As Delays Mount, 2012 Looks Like the Best-Case Bet for the Atlantic Yards Arena
by Norman Oder
Oct 09, 2008 | 1251 views | 1 1 comments | 30 30 recommendations | email to a friend | print
Last week, we learned that, because a state appeals court wouldn’t dismiss a pending eminent domain lawsuit challenging Atlantic Yards, the announced groundbreaking for the Brooklyn arena might be delayed at least six months. Most news outlets then concluded that the planned Barclays Center could open by 2011, a year later than the most recently announced official opening date of 2010.

However, the best-case arena opening date is probably 2012, nearly nine years after the project was unveiled and six years after the first—and clearly overambitious—announced arena opening date. Even if the state prevails in pending litigation and gives developer Forest City Ratner the go-ahead, the construction timetable points to an early 2012 arena opening, in the middle of the basketball season. That’s no time to move a team.

That means that the New Jersey Nets would have to play four more seasons in the aging Izod Center in the Meadowlands, virtually unreachable by public transit, unless the team moves, temporarily or permanently, to Newark’s new Prudential Center, or the team is sold outright and moved out of state. (In September 2006, the Nets extended their lease at the Meadowlands, with an option through 2012-13.) Meanwhile, the cost of the Frank Gehry-designed Brooklyn arena has ballooned from $435 million to $553 million to $637 million to $950 million—the most expensive ever, even at the original figure.

If the Nets don’t move to Brooklyn until 2012, that might complicate the team’s search for free agents. Without a new Brooklyn arena by 2010, it might be tougher for the Nets, who have been clearing salary cap space as they rebuild the team, to land Cleveland’s LeBron James or other superstars who will become available in 2010.

Pending legal battles pose part of the delay. Two major cases remain, both organized and funded by project opponent Develop Don’t Destroy Brooklyn, with the Empire State Development Corporation (ESDC), as the sole or main defendant.

In the eminent domain case, the plaintiffs—owners and tenants of residential and commercial property—first sued in federal court, which was considered more hospitable to claims that the state acted less in the public interest than in an effort to confer a benefit on CEO Bruce Ratner. For example, a trial in federal court would’ve allowed the plaintiffs—originally 13, now nine—to call witnesses and pry loose documents regarding governmental decisions. But that case was dismissed at the trial and appeals court levels, and the U.S. Supreme Court chose not to accept a further appeal.

The case was revised slightly when it was submitted to state court, with an additional claim, never before made, that a clause in the state constitution requires that a project in which blight is cleared can only be used for low-income housing. Given that eminent domain claims are tough to win in New York State—they are filed under an expedited schedule directly with an appellate court, and no witnesses can be called—the case must be considered a long shot.

Still, the appellate court’s unwillingness to dismiss the case before trial means that oral arguments likely would be held no sooner than March, with a decision likely no sooner than May or June. That’s why Bruce Ratner, in a statement last week, acknowledged that the groundbreaking for the arena—a site just east of Downtown Brooklyn between Flatbush and Atlantic avenues—announced for December “may” be pushed back six months.

In the other lawsuit, 26 community and civic groups challenged the legitimacy of the environmental impact statement (EIS) approved by the ESDC, the public authority—run mainly by gubernatorial appointees—shepherding the project. A state judge dismissed the case in January, ruling that, even though some actions by the ESDC and others might have been questionable public policy, courts have a limited role in reviewing such decisions.

Though the plaintiffs raised several points in their appeal, the oral argument, heard in a state appellate court September 17, focused exclusively on whether the 22-acre project footprint in Prospect Heights—near some very valuable real estate but containing some deteriorated or empty buildings and a working but unlovely rail yard—was in fact blighted. The term blight is undefined in New York law, leaving judges deferential to agencies that conclude that property that is “unsanitary” or “substandard.” (In efforts to reform eminent domain nationally, several states have tightened the definition of blight, but New York has not done so.)

For one thing, the ESDC in legal papers scoffed at claims that the blocks in and around the footprint were improving, suggesting that reports of industrial buildings converted to condos—two within the footprint and one adjacent to it—were outweighed by the analysis by environmental consultant AKRF.

However, AKRF, commissioned by the ESDC to conduct a Blight Study, was supposed to “analyze residential and commercial rents on the project site and within the study area and to analyze assessed value trends on the project site,” according to a document unearthed by this reporter, but never did so.

In court, the ESDC lawyer was on the defensive, as the two most vocal judges on the five-judge panel expressed skepticism about the blight claims. “If there’s all of a sudden new development in a poor neighborhood, why would we characterize it as blighted?” asked Justice James Catterson.

ESDC lawyer Philip Karmel cited the blight characteristics found in the study. Catterson, who wrote the majority opinion upholding a judge’s decision that found a conflict of interest in AKRF’s relationship to Columbia University regarding the latter’s expansion project, said that “Columbia has hired the same consultant” and found the “same blight.”

A decision is expected by the end of the year; a decision favorable to the plaintiffs, even if upheld on appeal, would require a revision of the environmental review, delaying though not necessarily scotching the project. While comments from the bench do not necessarily indicate how the panel will rule, the plaintiffs noted that two votes in their favor, even a 3-2 decision upholding the ESDC, would allow an automatic appeal to the state’s highest court, further delaying the case.

The other major hurdle involves the availability of tax-exempt bonds to finance the arena, worth perhaps $150 million to Forest City Ratner in comparison to taxable bonds. City and state officials expected the Internal Revenue Service (IRS) to give its blessing to a PILOTs (payment in lieu of taxes) arrangement for the Brooklyn arena that had already been used to approve bonds for new Mets and Yankees stadiums.

However, after those projects were approved in October 2006, the IRS, acknowledging what its chief counsel has called a “loophole,” proposed tightening the rules, requiring that PILOTs fluctuate to match the property taxes they are replacing, rather than be fixed amounts far more palatable to the bond market.

No action has been taken, but an IRS official said last month that a final regulation would be issued “soon,” with one consideration that “we look at the expectations of people being affected.” That hints that the IRS might grandfather in the arena financing plan, even though Atlantic Yards was not approved by the ESDC until December 2006, after the revised regulation had been proposed.

Complicating the issue is that Assemblyman Richard Brodsky (D-Westchester), chairman of the Assembly Committee on Corporations, Authorities and Commissions, issued a scathing report accusing the city of “gaming” the tax assessment for the new Yankee Stadium to ensure that the figure was high enough to meet the expected payment under PILOTs, while low-balling the value in a separate assessment regarding the replacement of lost park space.

Brodsky testified last month at a hearing held by Representative Dennis Kucinich (D-OH), chairman of Domestic Policy Subcommittee of the House of Representatives’ Oversight and Government Reform Committee, a critic of the use of tax-exempt bonds for sports facilities. Kucinich has asked the IRS to hold off on issuing its regulation until the results of his inquiry are complete.

The delay in financing may affect the much-ballyhooed $400 million naming rights deal Forest City Ratner signed with Barclays Capital; the deal, according to the New York Times, is contingent on closing on financing by this November. While that deadline will not be met, Barclays affirmed its commitment to the arena but would not say whether it would modify its contract.

As noted, the timetable for the arena keeps moving back. When the project was approved in 2006, the arena was “anticipated” to open in 2009, according to the ESDC. Representatives of the developer and team regularly cited that date, even as it became unrealistic. Last November, they finally began projecting that the arena would open in 2010.

Many arenas take 24 months to construct, but this one would take longer. In June, at the annual meeting of parent company Forest City Enterprises, Bruce Ratner said, “Our hope is that we can close our loans and close the transaction by the end of the year. And then it will be about two-and-a-half years to build our arena.”

That would mean, in a best-case scenario, an arena opening by July 2011, in time for the 2011-12 season. However, if the new delay pushes everything back six months, the arena wouldn’t open until January 2012.

However, Ratner's 30-month timetable may be too optimistic. According to the ESDC’s Final Environmental Impact Statement, the arena would take "less than three years" to build—approximately 32 months. Assuming a start in July 2009—and that’s by no means guaranteed—that would mean an arena opening in March 2012, nearly the end of the 2011-12 season.

The timetable for the whole project is also delayed. When approved in 2006, the ESDC said Atlantic Yards would be finished by 2016. This past May, Bruce Ratner said the project was anticipated to be completed by 2018.

That’s increasingly unlikely. Various components of the project depend on funding not yet available. Most of the 15 residential towers would be funded via scarce tax-exempt housing bonds. And the flagship tower, once dubbed Miss Brooklyn, won’t be built until an anchor tenant is found—a task made more difficult by the downturn on Wall Street, which has left much commercial office space vacant in Manhattan.

Norman Oder writes the blog Atlantic Yards Report (AtlanticYardsReport.com).

Comments
(1)
Comments-icon Post a Comment
Nathalieaz35
|
February 09, 2012
If there’s all of a sudden new development in a poor neighborhood, why would we characterize it as blighted?

Nathalie

Blog: comment soigner un rhume