Atlantic Yards Arena Gets Clearance to Use Tax-Free Bonds
- Oct 23, 2008
The Internal Revenue Service has issued a ruling that gives Forest City Ratner Cos., developer of the $4 billion Atlantic Yards project in Brooklyn, the go-ahead to leverage tax-free bonds for the development, the cornerstone of which would be a new arena for the National Basketball Association’s New Jersey Nets. The regulation also arms New York City’s two major league baseball teams, the Mets and the Yankees, with the ability to use more tax-exempt bonds to fund construction of their new stadiums. The eagerly anticipated ruling comes two years after the IRS proposed toughening regulations on the use of tax-free financing bonds. The ruling curbs how developers can use tax-exempt funding for sports facilities. But it does make exemptions for “certain projects substantially in progress,” which includes developments that have received preliminary governmental approval and paid or incurred significant expenditures before Oct. 19, 2006, according to the ruling. Under the ruling, the Nets, Mets and Yankees can also go after tax-exempt bonds until Dec. 31, 2009. The Mets and Yankees have already been issued more than $1 billion in tax-exempt bonds to help finance construction outlays for their new stadiums. The tax ruling is unquestionably seen as a welcomed move by Bruce Ratner, chairman & CEO of Forest City and principal owner of the Nets, who has been banking on raising up to $800 million in tax-free bonds to cover most of the costs of the $950 million arena. “We are of course very pleased with the Treasury Department regulation,” said Forest City spokesperson Joe DePlasco. “The tax exempt financing was always part of the plan for the development of the arena and the regulation released today acknowledges that. The regulation will help us move forward with a project that is critical to the ongoing economic vitality of Brooklyn and the city.” Not everyone is convinced that the project will have a positive impact on Brooklyn, though. Among concerns echoed by opponents are that the residential and commercial development will drastically increase traffic congestion and will not add more affordable housing units to the neighborhood. Daniel Goldstein, spokesperson for non-profit organization Develop Don’t Destroy Brooklyn, contends that the Atlantic Yards project does not qualify for the tax-exempt bonds under the IRS ruling, arguing that the project received preliminary government approval on Dec. 8, 2006, a couple of weeks after the deadline, and that Forest City had no significant expenditures prior to the October date. “Sixteen skyscrapers and an arena in what is predominantly a residential, low-rise neighborhood … would radically alter what those neighborhoods are right now,” he said. It’s been far from smooth sailing for the planned Atlantic Yards development, which has had to contend with legal battles and issues surrounding financing, an issue of particular importance amid a time of such financial calamity and uncertainty. Forest City, however, remains a hard-to-ignore player on the commercial real estate market, with a portfolio that encompasses 31 properties comprising 8.9 million square feet and 330 residential units.