contact and coordination w/ FDNY & NYPD 78th Precinct.
Thank you very much for your time and consideration in this matter.
Couldn't they have announced this as a possibility a bit earlier?

Update: photos added 6 pm



Barclays Center releases March 2015 event calendar; circus ends, Nets back

Last week, Terence Kelly, Community Affairs Manager for the Barclays Center, circulated the March 2015 event calendar.

Among the 24 publicly ticketed events, there are ten Nets home games, with between 15,000 and 17,000 fans expected; three final performances of the circus today (8,000 expected); five days of the A10 college basketball tournament, with seven separate tickets; one wrestling event; and three concerts.

That leaves 11 open days, at least some of which will have private events. (There were nine days dark in March 2014.) But there's clearly still room to accommodate hockey when the Islanders arrive.


(Note the last three days on the graphic below, which have estimated attendance, go into April.)

Click to enlarge

Saturday, February 28, 2015

A new push to end use of tax-exempt federal support for sports facilities

I'm just catching up on how the worm is just starting to turn, regarding how federal taxpayers help build new sports facilities and fuel owners' profits.

From Think Progress on 2/4/15. With Obama Budget, Your Federal Tax Dollars Won’t Pay For Sports Stadiums:
President Obama’s most recent budget proposal takes aim at a tax exemption that has helped drive an explosion in publicly-financed sports facilities across the United States, a move that would end federal taxpayers’ role in subsidizing the construction of stadiums and arenas that often provide little economic benefit to their cities and states.
As it stands now, cities and states can help pay for stadiums by accessing tax-free government bonds that have below-market interest rates subsidized by the federal government. The budget Obama released Monday, however, repeals the tax-exemption from the bonds that finance sports facilities if more than 10 percent of the arena or stadium is dedicated to private business use.
Because almost all professional sports stadiums and arenas would fail that test, the Obama proposal would virtually eliminate a tax exemption that provides millions of dollars in federal subsidies each year to sports facilities. States and cities would instead have to finance stadiums with bonds that are not tax-exempt, raising the cost of an already pricey endeavor in a way that could affect the way lawmakers and local taxpayers view the deals.
“Perfect. You couldn’t do it any better if you believe like I do that we should not finance these things with tax-exempt debt,” said Dennis Zimmerman, a retired economist who worked for the Congressional Research Service and Congressional Budget Office and now serves as the director of projects for the American Tax Policy Institute. In a 1996 paper for CRS and in other publications, Zimmerman examined the tax exemption on government bonds used for sports facilities and recommended eliminating it.
NYC Independent Budget Office
ThinkProgress suggested that the exemption likely will survive the Republican-controlled Congress, but the president’s proposal could push it toward passage another time.

Not the same as NYC funding

Note that this is not the similar tax exemption, allowing payments in lieu of taxes (PILOTs), that enabled construction of new stadiums for Yankees and Mets, and the Barclays Center.

That tax exemption was eliminated in 2008 but grandfathered in for the arena.

The New York City Independent Budget Office in 2009 estimated some $200 million in public costs given the tax-exempt financing.

That was likely overstated by some $50 million, given that it was based on $678 million in tax-exempt bonds, rather than the $511 million ultimately sold.

More discussion

Neil deMause followed up on Field of Schemes:
Since stadiums and arenas are almost by definition used for private events more than 10% of the time, sports team owners immediately made sure that they wouldn’t get caught in this trap by focusing on the other test, and ensuring that at least 90% of bond costs would be paid off by generally applicable taxes. This required jumping through some fancy hoops at times — sometimes dividing up bond issuances into one publicly paid tax-exempt set and one privately paid taxable set, sometimes pretending that private rent payments are really tax payments and convincing the IRS to go along with it — but has consistently worked out over the years, so far costing taxpayers $4 billion in foregone tax revenue.
The Washington Post's Wonkblog, 2/5/15, It’s time to stop letting sports team owners blackmail taxpayers for new stadiums:
"It's a silly tax break," said Matt Gardner, director of the Institute on Taxation and Economic Policy [a non-partisan research organization]. "It's ludicrous that the federal government would be subsidizing state and local borrowing to give investors tax breaks to make it easier for them to build sports stadiums."
...Dennis Zimmerman, the director of projects at the American Tax Policy Institute, made a similar suggestion in a report 19 years ago. ["Tax-Exempt Bonds and the Economics of Professional Sports Stadiums," Congressional Research Service, May 1996] "I'm pleased," he said. "And I don't think it stands a snowball's chance in hell."
The hearkens back to a 9/5/12 article from Bloomberg, In Stadium Building Spree, U.S. Taxpayers Lose $4 Billion:
Tax exemptions on interest paid by muni bonds that were issued for sports structures cost the U.S. Treasury $146 million a year, based on data compiled by Bloomberg on 2,700 securities. Over the life of the $17 billion of exempt debt issued to build stadiums since 1986, the last of which matures in 2047, taxpayer subsidies to bondholders will total $4 billion, the data show.
Those estimates are based on what the Treasury could have collected on interest from the same amount of taxable bonds sold at the same time to investors in the 25 percent income-tax bracket, the rate many government agencies assume. In fact, more than half the owners of tax-exempt bonds pay top rates of at least 30 percent, according to the Congressional Budget Office. So they save even more on their income taxes, a system that U.S. lawmakers of both parties and President Barack Obama have described as inefficient and unfair.
...The new generation of publicly owned stadiums was designed to increase revenue from high-priced seating as well as concessions and retailing. The venues have helped double the value of sports franchises since 2000, according to W.R. Hambrecht & Co., a financial services firm.
That article reflects on the attempt at reform:
Almost 20 years earlier, U.S. lawmakers from both parties set out to block muni bonds for municipally financed stadiums as part of an attack on public borrowing for private businesses, according to former Senator Bob Packwood, the Oregon Republican who was chairman of the Senate Finance Committee.
“We wanted to limit it,” Packwood said in an interview. “It was one of the most egregious uses of the part of the tax code that allowed for industrial development bonds. It was clearly not what the tax code had in mind when tax-exempt bonds were authorized.”
...The wording of the law encourages cities and states to offer more-favorable terms to pro teams wanting financial assistance while preventing the borrowers from using stadium revenue to pay off the bonds, he wrote. The measure functions as “an open-ended matching grant” for stadiums, he said. Cities and states borrowed more money backed by tax revenue, not less, to make sure that no more than 10 percent of a stadium’s debt payments came from a private business, Zimmerman said.
...Not all of the subsidy goes to the city, based on a 2009 report from the Congressional Budget Office and the Joint Committee on Taxation. Researchers found that just 80 percent of the amount the Treasury gives up because of the exemption serves to reduce a municipality’s borrowing costs. The remaining 20 percent amounts to “a federal transfer to bondholders in the higher tax brackets,” according to the report...That’s because people paying the top marginal rate get a disproportionate benefit from the exemption.
The AY angle

As I wrote in 2008, Forest City Ratner's hired economist, Andrew Zimbalist, ignored the federal subsidy in his 2004 report for the developer.

He would've had to quote his own, recently stated opposition to tax-exempt bonds for sports facilities. In his 2003 book, May the Best Team Win: Baseball Economics and Public Policy, he wrote (p. 140-141):
While one may legitimately question the costs and benefits to a particular metropolitan area of attracting a professional sports team, there appears to be no rationale whatsoever for the federal government to subsidize the financial tug-of-war among the cities to host ball clubs. If there is a global welfare gain from the relocation of a team from city A to city B (because city B may be larger or wealthier or have more avid sports fans), then city B ought to able to pay for that gain without a subvention from Washington, D.C.

Friday, February 27, 2015

In discussing future of modular construction, panel mostly avoids B2, though architect implies largest Atlantic Yards towers too tall for modular

The highest-profile effort at modular construction in New York has been Forest City Ratner's ill-fated B2 tower, stalled at ten stories but slated to resume construction this spring.

Despite the presence of an architect who worked on B2, the tower got virtually no mention on a 2/2/15 panel, Edge Construction: The Future of Modular, sponsored by the American Institute of Architects' New York Chapter.

But there were some interesting observations on the need for dramatic change in the industry--implicitly not accomplished by the now-sundered collaboration between Forest City Ratner and Skanska, now mired in lawsuits--to move modular construction from theory to practice.

And SHoP Architects principal Chris Sharples, whose firm worked on B2, offered an interesting aside suggesting that 30 to 40 stories might be the limit for now.

While that implies record-setting heights--the 322-foot B2 would be the world's tallest modular tower--it does not encompass four other towers in the planned project.

They include the 511-foot B3, at the northeast corner of the arena block or the similarly tall B1, at the Barclays Center plaza. (Presumably B1 would be a good candidate for modular, given the very limited radius for construction equipment near the operating arena.) Two additional towers would be 460 feet and 419 feet.)

The video, and other coverage


Edge Construction: The Future of Modular - 2.2.15 from Center for Architecture on Vimeo.

Here's coverage in Real Estate Weekly, Architects puzzle over modular ‘headscratcher’, and Crain's New York Business, Modular housing stuck in never-ever land.

The de Blasio strategy

The panel grew out of a meeting that Mayor de Blasio's administration called with the architects' group, which wanted to know if modular construction should be part of its affordable housing strategy. (It went unmentioned last May at the launch of de Blasio's housing program, as I noted.)

The AIA/NY group put together a think tank, involving architects, developers, structural engineers, housing advocates, and city officials, aiming to see if there were ways to add productivity.

"In a way, we have to do in our industry what Tesla's doing to the automobile industry," observed Stephen Kieran, a partner at architecture firm KieranTimberlake, suggesting a venture capitalist might re-start things.

Developer Jeffrey Brown, who constructed a modular apartment building in Inwood, The Stack, called the building business "very, very primitive," involving "35 subcontractors, each with their own agenda."

The modules for his seven-story building were made in Berwick, PA, three hours a way, and trucked overnight to New York.

(The city Department of Transportation doesn't allow significant daytime delivery of such wide loads, a rule that apparently scotched Forest City Ratner's initial plans to deliver to the B2 site.)

It took only 19 months to place the 59 modules (B2 has 930), but "a lot of other things at the site caused delays," Brown acknowledged, given that not all internal connections worked.

Still, "for the most part, we were able to produce an incredibly high quality building that came complete to the site," he said. (They had concluded it was too risky to apply the facade in the factory--part of the B2 plan, by the way--so wound up in a "tedious process" doing so on site.)

To convince the lenders, Brown said he had bankers visit the Deluxe Building Systems plant and employed third-party engineers to vet the process.

Cost and labor

Brown said the cost of construction was $200 per square foot. One panelist said developers could build affordable housing--presumably not high-rise or union--for $180 per square foot. But construction costs are still rising, Brown said, so he favors modular.

Sharples said there was a learning curve for labor--an implicit reference to the reported slow-but-faster process for B2--that would improve for each project. "The key is to hang on to that crew," he said. "If there's a lot of product to feed, there's a really great way to start to deal with those issues of cost."

That left the lingering question as to whether Forest City Ratner, with its partner/overseer Greenland, might use modular for any additional buildings, if and when B2 is finished.

David Wallance, a senior associate at FXFOWLE Architects (which is working on two new conventional towers for Forest City Greenland), suggested the existing modular manufactures in the northeast are too small, generating perhaps $50 million of production in a year.

He said they were "wedded to the idea that the most economical approach is to move the largest possible modules down the highway," with a distribution radius limited to 300 miles. He proposed that modules fit the size and shape of standard shipping containers, then be subject to mass customization and variation.

The would presumably move production to lower-cost countries, a politically dicey issue for certain projects, given the lack of local and union labor. It also would mean more thick walls and ceilings, given the additional panels--an issue that might be ameliorated by zoning changes that give a bonus to modular, panelists suggested.

Cost is cost is dependent on scale, said architect Jim Garrison, suggesting a project has to exceed 30,000 square feet.

What about union labor? Some 60% to 70% of the residential projects in the city are nonunion, open shop, noted Brown. He called B2 unusual "because it's very very visible, politically sensitive, very well publicized project. The unions would be doing themselves a disservice if they didn't try to make their own mark, but I don't think that's a model."

In other words, while the unions made a deal with Forest City to work in the factory at lower-than-onsite wages, but, he seemed to be suggesting, other projects need not follow that model. (Of course, other projects may not have ridden the momentum of union rallies and lobbying.)

How high to go, and where might be best


Sharples suggested that Arup engineer David Farnsworth--who wasn't on the panel but worked on B2--"would probably say higher," but comfortably 30-40 stories was a likely limit, since tall buildings require brace frames for stability

The challenges include the laydown area for the modules, Sharples said, but the process means less waste, less redundancy on the job site, and improved quality of life for neighbors.

(That was what Forest City was promising regarding Atlantic Yards, and about which it is now conspicuously silent. given the increased activity related to conventional construction.)

"There's a cost to society inherent in the way we build now," Garrison observed, "and we don't measure it... If we were to measure it as a city, it would change the formula dramatically."

Sharples suggested that waterfront projects offered opportunity for modules to be brought in by boat.

Garrison said that, to build the planned 250-room Pod Hotel in Williamsburg, "we flirted with three manufacturers from the region [but] they all fell on their face." So they're working with a Polish company to ship the modules.

What will happen in ten years

Moderator Tomas Rossant asked for ten-year predictions. Sharples suggested iterative change, with more collaboration, ideally leveraged by venture capital and governmental subsidies.

Wallance suggested there must be a global solution involving transportation and scalability--an implication, perhaps politically dangerous, that jobs would move out of the city.

Garrison said tradecraft needed to be improved, or "other cultures [would] teach us how to do this. It's essential that we turn it around."

Brown said people do what's in their economic interest, "there needs to be new blood, new money, and a new spirit."

Rossant said "I think fundamentally we need to band together more... why aren't we together lobbying governments, lobbying trade organizations, why isn't there a more formalized think tank on this."

So stay tuned. But it's interesting, again, that nobody pointed to B2 as a touchstone.

Thursday, February 26, 2015

Forest City: arena income boost still expected by 2016 (?); increased B2 impairment related to delay; arena/team sale now aimed at 2015

Forest City Enterprises acknowledged this week that reaching "stabilized operations" for the arena--$65 million in net operating income (NOI)--"is taking longer to achieve than originally anticipated," something of a euphemism for a gap of nearly $25 million between current revenues and the 2016 goal.

Despite that gap, company officials professed confidence in a conference call yesterday with investment analysts.

Analyst Sheila McGrath of Evercore (which is helping Forest City sell the Nets) noted that the quarterly NOI "has been bouncing up and down," a reference to the fact that the fourth quarter of 2014 brought fewer revenues than the same period in 2013.

McGrath, typically a chummy sort, then asked a potentially tough question quite casually: "I was just wondering if you, y'know, still feel pretty good about stabilization once the [New York] Islanders come into the mix?"

CFO Bob O'Brien attributed the income "bumpiness" to the entertainment mix at the Barclays Center, which in 2013 had Beyonce and Justin Bieber, but noted that 2014 overall was up over 2013. "And again, it 's ramping up slightly behind where we had anticipated," he said, "but we believe certainly with the Islanders coming here, we expect to achieve the stabilized NOI that we projected."

Islanders as savior?

Unless they have evidence--and they haven't shown it--that the 2015-16 arrival of Islanders will bring in huge revenue while not disturbing some other revenue generators, that strikes me as doubtful.

We don't know the details of the Islanders deal, but the Wall Street Journal reported that the arena, rather than getting rent from the hockey team, guaranteed an unspecified annual payment in return for the revenues. So that's variable.

The New York Post reported 3/30/14:
The arena’s owners guaranteed the Islanders about $50 million in annual revenue for regular season games. Barclays would keep anything it collects in sponsorship, suite and ticket sales over that amount.
...The move to Barclays Center is likely to boost attendance, but the owners still run the risk that the Islanders won’t fill enough seats. The Islanders don’t pay rent during the regular season, but they will if they make the playoffs, a source added.
Regarding B2

Given that Forest City has announced a $146 million impairment regarding the B2 modular tower, one analyst asked "how much of that is potentially recoverable through litigation and how much of that should we just think of as sort of a sunk cost because the project got delayed and/or yield expectations came down?"

CEO David LaRue said about $100 million to $110 million was related to the building and the land, with  the balance related to the factory Forest City once ran with Skanska and has since reopened on its own. (More precisely, the factory write-off was $38.7 million, which leaves $107.3 million.)

"So, we can assume there will be some recovery, I can't tell you when," he said. The returns on the building should be solid, he said, given Brooklyn's market.

Paul Adornato of BMO Capital Markets pointed out, however, a $40 million increase in Forest City's hit: the company at a real estate conference previously identified the cost of the impairment, not including the factory, as $70 million, not $110 million.

"When we made that estimate at the end of our third quarter, we had not yet purchased the factory, or understood exactly where things stood there," responded O'Brien."And when we added in the cost of carry and the time delay to restart that factory, that increased significantly the cost estimate that we had at the end of the third quarter to where we see it now."

Selling the arena and team

Officials said they were hoping to sell their 55% majority share of the Barclays Center, and 20% minority share of the Brooklyn Nets, by the end of 2015 in coordination with partner Mikhail Prokhorov's Onexim.

LaRue acknowledged that nothing was certain. Indeed, last May, O'Brien said they hoped to have an agreement on price regarding sale of the Nets by the end of 2014. That didn't happen, and later they decided to sell the arena as well, recognizing it might work better as a package deal.

Were they planning to sell the arena or merely refinance it? LaRue said it was possible to sell a share, as with properties like 8 Spruce Street, the Frank Gehry-designed apartment tower in Lower Manhattan. But the company won't take on additional debt, he said.

More on the sale

The Financial Times reported confusion regarding Prokhorov's sale, quoting one advisor working with potential a bidders: "Am I buying the team? Am I buying the arena? Do I have to buy the team and the arena? Can I buy just the arena or just the team? . . . I don’t know.”