Atlantic Yards Decision Drama! More Lawsuits as Financing Questions Remain
Eliot Brown Nov. 24, 2009, 9:38 p.m.
There’s a question that’s been coming up a good deal lately: Is Atlantic Yards ever going to happen?
Time will soon tell.
The planned $4.9 billion development–home to a new Nets basketball arena, 15 residential towers, and an office building–is now in a make-or-break few weeks, particularly after a big day of activity Tuesday.
The project, developed by the Brooklyn firm Forest City Ratner, received a key victory early Tuesday morning with a decision from New York’s highest court, as the judges ruled 6-1 to uphold the use of eminent domain in the project.
Shortly after, the plans for financing were revealed, and the state’s development agency said that the project was expected to receive an investment grade rating from the ratings agencies on hundreds of millions of dollars in bonds for the arena.
There has been skepticism that the bonds would be able to reach investment grade; failure to do so would render the project unable to receive financing ahead of a Dec. 31 deadline on the use of tax-free debt.
Now, the question becomes whether or not Forest City will succeed in selling the tax-free bonds, and then if it will be able to ward off any additional obstacles, including lawsuits, between now and the end of next month.
THE SPECIFICS OF THE financing are still unclear, though the state-run Empire State Development Corporation, said at a hearing Tuesday that the state expected $600 million in tax-free bonds to be approved as part of a complex financing agreement meant to skirt federal laws intended to bar many stadiums and arenas from using tax-free debt. (These have proved controversial when used on recent stadium deals, with critics alleging that land values were improperly inflated in order to make the numbers work. Would-be property tax payments are used to pay the debt service on the bonds.)
The ESDC said that there would also be $150 million in taxable bonds, which are far more expensive for Forest City. The stated reason? The property taxes are not excepted to be high enough to cover more than the $600 million in debt.
“While we have secured investment grade ratings, Empire State Development is in ongoing discussions with rating agencies and bond insurers. In addition to the investment grade rating, we anticipate there will be taxable bonds as well,” ESDC spokesman Warner Johnston said in a statement. “Details will be released once documents are finalized.”
Complexities aside, Greg Carey, a managing director at the financing underwriter Goldman Sachs, said he expected to begin marketing the bonds as early as next week, and said the whole deal would close in mid-December.
That is, if even more litigation doesn’t stop it.
Midday Tuesday, project opponents and landowners declared their intent to sue, again, to stop the use of eminent domain. This would be at least the seventh major lawsuit filed by Atlantic Yards opponents and critics to stop or derail the development.
At a press conference outside Freddy’s Bar, a neighborhood watering hole in the arena’s footprint, Matt Brinckerhoff, the holdout landowners’ attorney, said next week he expected to file a suit that would challenge the use of eminent domain based on the fact that the project has changed significantly since it was first approved in 2006. The public use–a component of the decision to use eminent domain–has changed, and thus the courts must reconsider the project under the new circumstances, he said.
There are also at least four other outstanding lawsuits challenging various aspects of the project, with three of them challenging the re-approval process this year. At least so far, Forest City and others involved in Atlantic Yards have expressed confidence that those suits do not pose a mortal threat to the development or its financing.