Atlantic Yards "Cloud" Lifted, But Fog Remains: What About the Bonds?
So is the long-heralded arrival of Atlantic Yards finally at hand, or what? According to the front page of today's Times (echoed on its sports page), the answer is yes: Following yesterday's appeals court ruling, which dismissed challenges to the state seizing private land for the Nets-arena-and-other-stuff project, "a cloud of uncertainty that has hung over Atlantic Yards for more than a year had lifted," writes development reporter Charles Bagli, while rookie Nets beat writer Jonathan Abrams calls the ruling the "last major hurdle in the groundbreaking process."
When and whether the bulldozers will actually pull up to Freddy's, though, remains murky. That's because despite all the fuss about the eminent domain lawsuit — one of four remaining legal challenges against the project — the real hurdle facing developer Bruce Ratner is selling $800 million in bonds to pay for the damn thing. The Wall Street Journal last month declared the likelihood of the bonds passing muster with financiers as a "toss-up," and the bond issuance date has been pushed back at least once since then, with a December 31 IRS deadline fast approaching.
Yesterday's eminent domain ruling should improve those odds somewhat. First off, investors always like it when the New York Times talks about "clouds lifting." Then, Warner Johnston, a spokesperson for the Empire State Development Corporation — the state agency that is actually issuing the bonds so that Ratner can avail himself of the Yankees tax dodge — also notes that while three other legal challenges remain, "none of those lawsuits would actually impede the beginning of development," since they don't directly address the condemnation of private land to complete Ratner's arena parcel.
The real test now is whether the ESDC can secure bond rates that Ratner can afford to pay off — and there, all official answers are saying "we'll tell you later." An initial statement by ESDC that it had secured investment-grade ratings was contradicted by Bond Buyer, which got a Standard & Poor's bond analyst to confirm that no public rating had been made; ESDC later amended its statement to say it had "tentatively secured" a rating, a coinage that no doubt would have entertained George Carlin. Johnston told the Voice that a "preliminary rating" has been agreed to and should be finalized next week, but said ESDC wouldn't comment further while talks were still underway.
One possible holdup is bond insurance, which was the main bugaboo cited in that Wall Street Journal piece: Thanks to the financial meltdown, there's effectively only one bond insurer left in town, Assured Guaranty — and they've been unable to come to an agreement with Ratner's team on how much to charge to cover the Atlantic Yards bonds should the whole thing go kablooey. Yesterday's court ruling might make Assured a bit more amenable to compromise, but here again, nothing's been finalized, according to Goldman Sachs, which is handling the bond insurance talks.
How much difference does all this financial mumbo-jumbo make? Well, the Brooklyn Arena Local Development Corporation (an ESDC subsidiary spun off for solely for the purpose of issuing the arena bonds) authorized rates as high as 8 percent for tax-exempt bonds and 14 percent for taxable bonds, which is pretty much a rating of "usurious"; if the rate were really bumped up from the 6.5 percent Ratner previously said he hoped for to 8 percent, that'd mean close to $10 million a year in extra bond payments, or more than one Devin Harris worth. But what interest rate Ratner will get — and how much he'll have to pay to Assured to get it — won't be made public until next Wednesday at the earliest, which is when ESDC hopes to issue a "preliminary offer statement" spelling out the details.
Assuming Wall Street's price point is one that Ratner can afford, the most likely scenario then has the bonds being sold in late December, with the remaining buildings on the site — including both Freddy's and Dan Goldstein's almost vacant condo building — getting seized later this month and demolished in the first half of 2010. (The deal announced yesterday actually allows for the state to hold the bond proceeds in escrow for up to a year while waiting for all the property to be acquired.) Johnston says ESDC hopes for a groundbreaking "at the beginning of next year," but couldn't provide more details.
Develop Don't Destroy legal director Candace Carponter says her group plans to file new challenges to the state land grab, on the grounds that the project has changed so much since the eminent domain case was originally filed in 2006 that the court must reconsider whether it still qualifies as a "public benefit." But though she insists the legal arguments are sound, Carponter admits it's still likely to be an uphill fight: "It is hard to imagine that a judge is going to require them to make new findings that would require them to start this whole project over again."
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