Assuming it is able to go forward, a $4.9 billion mega-project in Brooklyn will proceed in stages under a modified plan the Empire State Development Corp. adopted yesterday at its monthly board meeting.

The new plan reflects new financial realities that apparently have constrained the developer's ability to carry out the project as it was originally approved in 2006. Developer Forest City Ratner Cos. expects to use around $700 million of bonds backed by payments in lieu of taxes to build an arena, but needs to sell the bonds by the end of the year.

In a best-case scenario the bonds would go to market in the fourth quarter, ESDC spokeswoman Lisa Willner said. The deal will probably be around $700 million - though that number could change - and is expected to be a combination of serial and term bonds, with the longest maturities out to 35 to 40 years, she said.

Goldman, Sachs & Co. will underwrite the bonds. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC is bond counsel.

The development plan comprises 16 towers of housing and commercial space and an arena for the National Basketball Association's New Jersey Nets, on 22 acres of land. The New York City Housing Development Corp. is expected to sell bonds for the housing portion of the project.

A spokesman for Forest City did not respond to submitted questions by press time.

Under the original plan, the developer was to pay New York's Metropolitan Transportation Authority $100 million up front to acquire air rights to develop tracts of land over a rail yard on the site. It was also to invest roughly $250 million to improve the rail yards. Those development rights were to be transferred to the ESDC.

But the new plan, which requires MTA board approval today, envisions the developer purchasing the development rights to property needed to build the arena as well as four towers for $20 million so it can sell the so-called PILOT bonds before Dec. 31.

The remainder of the air rights would be purchased under a 19-year installment plan. With the project now expected to proceed in stages, the ESDC's plan had to be modified to reflect that.

The U.S. Treasury Department last year adopted more restrictive rules on the use of PILOT bonds, but the Atlantic Yards arena was grandfathered in, provided the bonds sell by the end of the year.

In a deal structured similarly to the recent New York Yankees and Mets baseball stadium deals, an ESDC subsidiary would be the owner of the arena and would lease it to Forest City. Payments in lieu of taxes have to resemble property taxes and the assessed value of the land under the arena is about to jump dramatically.

The full market value of the land, as assessed by the city, will jump to $43.9 million in fiscal 2010, which begins July 1, from $14.6 million in fiscal 2009, according to information provided by the New York City Independent Budget Office.

Owen Stone, a spokesman for the city Finance Department, said that commercial vacant land all over the city has increased in assessed value by 260% over the past three years because property values have gone up.

Several legal challenges to the project over the state's approval process and the use of eminent domain - the ESDC expects to seize 31 apartments through condemnation on behalf of the developer - have stalled the development, but failed in court. Three pending lawsuits have appealed earlier decisions.

One of the plaintiffs, Daniel Goldstein, who stands to lose his condominium through eminent domain, said that the current legal cases will stretch into October. If they are allowed to proceed, the cases will stretch into 2010, he said.

The adoption of the modified plan triggers a new public hearing on the changes.

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