Brooklyn Arena Developer Looks to Revenue Streams

The Forest City Ratner Cos. is banking on luxury seating, naming rights, and sponsorships to back $500 million of tax-exempt bonds to be issued for a new arena in Brooklyn.

The Brooklyn Arena Local Development Corp., a subsidiary of the Empire State Development Corp., is expected to market the bonds the week of Dec. 14. The proceeds will finance an 18,282 seat arena that will be the home of the National Basketball Association’s New Jersey Nets franchise.

In the first full year of operation, the fiscal year ending June 30, 2013, the Barclays Center will generate a projected $101.3 million of operating revenue while debt service is expected to be $27.8 million, according to the preliminary official statement. More than a quarter of the total revenue in fiscal 2013, $27.6 million, would come from leases on 105 suites, while sponsorship agreements would generate $30.5 million and naming rights a projected $10 million.

Overall revenue from Nets games, including concessions, luxury seating, a portion of regular ticket sales and merchandise sales are expected to be $37.9 million in fiscal 2013. Other events at the stadium, expected to be 179 annually according to the POS, will generate a projected $13.7 million in fiscal 2013.

Moody’s Investors Service rates the deal Baa3 with a stable outlook and Standard & Poor’s rates it BBB-minus.

The sale is expected to include $473 million of current interest bonds and $27 million of capital appreciation bonds.

Goldman, Sachs & Co. will lead manage the deal. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC is bond counsel.

The arena is a component of a larger planned mixed-use development on a 22-acre site that will primarily consist of apartment towers.

The bonds use a similar financial and legal structure as the recently built Yankee and Mets baseball stadiums. The ESDC will own the arena and land on which the arena is built and lease it to the issuer which in turn will sublease it to ArenaCo, a subsidiary of Forest City Ratner. Because the arena and land will be owned by a state entity, it will not have to pay property taxes. ArenaCo, will make payments in lieu of taxes from arena revenues.

The PILOTs, which must resemble actual property taxes, will total a projected $30 million in fiscal 2012 and grow to $53.1 million in fiscal 2038. The PILOTs will then decline, reaching $41.6 million in 2046, the final year of debt service on the bonds. The PILOTs are expected to exceed debt service costs by roughly $1 million to $5 million during the life of the bonds, according to the POS.

The development has been controversial due to the state’s use of eminent domain to seize homes and businesses on the project site on behalf of the private developer. Although the state’s highest court ruled last month that the state had the right to take the properties, the properties have not yet been seized and other lawsuits remain. The bond proceeds will be escrowed while the ESDC seeks to obtain the property for the arena site. If the state fails to do so by January 15, 2011 — a preliminary date subject to change — the issuer will redeem the bonds.

The borrower may market additional PILOT bonds for the project, but only refunding bonds would be tax-exempt after Dec. 31 due to recent changes in Internal Revenue Service rules, according to the POS.

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