October 05, 2009

Day of reckoning nearing for Atlantic Yards?

New Jersey Nets owner Bruce Ratner told the New York Observer last week that he plans to start selling $700 million in bonds for his Atlantic Yards arena in Brooklyn in "about two weeks." (Another $200 million, you'll recall, is slated to be funded by Russian billionaire Mikhail Prokhorov, the guy he's selling the Nets to.)

While usually selling bonds is the final step in the arena-building process, in this case Ratner is intentionally jumping the gun a bit: He has to have bonds in place by the end of the year to qualify them for tax-exempt status before the IRS authorization turns into a pumpkin. To cover the fact that he's still engaged in at least one lawsuit over the arena project — an appeals court hearing is set for October 14 — Ratner is reportedly getting bond insurance that will reimburse bondholders in case the whole project falls apart. (Prokhorov has a get-out-of-purchase-free card in his deal for if that happens.)

There's one other wild card here, which is that the New York City Independent Budget Office has projected that even under the expiring IRS rules, the arena project wouldn't generate enough property tax value to justify $700 million in tax-free bonds. (If you really want to know what property tax valuations have to do with tax-free bonds, start here.) It'll be interesting to see if Ratner has to take out bond insurance for the possibility of the IRS rejecting some of his tax-exempt bonds as well — and if at some point he needs to find another Russian billionaire to pay for it.