The Ratner Hat Syndrome

Just got back from a trip to Canada. So it's taken me a little while catch up with the Atlantic Yards hullaballoo. Saw the renderings in the Times on the way home.

I must say the first thing the new arena put me in mind of was the funny helmets the rebels used in the third Star Wars movie. Which makes the new arena mid-80s futuristic, I guess. It also looks a little more low-slung, which is in general a good thing. If the man managed to put it up nearby without throwing people out of their homes and gorging on public subsidies I might even learn to love it.

Two small details intrigued me. The first is that Ratner's moving the team offices out of the arena, which sounds like a pretty desperate stab at cost-cutting, and may well reduce the attractiveness of the arena to another buyer. I'm sure Ratner has lots of Brooklyn office space standing by idle right now, but am not sure that whatever mug he manages to dump the team on will be similarly, um, blessed.

The second is that Ratner has decided that the new arena will include retail space. This is interesting, because, again, and this can be confirmed fairly quickly by a quick stroll through his two ugly malls, Ratner's not hurting for vacant retail spaces in that part of the world right now. Is Ratner, or his bankers, or the agencies, so worried about the revenue that the arena will produce, that he's trying to juice it with some retail rentals?

Alongside the release of the new rendering, Ratner also granted Eliot Brown, the only professional journalist spending much time writing about the arena financing, an update on that end of things. There's not much new in here, more a sort of confirmation of some of the proposals that Ratner's been floating around the last few weeks and months.

He confirms that he does have a $200 million equity gap, but seems to indicate he's looking for outside providers to take equity in the project company, rather than pay Ratner for a stake in the Nets, which Ratner would then contribute to the project as equity. This could be smart, since there are a couple of private equity and real estate investors that might like a direct stake in an asset like this.

They'll only do it, though, I imagine, if the Nets sign a long and expensive lease on the arena, which would doom his chances of trying to sell the team for a while. Of course, Ratner says that FCE could meet this $200 million from its own resources, but I think a commitment that large would put its return on capital so far in the toilet it might as well go back to building strip malls in Cleveland.

Then there's this issue of issuing the bonds to finance the stadium and then holding them in escrow until the litigation can be resolved. Ratner has told Brown that he can do this. I'm still not sure how that will work. I'm fairly certain the tax consequences for investors of being made whole (paid back early) on these bonds would be horrible. But it might be possible, and FCE, in one final throw of the dice, might be able to put up the premium to prepay the bonds itself. Certainly it would be easier to find that kind of money than $200 million in equity.

But the process is likely to be hideously complex. Go look at this page to get an idea of how difficult refinancing municipal bond debt is. Yeah, I'm copping out a little bit here, but I had a rather large lunch, and municipal finance terminology is not my strong suit. Let's just say we're getting a clearer idea of what route Ratner might be taking, his likely gearing, and his timeline. It's a pity Brown didn't ask if he was talking to Assured Guaranty about bond insurance, though.

Oh my god, municipal finance commentary and Star Wars references. This really is turning into a low-rent Accrued Interest, isn't it?