Ratner’s Next Nets Arena Challenge: Raising $324 M.

The footprint of the planned new Nets arena in Brooklyn looks like a construction site. Developer and Nets owner Bruce Ratner closed on tax-free financing and other approvals for the project last week, and now fencing with flashy renderings of the project runs along Flatbush Avenue; traffic has been redirected to make way for equipment. The massive $4.9 billion Atlantic Yards project, or at least the $900 million centerpiece basketball arena, is looking like a reality.

But a glance at a lengthy set of public documents linked with the $511 million in tax-free bonds that go toward the arena show that there is still more of the hill for Mr. Ratner to climb. If the developer doesn’t raise $324.8 million within a year for the arena, he could be forced to refund the bondholders’ money, returning the financing that makes the project possible, according to the documents.

From the documents, which refer to the development firm led by Mr. Ratner as ArenaCo:

As one of the Vacant Possession Release Conditions, ArenaCo will be obligated to deposit approximately $324.8 million (the ‘Additional Rent Amount’) into the Series 2009 Additional Rent Account … At the time of the issuance of the Series 2009 PILOT Bonds, ArenaCo will not have funds sufficient to pay the Additional Rent Amount, but ArenaCo expects to raise sufficient funds

If the money isn’t deposited by Dec. 17, 2010, the documents say, this would trigger a refund of the bonds, or “extraordinary mandatory redemption,” in bond speak.

Some of this money will come from Mikhail Prokhorov, the tentative new buyer of the Nets, who has agreed to pay $200 million for 80 percent of the team and 45 percent of the arena-to-be. He has also, according to bond documents, agreed to fund at least $60 million in losses by the team until the arena is complete, though this amount is unlikely to be sufficient given that the Nets have been posting more than $70 million a year in pre-tax losses lately.

Presumably, this isn’t viewed as a giant concern for Mr. Ratner and his firm, Forest City Ratner. An executive from Forest City Enterprises, the parent company developer for the project, said in a recent conference call that the developer expected to put in another $200 million or so in equity (though it’s not as if developers generally have $200 million just lying around). 

Here’s the page-turner of a bond document (some of the relevant info is on page 69 of the PDF):

Official Statement Posted 12-21-2009 (8.8 MB) Ratner’s Next Nets Arena Challenge: Raising $324 M.