Wednesday, February 22, 2017

Are the Brooklyn Nets really worth $1.8 billion, as per Forbes? Nope. (And why credit arena to team value?)

Sorry, Forbes, I'm not buying it. I can't believe, as published recently, that the Brooklyn Nets are valued at $1.8 billion, the 7th most valuable team in the NBA, up from $1.7 billion in 2016 and $1.5 billion in 2015.


The reason? Well, just a year ago, the team plus the arena were valued at $1.7 billion.

How do I know? Well, when Forest City Realty Trust sold its 20% interest in the Nets and 55% in the Barclays Center operating company to Mikhail Prokhorov's Onexim Sports & Entertainment, the announcement said the team was valued at $875 million and the arena at $825 million, for a total of $1.7 billion, as shown in the screenshot below.



Sure, it's possible that Forest City, constrained by a deadline to become a real estate investment trust and a league that wanted one owner for the team and arena, did not get as much for those assets as it had hoped.

But optimistic estimates--considered a stretch--only reached $1.9 billion.

The team--and the arena


Turns out, Forbes doesn't really think the Nets are worth $1.8 billion now either, since their rather flexible methodology links team and arena--and last year estimated the pair $1.7 at billion. The arena is said to contribute $551 million in value.

(Why the overall increase? Now, among other things, the team has an $8 million a year deal for uniform advertising!)

In a Twitter exchange with Forbes writer Kurt Badenhausen, I expressed my skepticism, pointing to the 2016 valuation set by the dual sale.

He responded that Forbes's value includes the team and the arena.

But it's tough to attribute the arena value to the Nets. When I asked about the Islanders, he responded, "We include the economics of the arena that go back to the NBA team. Isles don't get any non-hockey revs."

(I'm not sure about that. The Nets don't get any non-Nets revenues, but the Nets owners do, at least now, because they're the same. But two years ago, the arena was already supposed to contribute more than $500 million to the Nets value, and it was not controlled by Prokhorov. So Forest City Ratner, a minority owner of the Nets but a majority owner of the arena operating company, was getting benefit that didn't "go back to the NBA team" either.)

"Ok, but then shouldn't you then count % of the arena value attributable to Nets rather than full value?" I responded.

"In cases where owner controls economics to arena/team, we attribute to team value-i.e. Bulls get 50% of United Center," he responded.

Maybe that's why Forbes attributed $551 million in venue value to that overall team valuation, rather than the full $875 million.

But that still doesn't make sense to me, since, if the Nets are worth $1.8 billion for the team plus their share of the arena, what about the value of the rest of the arena? Wouldn't that additional valuation bring the combo of the team plus the various arena beneficiaries well above $1.8 billion? And what if ownership of the team and the arena operating company were split?

Maybe we'll learn more about the team's value if and when Prokhorov brings in minority investors, as is expected.

Previous coverage

Here is the archived Forbes coverage: 2013, 2014, 2015, 2016. I've pasted in screenshots below. (The last time I wrote about the Forbes valuations, two years ago, I also had doubts.)

Tuesday, February 21, 2017

Forest City/ESDC predicted 224-250 events at Barclays Center; first three years averaged 180-200

FCR 2005 bid to MTA: 250 events
How many events were there annually at the Barclays Center, starting in 9/28/12 and until the New York Islanders arrived three years later?

Only 180 to 200 a year, which is fewer than predicted many times by arena developer Forest City Ratner, governmental allies, ratings agencies, and consultants, we now know.

The lesson, yet again, is to take self-serving predictions with a large grain of salt. (Note that, as detailed below, the New York City Economic Development Corporation and the New York City Independent Budget Office more accurately predicted numbers under 200. )

August 2016 to potential bond buyers: 180-200 events in first three years
The new information comes in a consultant's report in the August 2016 Official Statement sent to potential buyers of the refinanced arena bonds. (See screenshot at left.)

The arrival of the New York Islanders hockey team means the Barclays Center did finally host 240 events in the fourth year of operation. (Given the timing of the Official Statement, I'm assuming they counted the fourth year as beginning at the end of September 2015, which was approximately one year earlier,)

The increased event count doesn't necessarily translate into huge profits, so it's possible that if the Islanders leave the arena might earn more profits from fewer events. (I'll write more on this soon.)

FCR 2005 City Council presentation: 235 events
The key is this: official projections, especially from private entities, deserve skepticism. Some public entities and agencies have been more cautious and, thus, credible.

Overly optimistic predictions of events

Repeating and augmenting my September 2013 article on the number of predicted events, it's clear many were optimistic and unrealistic:
  • 224: May 2004. Source: Report by Forest City Consultant Andrew Zimbalist
  • 250, May 2005. Source: Forest City’s bid to the MTA
  • 226: June  2005. Source: Report by Forest City Consultant Andrew Zimbalist
  • 235, May 2005. Source: Forest City presentation to City Council
  • 192, June 2005. Source: NYC Economic Development Corporation analysis
  • 194+, September 2005. Source, New York City IBO Fiscal Brief
  • 225: July 2006 General Project Plan, Empire State Development Corporation
  • 225: June 2009 Modified General Project Plan, Empire State Development Corporation
  • 200+, September 2009. Source: Barclays Center press release
  • 225, December 2009. Source: ratings agency Moody's
  • 220, December 2009. Source: Forest City, according to ratings agency Standard & Poor's, which called estimate “aggressive”
  • 184-214, December 2009. Source: consultant Conventions, Sport & Leisure International, part of Official Statement for bond buyers
  • 220, December 2012. Source: Arena CEO Brett Yormark interview in Gotham magazine.
First year results were presented as triumphant, as the arena was the busiest in the country, but the numbers, imprecisely expressed as "200-plus," were still more modest than predicted:
(Note that, as far as I can tell, the statistics involve ticketed events, so occasional graduations and occasional outside rentals are excluded.)

The fundamental flaw

Zimbalist's hired-gun report, based on Forest City numbers, was likely the basis for Forest City projections and thus ESDC projections.
However, he not only assumed the Brooklyn arena would not host an NHL team, his calculation presumed the eventual closing of Continental Airlines Arena (later Izod Center), and no new arena in Newark.

The problem, as analysts Jung Kim and Gustav Peebles pointed out in 2004, is that that left no place for the New Jersey Devils to play. And, indeed, they moved to Newark, and the Prudential Center continues--and competes with the Barclays Center and Madison Square Garden for certain events.

The recent assessment

Here's the text from the 2016 Official Statement, as shown in the screenshot above:
While the Arena Project was first developed as the home arena of the Nets, it has evolved into a multi-purpose venue hosting many types of entertainment events, such as concerts, college basketball, family entertainment, boxing, civic and cultural events, and, most recently, NHL hockey. The Arena averaged approximately 180 to 200 events each year since its opening in September 2012, which has increased to over 240 events with the addition of Islanders Home Games in 2015.
Actually, the arena was always supposed to be a multi-purpose venue, because 44 home games won't cut it.

Monday, February 20, 2017

Newsday: entertainment complex around Nassau Coliseum stalled

Nassau Coliseum entertainment complex on hold, Newsday's Robert Brodsky reported yesterday:
Construction of an 11-acre retail and entertainment complex next to the Nassau Coliseum is on hold as Nassau County Executive Edward Mangano and arena developers consider a new plan for the site that could include housing.
Mangano said Nassau began examining housing after the Empire State Development Corp. approved an $85 million grant in October for construction of two parking garages on the Nassau Hub site. The garages would have 3,400 spots and free up 19 acres of blacktop, originally designated for surface parking, to be used for housing.
So the arena, which opens in April after renovation, will not have any new retail or entertainment for at least a year.

 And Mangano gave Nassau Events Center, which was formed by Forest City Ratner but now controlled by Russian billionaire Mikhail Prokhorov's Onexim Sports & Entertainment, more time to build the planned "188,000-square-foot plaza with restaurants, a 10-screen movie theater, a 2,500-seat indoor theater, outdoor amphitheater, skating rink and retail space."

The lease requires at least $400,000 a year to be paid to the county from those new project, but until then, only $60,000 a year is required. Newsday notes that there was no mandatory start date for the retail plaza

Sunday, February 19, 2017

Crain's: BAM-area retail is hottest corridor (so what about Site 5?)


Crain's New York Business reported 2/16/17 Brooklyn's hottest intersection for retail:
Commercial brokerage firm CPEX Real Estate last month designated six Brooklyn corridors as the borough’s next retail hot spots. No. 1 on the list? The intersection of Lafayette Avenue and Fulton Street, which sits at the crossroads of the growing Brooklyn Cultural District and Fort Greene.
CPEX’s reasoning was simple: The nearby blocks are teeming with new development, including 3,800 residential units, 900 hotel rooms and highly anticipated retail locations such as Apple’s second Brooklyn store and the first city outpost of Whole Foods’ 365, a new chain of lower-priced stores. 
All are interwoven into the booming cultural district, anchored by the Brooklyn Academy of Music, that includes new public plazas and parks.
The interior retail space at One Hanson, the former Williamsburgh Savings Bank building, is facing alteration.

So, the question for the developers of Atlantic Yards/Pacific Park is whether that's going to help/boost or detract from the planned luxury retail at the not-yet-approved Site 5 project.

Saturday, February 18, 2017

The scalping scene outside the Barclays Center seems unmolested (at least for the Nets)

Gothamist had a very intriguing article 2/10/17, The Hard Life Of An Old School Scalper In The Age Of StubHub, with a cameo played by "Michael," a scalper at Nets home games.

He gets his inventory from brokers or fans with extra tickets. One example: he bought a ticket for five dollars, and sold it for ten. From Carter Maness's article:
Michael periodically huddled up with other scalpers to compare inventory, but mostly worked his turf alone. There were approximately 15 others posted near the arena's entrances, and they were careful not to step on each other's toes. NYPD vans lined the perimeter. Security guards were fanned out among the crowd, but they studiously looked away from any transactions.
"It's a violation, not a crime, most of the time," Michael said. "As long as you're not directly in front of the venue, it's usually not a problem. But you can get a summons. Sometimes, if they have warrants, people go to jail."
Anyone who's walked through the arena plaza, or hung out there, has seen the scalpers and/or been approached.

If arena security officers don't care, it's because they want people in the building and/or have better things to do. (The more counterfeit tickets, though, the more the brand suffers.)

As for the cops, collaring scalpers could be low-hanging fruit, as it could be for finding parking violations on nearby streets. But I suspect it's not a priority, either, unless it affects public safety.

Previous coverage of scalping, and comments

In December 2012, I cited a first look at scalping, and a report from a reader who bought a counterfeit Nets ticket. In October 2013, the New York Police Department reported that, in the first nine months of the year, there had been 45 arrests outside or inside the arena, such as for illegal scalping, unlicensed vendors, and trespassing

A report from a wrestling event

On Reddit, the professional wrestling community Squared Circle, one poster a year ago wrote that "the level of people who got scammed [at a Barclays wrestling event] was unprecedented": 
1) Someone set up a printer and let people print off their digital tickets for $5. This was legit, but actually forced the ticket prices UP instead of down at showtime.
2) People sold fake/doubles of digital tickets over and over again. (Including a group of teenagers that were warned by a crowd that it would be bad, but didn't listen!)
3) BS secondary market sites. This was apparently a big one.
4) Fake HARD COPY tickets. This surprised even the cops, as one told me that the precinct was lined with people who got ripped for $400-$1300 and even more.
Some were straight up pros that were known to security and have been playing people for years.
Events like this is a breeding ground for these scam artists looking at banking off good people looking for an enjoyable experience. They are BLATANT. Especially when people are just trying to take their kids to see their heroes, people are willing to put logic aside to get their kids what they want.
Another poster wrote that he "once got scammed outside Barclays for $15 for a Nets ticket."

Friday, February 17, 2017

Gilmartin: number of affordable applications "reaffirmed urgency" of building 2,250 units (so where are they?)

I missed this 12/28/16 end-of-year wrap-up by Curbed, which had a quote from Forest City Ratner CEO MaryAnne Gilmartin, "[o]n realizing a Brooklyn megaproject in 2016."

Her statement:
“Pacific Park may have had the longest beginning of any project in city history, and no one, including us, could have anticipated how this project would fundamentally transform Brooklyn. 2016 was certainly a banner year for the project. Six Pacific Park properties are now under construction, and our affordable housing lotteries attracted tens of thousands of applicants. Last month, 461 Dean became Pacific Park’s first residential property to open. After a decade of planning and building, it would be hard to overstate the emotions we feel that families now call Pacific Park home.”
“We knew there was an affordable housing crisis in Brooklyn, but we were floored by the number of applicants we received for below market-rate units at Pacific Park. Over 84,000 applicants applied for 181 units at 461 Dean. We knew it was important for us to bring 2,250 affordable units to the borough, but this reaffirmed the urgency of the situation.”
(Emphases added)

First, for two of those six properties there's been exactly zero progress in months--the 615 Dean site (B12)  is looking for a new investor, and the 664 Pacific site (B15) is stalled by litigation involving a neighboring property.

Second, the residential project has not fundamentally transformed Brooklyn, since it's taken so long. It will be interesting to see how Prospect Heights and points north may/will be knit together if/when the railyard is platformed and built on.

The march of towers down Flatbush Avenue, all the way to the Brooklyn Academy of Music, has already gone part of the way to redefining the skyline around Downtown Brooklyn, while Atlantic Yards/Pacific Park will transform part of Brooklyn, transposing downtown scale and extreme density into neighborhood Brooklyn.

If/when a giant project at Site 5 is built, depending on the bulk, that could be more broadly transformational, and likely in a very mixed way.

Has the arena transformed Brooklyn? Well, it's certainly brought a higher profile and catalyzed new retail investment. But until/unless it removes the "blight" of the below-grade railyard, we should be cautious. After all, changes in/around the Brooklyn Academy of Music nearby are also transformational, in terms of retail, according to Crain's.

Affordable housing: demand for lower-income units

So, because there were 84,000 applicants for below-market units--half the units at 461 Dean--this reaffirmed the urgency of the need to build all 2,250 units? If so, then why are so many of the apartments in the next two buildings aimed at households earning six figures, not the people who need it most? 

If so, why aren't they building more affordable units next? The next two projects, currently stalled or delayed, are B12, a condo tower, and B15, an all-market rental tower, with a school at its based.

And how much of a dent can the project make by the 2025 deadline for the affordable units?

Note that Curbed 2/15/17 reported that 87,000 people applied for the affordable units at 325 Kent Avenue, the first rental building in the New Domino project. That's an 80/20 building, so there are fewer units, but all for low-income households:
The question of what’s deemed “affordable” can hang over the apartments that come to market as part of these lotteries. But in the case of 325 Kent, the units were aimed at lower-income New Yorkers making up to 50 percent of the area median income (so, at the high end, about $45,000 for a family of four). None of the affordable units themselves (a mix of studios, and one- and two-bedrooms) will rent for more than about $1,000.
That reflects the fact that the need--and thus demand--is highest for lower-income units. Supplying middle-income affordable units helps get the numbers up, and certainly represents good fortune for those winning the lottery, but is hardly addressing the "urgency of the situation"

City Council Watch: Cumbo had (former/potential) rival Fox fired

Seth Barron of City Council Watch has good sources, but this also doesn't have comment from the principals, so it's not ironclad, but he reports that 35th District Council Member Laurie Cumbo had former rival Ede Fox fired from her Council job, claiming that Fox was doing opposition research.

Fox, according to Kings County Politics, has formed a campaign committee (though her name doesn't yet appear on the city's Campaign Finance Database).

Thursday, February 16, 2017

Gilmartin's goal: "deliver to Brooklyn" (er, investors) an iconic office tower

From GFCP presentation; note that
Site 5 tower would be far taller and
bulkier than Williamsburgh Bank
Yesterday, the Commercial Observer posted a video interview (also below) with Forest City Ratner CEO MaryAnne Gilmartin. And while Max Gross's questions were softball, some news emerged.

Notably, Gilmartin has a clear focus on "an iconic office building" at Site 5 that's an analogue to the Time Warner Center, which will require state approval, after a public process not yet initiated, to move approved bulk from the arena plaza across the street to the site currently occupied by Modell's and P.C. Richard.

That would create a building more than twice the bulk, at some 1 million square feet--and perhaps triple the height, nearing 800 feet--previously permitted, across the street from row houses. (My coverage.)

So stay tuned for arguments about jobs, architecture, and the need to preserve that "public plaza" at the entrance to the Barclays Center, which just happens to be branded by a casino.

Given the history of the project, the gubernatorially-controlled Empire State Development will approve whatever the developer--now Greenland Forest City Partners--wants. But in this case it will have to confront not only questions of why the City Planning Commission in 2006 recommended that the Site 5 tower be reduced (to 250 feet), but also whether an "office tower" with "jobs" is also a condo tower with 188,000 square feet of high-end retail.

The Pacific Park partnership

Earlier in the interview, Gross asks Gilmartin about Pacific Park Brooklyn.

"It's a great question," Gilmartin replies amiable, "because if the project is anything at all, it's a series of partnerships. We have partnerships with the city, we have partnerships with the state. I would say every agency in New York City government has touched this project. We have since sold the team and the arena to the company Onexim, which is run by Mikhail Prokhorov."



"And, as we looked at the timeline for building all the residential, we realized, with all the equity we put into the project, and the need for speed and the desire to build, we would be wise to bring a partner in," she says, not quite pointing out that they needed to reduce risk and were willing to take a loss. "And we set out to find a partner, a well-capitalized partner."

"We're talking about an equity investment that could approach $800 million by the time the project is brought into fruition," she says. "That's not an easy check to write, and to explain the project to an investor is another really complicated matter."

"So we knew we needed to deal with a very sophisticated outfit that really understood our business. And in Greenland, we found that," she continues. "This is a $50 billion Chinese developer... they do it at a scale that could be viewed as small, compared to the things that they undertake. And I have to say that we have had enormous success with Greenland. We have a cultural experiment folding on the 18th floor here. We have over 25 Chinese nationals working side by side."

Success, and delays

For now it's a partnership with "enormous success," but that partnership itself has decided to try to sell stakes in three building sites, B12, B13, and B3, which suggests Greenland doesn't want to write the check any more.

And Forest City does have a track record of conflict with some partners, notably Skanska on the modular building and Blumenfeld Development Group on the Nassau Coliseum.

Shortly after I annotated the map below last October, Forest City's parent company announced unspecified delays in the project.


The arena and the Nets

When asked about the Barclays Center and the Nets, Gilmartin talked about having to sell the team and arena (operating company), acknowledging, "It's a perfect example of how you can't get too emotional about real estate. Because selling the arena was the right thing to do."

The Site 5 tower

"Tell us a little about what you'd like to see change in the borough," Gross asks.

"Brooklyn's arrived in so many ways, residentially speaking. We have a sports arena," Gilmartin replies. "The notion of Brooklyn having a Class A, 21st-century iconic office building--that hasn't quite happened yet. And so you have buildings like Watchtower, you have converted warehouses down in DUMBO,  but you do not have a building that would be Brooklyn's own version of  Time Warner Center."

[Update: as the commenter points out, the 2.8 million square foot Time Warner Center in Manhattan is not purely an office tower. It actually has 1.1 million square feet of office space, as well as residential, hotel, and retail space. Another Forest City executive likened the Site 5 project to the Time Warner Center in terms of retail.]

"And I would say that, on my watch, if you said to me what would make you most proud if you think about life after New York Times Building, New York by Gehry, Barclays Center," she says, "I would say that being able to build an iconic office building, at Site 5, which is where Modell's and P.C. Richard's sit today, it's an unbelievable site, it has view corridors all the way to the Manhattan Bridge, up Flatbush Avenue."

"It has the gravitas to hold a million-square foot building, and the sister building would be the Barclays Center. So my dream for that corner of Brooklyn would be to deliver to Brooklyn a Class A icon in the commercial space."

Deliver to Brooklyn? Gilmartin is conflating location and benefit. Yes, the building would be placed in Brooklyn.

But Greenland Forest City Partners, which does not want the logistical and financial headaches of building the tower as approved at the prow of the arena--and likely agreed with new arena operating company owner Mikhail Prokhorov that no such tower would be built--is not building for Brooklyn. It's building for its investors.