The Russians are coming! To Brooklyn.
The investment fund Onexim, headed by Russian billionaire Mikhail Prokhorov, has agreed to a $200 million deal in which it will take a major stake in the NBA’s Nets franchise and its new arena planned for Brooklyn, part of the larger $4.9 billion Atlantic Yards project.
The news came Wednesday afternoon in the form of a joint announcement from Onexim and Forest City Ratner—the New York development company, led by Bruce Ratner, that also is a Nets owner—and comes a day after an Onexim blog post that stated the firm made an offer.
According to the joint statement, Onexim has signed a letter of intent to buy a 45 percent stake in the arena project, which Mr. Ratner has said will cost up to $900 million, and 80 percent of the Nets. Then, according to the statement, Onexim will also have an option to buy a 20 percent stake in the larger Atlantic Yards project, which calls for another 16 towers surrounding the arena, the vast majority of which are residential.
“I have a long-standing passion for basketball and pursuing interests that forward the development of the sport in Russia,” Mr. Prokhorov said in the statement.
The move is surely welcome news for Mr. Ratner, who has been frantically trying to pull together the final pieces of the project before the end of the year, when a crucial window for a tax exemption expires. For many months, he has been looking for additional investors in the project, surely not an easy sell given the financial crisis, the tens of millions in losses the Nets currently undergo each year, and the long list of broader uncertainties with the Atlantic Yards project.
But now it seems he has been victorious, and that presumably will help him with the next major step in the preparation: selling $700 million in tax-free bonds for the arena.
No word on when that will be—Mr. Ratner previously said he’d hoped to market the bonds later this month—though the state is required to give seven days’ notice before it approves this type of bond sale.
Update 5:20 p.m.
A few other thoughts on the investment:
It should be noted that the deal is contingent on the approval of the NBA’s Board of Governors, which the two companies said in their statements they expected some time in the first few months of 2010.
And while it’s unclear what the NBA board will do, it’s significant that the big financing hurdle for the project (the bonds) comes before any vote.
The folks at Develop Don’t Destroy Brooklyn, who clearly have their own biases here, sought to raise red flags about Mr. Prokhorov and his ability to win approval from the NBA, bringing up a list of ties to sketchy dealings documented in the press, including a prostitution-related arrest.
Daniel Goldstein, spokesman for DDDB, issued a less than kind statement:
“We never thought the fight against the crooked Atlantic Yards deal could get more crooked or that it would require a degree in Kremlinology, but clearly Mr. Prokhorov is eyeing the Nets and this key piece of Brooklyn to build some Russian-NBA pipeline, and sow his wild playboy oats.”
Also unclear (though we’ve put the query to Forest City): How much of this $200 million injection will go directly toward the project? Forest City owns 23 percent of the Nets, so if the money is spread around to the other investors based on how much of the team they own, then Forest City itself will be taking in significantly less than $200 million. Will it be enough cash to get the project going?
(Forest City’s stake is not being bought out entirely, according to a Forest City spokesman, who said that it and the other existing investors will continue to hold 20 percent).
It also seems as though Forest City gave Mr. Prokhorov a pretty good deal on the team. The $200 million he’s paying for the 80 percent stake in the team certainly comes at a discount, given that Mr. Ratner bought them in 2004 for $300 million and Forbes puts their value last year at $295 million.
Update 7:00 p.m.
It seems there’s Congressional pushback already. U.S. Representative Bill Pascrell, Jr. sent a letter this afternoon to N.B.A. Commissioner Daniel Stern (who had a quote in the Forest City/Onexim statement supporting the deal) urging him to investigate the deal.
Given the high level of subsidy in the project (there’s nearly $200 million in foregone federal taxes), Mr. Pascrell questioned the logic in letting a a foreign corporation be the beneficiary of such substantial public incentives.
“[T]hese taxpayer dollars will be directly subsidizing the profits and business risks of this foreign corporation, whose investment will be reportedly smaller then the public’s, instead of benefiting the taxpaying public,” wrote Mr. Pascrell, whose district is adjacent to the Izod Center, where the Nets currently play. “Especially during these tough economic times, this is, at best, a questionable use of taxpayer money and it is a question that should be explored.”