How big of a deal was Tuesday's bond sale?
A month ago, the Nets had two major hurdles to clear on the road to Brooklyn. On November 24, the Court of Appeals ruled 6-1 that eminent domain can proceed on the properties needed for Barclays Center and the rest of Atlantic Yards. Last Tuesday, the Nets not only sold $500 million in tax-exempt bonds, they sold them within two hours. In fact, the market for them was so strong they got a lower interest rate than anticipated. Moreover, as the week moved on, the price of the bonds rose in the open market and the interest rate dropped, by Thursday, hitting 6.04%. Many news reports, including some by reporters long skeptical of the Brooklyn move, called it the "last major hurdle".
What's left?
The Empire State Development Corp. will proceed with a "master closing" on the Atlantic Yards property Wednesday. That will transfer title to the arena holding company, 55% owned by Bruce Ratner and his partners and 45% owned by Mikhail Prokhorov's personal investment vehicle, Onexim. Although a minority owner, Prokhorov apparently has some management perogatives.
Condemnation on the few properties Ratner doesn't own or control will begin shortly thereafter. Residents will be evicted and relocated.
Brett Yormark has said he expects a ground breaking within the next month. "Then there will be a mobilization of heavy equipment and brand messaging with signs around the site," says Yormark.
The arena holding company must also sell $146 million in high interest "junk bonds" to build the infrastructure needed for the arena. It has been reported, but not confirmed, that Prokhorov and/or Forest City Enterprises, Ratner's parent company, will buy the bonds. That's not expected to take place until after the New Year. Unlike the tax-exempt bonds, there is no deadline for the sale of those bonds.
What about Mikhail Prokhorov?
NBA Security has found nothing in its background check to disqualify Prokhorov as an NBA owner. His finances are now being reviewed. When will the transfer of ownership take place? Indications are that final vote at the Board of Governors will take place in January, possibly on the same day it clears Kenny Huang, a Chinese investor, to become a minority owner of the Cleveland Cavaliers. David Stern has said he understood the need to vet Prokhorov by Dec. 31. There has been no public opposition to his ownership, with several owners endorsing him, including the Mavs' Mark Cuban and the Celtics' Wyc Grousbeck.
Ratner and Prokhorov "finalized" their agreement on the Nets and Barclays Center last Tuesday night. Prokhorov was to transfer funds for the interests in the team and arena upon the sale of the bonds. He had reportedly transferred some funds already.
Prokhorov also has a tenative agreement with the NBA obligating him to pay most of the Nets' debts--about $170 million--and indemnify the team for losses up to $60 million while the Nets remain in New Jersey as well as for "cash needs".
What other deadlines are there?
There are two others, but neither is as hard and fast as been protrayed.
Barclays extended its naming rights deal with Ratner a year until Dec. 31. However, Nets insiders say that Barclays won't back out even if the deal isn't closed by midnight on New Year's Eve. After all, Barclays was one of the two bond underwriters for Tuesday's sale. They're in it for keeps.
The Nets have until Dec. 31 to exercise its year-to-year lease on the IZOD Center. The Nets can opt out of the lease by paying the NJSEA $7.5 million by that deadline. Meanwhile, all sides in the proposed "Jersey Presents" deal are still talking in spite of reports the deal to bring the Nets to "The Rock" and send concerts to IZOD had "all but collapsed", as the Star-Ledger reported. The Nets have pointedly not said the $7.5 million is a deal breaker. It's possible the Nets and Prokhorov could look at the penalty as an investment that would yield higher revenues at the box office. Also, under terms of the Prudential naming-rights deal, Prudential pays the Devils additional money if an NBA team moves into "The Rock". The Nets and Devils are reportedly negotiating how much of that pot of money the Nets would get.
What about the lawsuits filed by the critics..and the motion to the Court of Appeals, asking it to rehear the eminent domain appeal?
The main purpose of the new lawsuits was to raise uncertainty about the project, to scare investors away from buying the bonds. That strategy failed. One suit has already been dismissed. The MTA's decision to let Ratner stretch out payments for the railyard beneath Barclays Center was the subject of a suit by critics. A State Supreme Court judge dismissed it last week. Now, the critics must convince a judge to stop the entire project while their other cases are heard. That is unlikely and some critics, including Develop Don't Destroy Brooklyn's own legal director, have admitted the lawsuits would be difficult to win. It is even more unlikely that the Court of Appeals will agree to a rehear the case they just ruled on.
It should also be noted that DDDB is cash poor. It keeps little cash on hand, instead spending almost its money on litigation. Their last return, filed a year ago, showed they were running a $117,000 deficit. They have admitted switching strategies from legal to political, demanding New York Gov. David Paterson stop the project before Wednesday's master closing. That, too, looks unlikely.
And the Islanders?
It would appear that the chances are slim that the Islanders will join the Nets in Brooklyn, but hours after last Tuesday's bond sale, Islanders owner Charles Wang declined to answer questions about a possible move from Nassau Coliseum to Barclays Center.
"I don't want to do this in the press," Wang said when asked about Brooklyn. "You understand."
The big problem with any move, from the Nets' side, is that the arena was downsized after Frank Gehry was dumped as architect, severely limiting if not eliminating the possibility that a hockey pad, much larger than a basketball court, could be fitted into the current plans for Barclays Center. From the Islander side, the problem is that Wang is still holding out hope for his mega real estate project, the Lighthouse, which would include a new Coliseum. Also, his lease with Nassau County has five years to run.
If the Nets wanted to reconfigure the arena, the responsibility would fall on the arena holding company, owned 55% by Ratner and his partners and 45% by Prokhorov. They could use the ESDC's bonding authority to issue new bonds to pay for the "retrofitting" but it wouldn't appear that any new bonds would be tax-exempt.
Bottom line, can we expect the Nets in Newark next season and then in Brooklyn the season after that?
The Nets are unlikely to sign any deal with Newark until after the master closing and with negotiations on hold, who knows. Newark Mayor Cory Booker is optimistic. Yormark says the Nets remain interested. Don't expect any final resolution there until after Gov-elect Christie is sworn in Jan. 19.
As for Brooklyn, Ratner and Yormark keep saying the Nets will be in Barclays Center during the 2011-12 season. But extrapolating from data in the bond offering statement, that seems unlikely. It would require the Nets to build and open the arena within 24 to 26 months of groundbreaking. That's a very tight schedule.
Still, as Yormark says, Brooklyn has never been closer.
