February 28, 2007
Atlantic Yards Financials Released
Brownstoner has the documents outlining financial projections for the massive Brooklyn project. The real estate project's (which we take to mean the non-arena part of Atlantic Yards) internal rate of return (IRR) is 9.6%, with the arena bringing an IRR of 7.7% and the total investment IRR is 8.4%. If someone with IRR and/or real estate knowledge can explain if that's good, bad, fine, etc, please comment. (We're looking the Wiki definition of IRR which suggests that the actual rate of return is lower than an IRR.)
Brownstoner writes, "The biggest thing that jumps out at us is that they show that FRC is planning to sell off most of the pieces of the project in 2015. Either that, or they just needed to estimate a terminal value and that seemed as good a year as any."
Naturally, the project doesn't start getting profitable until about 2013, when most of the development for office and residential use is done (the Nets arena will be completed around 2010).
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The HDF (hipster displacement factor) is 74 and that's excellent!
For a project this risky, that's very low, even for a public company like Forest City Ratner. Of course, everyone involved in producing these projections has an incentive to keep the reported returns as low as possible. Without seeing anything more than a summary sheet, it's really impossible to know whether these numbers are real.
A 10 year projection for a $4B capital project? Sure would be nice to see the 20, 30 and 40 year projections - the IRR probably goes through the roof beyond year 10.
It's impossible to tell looking at the cash flows for the first 10 years how profitable this project will be. What would be meaningful is seeing the rate of return once the construction outlays are complete.
A Internal rate of return IRR is the term used to say what Ratner expects to gain from the properties. Say for instance they project to make $100 year one and $110 year two (hahaha) 10% is the IRR. Usually the figure is calculated over a 10-20 year period.
Ratner's arena is just a smokescreen for the real money makers. Hopefully Ratner will have spent millions on lawyers by 2010 and would have built nothing there.
Ratner is going to lose lots of money, but having already bought the Nets, he's on the hook anyway.
Toby, objective as always.