Inside the deal to remake Nassau Coliseum
After a generation of setbacks and debate, county lawmakers are to vote Monday on an ambitious proposal to renovate the Nassau Coliseum and build a bustling retail and entertainment complex, concluding a pivotal step to remake a once-proud Long Island landmark.
If all goes as planned, developer Bruce Ratner's $229 million project could be a windfall for the county, generating millions in public revenue while sparing taxpayers the cost of rehabbing the 41-year-old Coliseum in Uniondale, said more than two dozen economists, analysts, lawyers, real estate brokers and entertainment professionals who reviewed key components of the lease agreement for Newsday.
But concerns among the experts remain:
Economists and analysts are divided over whether the facility can generate enough revenue to cover Ratner's annual rent to the county, which starts at a minimum of $4.4 million and rises 10 percent every five years.
The developer still needs to line up millions in private financing to renovate the Coliseum and build restaurants, an ice rink, bowling alley, movie theater and other facilities he has proposed.
The entire agreement is contingent on Ratner's clearing a series of other hurdles, including negotiating labor agreements, securing zoning approvals and finding a minor league hockey team to replace the New York Islanders, who are moving to the Barclays Center in Brooklyn.
Ratner's quest is to create a destination venue in the heart of Nassau County, restoring the glory of an arena that's hosted Stanley Cup Finals, basketball championships and performers from Elvis to Madonna. But his agreement with the county, and the project's ultimate success, hinges on him navigating key obstacles ahead.
"This is basically a road map for a deal," said Mark B. Arnold, a Houston-based lawyer who specializes in sports-venue deals and analyzed Ratner's 34-year Coliseum lease. "This is structured like an agreement where you don't have everything all buttoned up."
Officials at Ratner's development company, Forest City Ratner Cos., acknowledged that challenges remain after the vote by the county legislature, which is expected to approve the deal. But they expressed confidence that the company, which developed the Barclays Center in Downtown Brooklyn, has the resources and expertise to deliver what it promised.
"They are significant steps," said James Lester, senior vice president of commercial and residential development for Forest City Ratner. "But we are a full-service real estate development company. . . . This is our job."
Nassau County Executive Edward Mangano picked Ratner last month to renovate the county-owned facility, choosing his proposal over plans submitted by The Madison Square Garden Co. and two other developers. The decision capped nearly two decades of debate and came two years after voters rejected a referendum for the county to borrow $400 million to build a new arena from scratch.
Ratner's project -- which he says won't involve public money -- calls for revamping the Coliseum's facade with swooping metal panels and steel lattice, reducing the number of fixed seats to 13,000, renovating the bathrooms and concourses, and creating an adjacent plaza with shopping, restaurants, a 2,500-seat amphitheater that could be converted into a winter ice rink, and more.
He and his partners -- including the Blumenfeld Development Group of Syosset and Live Nation Entertainment, the Beverly Hills concert giant -- are forming, and will be financially responsible for, a limited liability company called Nassau Events Center to undertake the project. Construction is scheduled to begin as early as 2015, after the Islanders' lease at the Coliseum expires.
On paper, Ratner's proposal appears to be a generous deal for the county, economists and analysts said. The question, some said, is whether it's too good to be true.
The terms hold Ratner responsible for the entire cost of the $229 million redevelopment. Once it's finished, he must pay for all upkeep and maintenance. Plus, he is required to make annual payments to Nassau County totaling at least $195 million over 34 years, with the $4.4 annual minimum rising 10 percent every five years.
The public, meanwhile, is not required to contribute anything. Ratner, however, will seek tax breaks for the project through the county Industrial Development Agency.
"This looks like a pretty good deal from the county's point of view -- at first blush," said Robert Baade, who studies the economics of sports at Lake Forest College in suburban Chicago. "But there are an awful lot of moving parts. The county needs to keep its fingers crossed" that everything goes as planned.
Forest City Ratner executives said the plan is a safe bet. Company officials have studied the economics of the project for months and estimate they can host 300 annual events, selling more than 1 million tickets. That's plenty, they say, to make their payments to the county.
"The bottom line is that we've been incredibly successful at the Barclays Center," Lester said. "We think we can repeat that here."
The pieces, however, are not in place yet.
For one, Ratner still needs to line up a minor league hockey team. He has suggested the Bridgeport Sound Tigers, an affiliate of the Islanders. But the Sound Tigers' current lease doesn't expire until 2021, and a spokesman said the team has no plans to leave early.
The Islanders and the Sound Tigers are both owned by Charles Wang. Wang, who lives in Oyster Bay and founded CA Technologies Inc. of Islandia, has failed in several of his own attempts to redevelop the Coliseum site, including the plan rejected by voters in the 2011 referendum. He and Ratner are also longtime friends who worked together to move the Islanders to Brooklyn.
That friendship may help in wooing the Sound Tigers to Uniondale. But economists remain leery whether an arena with a minor league hockey team as its primary tenant can generate enough revenue for Ratner to pay the county what he has promised.
"Anytime you're talking about a facility without an anchor tenant in one of the top leagues, I think it's pretty uncertain in terms of the revenues the arena will receive," said West Virginia University sports economist Brad Humphreys.
Victor Matheson, a sports economist at College of Holy Cross in Worcester, Mass., said minor league hockey is just not going to pay the bills. "I cannot imagine him doing anything but the minimum," he said of Ratner.
Yet similar facilities have worked in other markets.
Take the Chicago area's 18,500-seat Allstate Arena in Rosemont, Ill., which, like Uniondale, is in the suburbs of a major metropolitan market with multiple concert venues and professional sports teams. The facility lacks a major league tenant. And like the Coliseum, it is difficult to access via public transportation.
Nonetheless, the Allstate Arena's executive director, Patrick Nagle, said the facility has found a way to succeed. The arena grossed roughly $39 million in ticket sales, plus $14 million from parking and concessions during 2012, Nagle said. That revenue came from a broad mix of minor league hockey, WNBA and college basketball games, plus circuses, and, most importantly, concerts.
"You have to be creative without a big-league team. You do a monster-truck rally one night. Then you clean up for a college basketball game the next," Nagle said. "But concerts are your home run. That's where you make your money."
That's why the Coliseum's fortunes may hinge on the likes of Beyoncé and Jay Z rather than the Sound Tigers, said Richard Tullo, a financial analyst who follows the entertainment industry for Albert Fried & Co., a financial services firm based in Manhattan.
Ratner has a key asset to attract top performers: the Barclays Center, which is a hot spot for touring acts, Tullo said. If he negotiates properly, Ratner could leverage the desire to play in Brooklyn to pull entertainment toward Uniondale, analysts said.
"If a band wants to play at Barclays, he can say, 'Fine, but you have to play Nassau, too,' " Tullo said. "That's the advantage of having a second facility."
Plus, not having a major sports team occupying the Coliseum would free up 40-some nights a year and could give Ratner and his partners freedom to be flexible as they negotiate with musicians, said Ed Rubinstein, who runs ArenaNetwork, a Los Angeles company that books concerts in 40 venues nationwide.
"You don't go and make a $4 million guarantee unless you feel confident you can deliver," Rubinstein said.
Brett Yormark, the chief executive of the Barclays Center, said he already has heard from enough acts to fill more than 200 dates annually at the Coliseum once it's renovated. "The feedback we are getting is just tremendous," he said.
Local business leaders, meanwhile, hope it will all rub off on Nassau's economy.
"I think collateral things will happen around it," said Gary Schacker, president of the Commercial Industrial Brokers Society of Long Island.
Kevin Law, president of the Long Island Association, the region's largest business group, said he was glad to finally see things move forward at the site. "It's important for Nassau County," he said. "It will create permanent jobs and some temporary jobs, and will indeed be a destination for our region."
But Dennis Coates, who studies the economics of sports at the University of Maryland, Baltimore County, said Ratner's proposal is so generous that it raises concerns.
"There does not seem to be any corporate welfare in this plan," Coates said. "And that makes me wonder -- where is the corporate welfare? At what point are they going to say: 'We need a handout to pull off what we promised but never in a million years could have delivered'? "
As with many major projects, the Coliseum renovation could rise or fall on its ability to attract financing.
But Forest City Ratner executives and county officials say money won't be a problem. Ratner has deep connections on Wall Street. And his company is a subsidiary of Cleveland-based Forest City Enterprises, a publicly traded company with more than $10.6 billion in assets.
"We would not have gone into this if we had any question about whether or not they could finance the project," said John Gowell, a Rhode Island attorney, known as Jay, who helped negotiate the deal for Nassau County.
Ratner and his partners plan to put up at least $32 million of their own money, then secure construction loans to pay for the rest, according to county documents. They plan to finance the $99 million Coliseum renovation separately from the $130 million plaza development because the two aspects of the project are apt to appeal to different lenders.
Investment banking giant Goldman Sachs has already expressed interest in financing roughly $60 million of the Coliseum renovation, according to county documents. Guggenheim Partners, a private financial services company, has considered backing the project, too, Lester said.
Stefan Szymanski, a University of Michigan economist who studies stadium developments, said the Coliseum's location in the nation's largest metropolitan market made it a natural for lenders.
"If you can't finance this kind of project in New York -- where can you?" he said.
Three people who work as either loan brokers or lenders in Manhattan said they would be surprised if Ratner had a difficult time securing loans for the project. The executives, who specialize in financing large commercial real estate deals, asked not to be identified because they did not have authorization from their companies to discuss the deal and they did not want to alienate any of the players tied to the Coliseum project.
"This is Ratner," one of them said. "People line up to lend to this guy."
Even as the economy was crawling out of the recession and construction loans were rare, Ratner managed to piece together $1 billion to build the Barclays Center. He did it, in part, through tax-free bonds and foreign investments, including the sale of an 80 percent stake in the Brooklyn Nets and a 45 percent stake in the arena to Russian billionaire Mikhail Prokhorov.
Andrew Zimbalist, a sports economist and professor at Smith College in Massachusetts, said the fact that marquee firms Goldman and Guggenheim have expressed interest bodes well for the project.
"They look at these deals very carefully," he said. "To me this project has a lot of potential, most of the elements of it seem like they're quite doable."
If Ratner cannot secure "satisfactory" financing within two years, the lease gives both him and the county the option to terminate the agreement. That worries Nassau County legislators David Denenberg (D-Merrick) and Kevan M. Abrahams (D-Freeport), the legislature's minority leader.
"It seems like an open-ended clause," Abrahams said.
Ratner and his partners plan to start negotiating for loans in earnest about six months before breaking ground, Lester said. That timetable is typical for construction loans, four regional commercial real estate finance experts said. Lenders are leery of committing to deals any earlier because tenant commitments aren't in place and interest rates, the costs of steel, concrete and other materials are apt to change, they said.
"Banks don't want to commit millions and millions of dollars when you're not ready," Lester said.
The county will not be responsible for the debt repayments, according to lawyers on both sides of the deal. Rather, the financial obligation is with Ratner and his partners backing the limited liability corporation.
That company, Nassau Events Center, is structured as a "stand alone" entity, meaning it is independent of other projects developed by Ratner and his partners. The idea is to insulate it from problems that might beset Forest City Enterprises and any other projects, Lester said.
Such structures are common in development deals, said Arnold, and Louis S. Cohen, a Chicago attorney who focuses on sports venue leases.
Long before a puck drops onto the ice, a band hits the stage or a shovel digs into the ground, Ratner needs to clear hurdles laid out in the agreement with Mangano.
The lease allows either Ratner or the county to terminate the agreement if he is unable to line up financing, a minor league hockey team, zoning approvals or labor agreements within two years. Such contingencies are common for large development projects, Cohen said.
Some economists, however, pointed to delays at Ratner's Atlantic Yards project in Brooklyn, saying that while the Barclays Center is open, the residential development and other components remain unfinished. Humphreys said similar problems could befall the amphitheater, ice rink and other facilities Ratner has proposed at the Coliseum site.
"Ratner made a lot of promises [in Brooklyn] and not very much of it has taken place," Humphreys said
In response, Ratner spokeswoman Ashley Cotton said delays at Atlantic Yards stemmed from court decisions, lawsuits and "the worst economic crisis in a generation."
"The company has shown adaptability in these circumstances in order to deliver on the promise of Atlantic Yards," said Cotton, adding that the first affordable-housing building is now under construction.
Lawyers for the county, meanwhile, said they have no reason to believe Ratner would fail to clear the remaining barriers or back out of the deal.
"They're not spending all this time, money and effort designing it only to find a way out," Gowell said.
But challenges remain, including zoning.
One of Wang's earlier Coliseum redevelopment attempts, the Lighthouse Project, was approved by the county legislature in 2006 -- then ran aground after failing to secure zoning approvals from the Town of Hempstead.
But the town's zoning landscape has changed. And so far, local officials appear open to Ratner's plan.
In 2011, the Town of Hempstead revamped the site's zoning rules, allowing for 5.4 million square feet of development. It permits retail, restaurants, hotels, residential units, entertainment uses and, of course, the arena.
Town Supervisor Kate Murray has said she does not see any "red flags" in Ratner's proposal. Last week, Murray said she hoped to fast-track the plan and had assigned senior staffers to "cut through the red tape and streamline the town's review of the developer's proposal." Town spokesman Michael Deery declined to estimate when the review would be complete.
Another issue is labor agreements. Under the terms of the deal, Forest City Ratner must secure collective bargaining agreements requiring all contractors and subcontractors working on a job to receive union-approved wages and benefits, even if they do not belong to a union.
Still, some Democratic lawmakers said they were concerned that the lease does not specifically mandate that Ratner use unionized labor. Rather, it stipulates that Ratner must make a "commercially reasonable effort" to do so.
In a letter sent to Ratner on Thursday, Abrahams suggested the language "seems to provide less than an absolute commitment to use unionized labor." Abrahams asked for an "unequivocal commitment that unionized labor will be employed for all phases of the project."
Ratner has said on several occasions that he would use only unionized labor for the Coliseum redevelopment. And Forest City Ratner officials have said they do not expect to have a difficult time with labor agreements.
Richard O'Kane, president of the Building and Construction Trades Council of Nassau and Suffolk counties, worked with Forest City Ratner on the Barclays Center, where labor relations went smoothly, he said.
"I didn't get any complaints, and for a job of that nature I think that's pretty credible," he said of the Barclays construction. "Ratner did everything he said he was gonna do, and we couldn't have asked for better."
Long Island Federation of Labor president John Durso said Ratner had a strong track record of working with labor and that he was confident the project would use only unionized workers from the Trades Council.
Ratner's contract with the county is not written in stone. His team can negotiate changes, which experts say is common for large development projects. Minor adjustments -- such as moving a road or sewer line on the property -- can be approved by the county executive without legislative permission. Anything significant needs approval from the legislature.
Gowell, the lawyer for the county, said he wasn't expecting any major changes.
"We're pretty confident that they intend to build what they have promised to build," Gowell said.
The Dolan family has a controlling interest in Madison Square Garden Co., and in Cablevision Systems Corp., Newsday's parent company.
What the Coliseum project would include
-- Folded metal panels and steel lattice work built off the existing facade, which will be refinished
-- 13,000 fixed seats with capacity as high as 14,500 with floor seating or as low as 4,000
-- New dynamic screens for scoreboard
-- New aisle lighting and metal railings for the seating area
-- "Quality" ice floor
-- Luxury suites
-- Carpeted and newly lit concourse
-- LED monitors, new concession stands, a new concourse club with a bar
-- Locker rooms refinished with new carpeting, ceiling and wall finishes and refurbished bathrooms
-- Upgraded mechanical, electrical and plumbing systems, Wi-Fi access and Americans with Disabilities Act modifications
Coliseum Plaza improvements
-- 60,000 square feet of dining options
-- New performance lawn for outdoor concerts, family entertainment and skating rink.
-- High porch-like canopy will frame the lawn for outdoor seating space.
-- 60,000-square-foot movie theater with 10-12 screens
-- 25,000-square-foot recreational anchor -- perhaps bowling, boccie and/or dining
-- 2,500 square foot theater for regional, national and international artists
-- The 77 acres of surrounding property is designated for 6,500 parking spaces.
-- Nassau County is seeking funds to develop parking garages, which would free up the land for other revenue-generating development.
-- Nassau County and developer Bruce Ratner will cooperate "reasonably" on potential future development.
-- Plainview developer Donald Monti of Rennaissance Downtowns has been designated as the property's master developer and hopes to build a research and development park.