Friday, June 13, 2008

Atlantic Yards & Yankee Stadium face difficulties with tax-exempt financing

A few years ago, New York City started using tax exempt bonds in an "aggressively creative way" to provide cheap financing for large economic development projects. But that might change under proposed IRS rules, which, if adopted, will apply to bonds issued after February 2007. State and city officials are trying to prevent the rule change, or, failing that, obtain waivers for the Yankees, the Mets, and the Atlantic Yards arena.

Both the Yankees and the Mets have relied extensively on the tax exempt bonds in financing their new stadiums, and they're lobbying to ensure that they'll be exempted from the new rules, if passed. This is especially important for the Yankees, as the team has expressed a need for additional financing. (The picture to the right shows the new Yankee Stadium, on the right, next to the old one. Photo by Mary Alteffer from the AP.)

The story is slightly different for the Atlantic Yards arena, however. The developer, Forest City Ratner Cos., has long been planning on using the tax exempt bonds to finance the $950 million facility (not to mention the rest of the project), but no bonds have actually been issued for the project. Although Bruce Ratner has admitted that the rule change is going to be an obstacle for the development, he remains optimistic and claims that constriction could begin in the fall. (The photo shows part of the project footprint, including the MTA's Vanderbilt Yards, looking north west toward Atlantic Ave and Flatbush. Photo by Chang W. Lee for the Times.)

The Times paints a more pessimistic picture of the project's future:
The Internal Revenue Service initially approved the use of the bonds for the ballparks, but quickly issued a proposal in 2006 to tighten the rules governing the use of tax-exempt bonds so that it would be more difficult, and perhaps impossible, for this kind of financing to be used again by profitable, private enterprises like professional sports teams.

Now state and city officials say the proposed rules are jeopardizing what is planned to be the city's next big sports palace: the $950 million Barclays Center, an 18,000-seat basketball arena for the Nets that is the centerpiece of the huge residential and commercial complex in Brooklyn known as Atlantic Yards.
The $4 billion Atlantic Yards project already faces delays because of litigation, a sluggish economy, the lack of commercial tenants and the reluctance of lenders to finance large real estate developments.
When the project was approved in December 2006, Mr. Ratner optimistically indicated that its first phase — the arena, an office tower, a retail complex and three residential buildings — would be completed by 2010. But under a financing agreement completed nine months later, he was given 12 years to complete the first phase.
The economic picture has changed significantly. This year, Mr. Ratner acknowledged that he would not begin construction of the office tower, once known as Miss Brooklyn, until he had an anchor tenant, which could take years.
Real estate executives say that if Mr. Ratner cannot get tax-exempt financing for the arena, it will make the project significantly harder.
For more on this story, see the New York Times article and the Atlantic Yards Report posting.

News of the financing problems only adds to the list of delays facing the Atlantic Yards project. As I've mentioned before, communities considering CBAs need to be aware of the vagaries of the development process, since, in many cases, the community won't benefit until the project is well on its way to completion.

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