The Barclays Center Shakeup: Jay Z’s Out, China’s In and Atlantic Yards Lives On
On Sept. 28, 2012, Jay-Z unofficially opened Downtown Brooklyn’s Barclays Center with the first in an eight-night run of concerts. The borough’s native son started the show with “Where I’m From” and interspersed it with effusive declarations about the night’s importance, saying the spanking new stage overwhelmed him to a point that even the Grammys, Glastonbury and the historic Apollo hadn’t.
The rapper and mogul had recently wrapped up his Watch the Throne tour with Kanye West. But, despite some bombast endemic to the genre, the night did feel like a Kings County coronation: of Jay-Z as hometown hero; of the Barclays Center as anchor of Forest City Ratner’s $5B, 22-acre, 15-tower Atlantic Yards mixed-use development; and of the “new Brooklyn” as a cultural and real estate entity well out of Manhattan’s long, dark shadow.
Forest City head MaryAnne Gilmartin told Bisnow that Barclays has been “a place-making juggernaut,” with 5.5 million visitors streaming through since it opened.
Three years after its debut, the Barclays Center is still drawing crowds and name-brand entertainers. A concentrated building boom has suddenly given Downtown Brooklyn a skyline of note (with a proposal recently unveiled for a tower that would dwarf the Empire State Building) and a bevy of cultural gems. Yet housing at Atlantic Yards (interestingly rebranded as Pacific Park) has lagged, its construction hurdles documented (with no small amount of glee) by local micro-bloggers just as even flashier mixed-use developments in Midtown and Williamsburg have grabbed the spotlight amid murmurs of a coming residential oversupply in DTBK.
In its first year, the Barclays Center sold more concert tickets than any other US music venue, according to Pollstar. Worldwide, just two venues outpaced it. Average revenues per concert, of which there were 90, clocked in at $521k. (Madison Square Garden generated average revenues of nearly $1.2M.) Meanwhile, capacity at Nets game by announced attendance (actual attendance typically shrinks by about 10% thanks to no-shows) hit an impressive 96.2%.
Yet the deafening fanfare surrounding the arena's salad days inevitably softened after an inaugural year defined by Jay-Z; his wife, Beyonce; and a twerking Miley Cyrus. To be fair, the next few weeks promise performances by music superstars Madonna, R. Kelly and Arianna Grande. Meanwhile, since Jay-Z's opening marathon, the Garden underwent an extensive makeover and drew headline-grabbing entertainment events like Billy Joel's sold-out monthly residency.
Last year Madison Square Garden edged out Barclays to sell the most tickets of any American arena (793,395 to 723,616, according to Pollstar); Barclays ranked No. 6 worldwide. Indeed, the high-profile antics that initially played out in the Brooklyn arena obscured more sobering financial data. The Wall Street Journal reported in October 2013 that the $1B venue was on track to make $25M in operating income for the year, a pittance compared to the $76M Forest City projected and shy of the arena’s $29M in annual debt service.
Then there was the symbolic setback of Jay-Z terminating his interest in the Nets due to the conflict of interest with his fledgling sports agency. But, though during that first concert he boasted of “own[ing] the whole place,” he actually held just under one-fifth of 1% of it. Jay-Z also owned a 0.067% interest in the Nets, which he sold to coach Jason Kidd for $500k.
A less sexy but more substantial drama is playing out between Forest City and Nets majority owner Mikhail Prokhorov over ownership of the NBA franchise and its home court. Late last year, news surfaced that billionaire Phil Anschutz’s Anschutz Entertainment Group, the nation’s second-largest concert promoter, was in talks to buy Forest City subsidiary Net Sports & Entertainment’s 55% stake in the arena for $55M.
The AEG deal didn’t happen and has given way to the increasingly likely outcome that Nets majority owner Mikhail Prokhorov will scoop up the 20% of the team he doesn’t already own and the remaining 55% of the arena, giving him full control of Barclays Center and its flagship sports team. Just last week, Forest City announced its choice to repay a $26.8M debt to Prokhorov rather than seek an extension on the balance. (Norman Oder, the tireless Pacific Park critic behind Atlantic Yards Report, pointed out the figure did not include another payment of $6.3M toward the Nets’ upcoming season capital call.)
Forest City Changes
The uncertain game of musical boardroom chairs at the Barclays Center has coincided with overhauls at Forest City and its ownership of the project. In April 2013, MaryAnne Gilmartin succeeded Bruce Ratner as president and chief executive of the development firm, which also owns the MetroTech complex in Brooklyn and 8 Spruce Street, a Frank Gehry-designed corkscrew apartment tower in Lower Manhattan. (In a recent interview with Commercial Observer, Gilmartin readily admitted that Barclays Center had “of course…not yet stabilized financially.”)
Ratner’s departure as CEO came as something of a surprise, and initial reports were scant on details. But the decade-long process of bringing Atlantic Yards to fruition certainly took its toll on his energy reserves and his reputation among the development’s many opponents. (The development spawned a successful eminent domain petition by Forest City and a documentary, Battle for Brooklyn, that spotlighted Daniel Goldstein, a holdout resident who refused to make way for the wrecking ball until he did, for $3M.)
Dissent echoed beyond the neighbors, to City Hall. Letitia James, a former city councilwoman and affordable housing advocate whose district included the mega-project, called it “a litmus test for Brownstone Brooklyn.” (Through a communications manager, James, now the New York City Public Advocate, declined comment for this story.)
Controversy continued to dog the development after the Barclays Center debut, with ire focused on Forest City’s glacial pace of on-site apartment development. Amid the heat, the firm hired CBRE to find a partner.
Six months after Ratner stepped down—he remains as chairman of Forest City Ratner Cos—Greenland Holdings Group, a state-owned Chinese company, bought a 70% stake in the project (it did not include the Barclays Center). The Wall Street Journal noted that at the time it was the “largest commercial real estate development in the US ever to get major backing directly from a Chinese company.” (Last fall, Oder noted that the $100M Pacific Park stake filed under the contentious EB-5 immigrant investor program had prompted a “slap on the wrist” by the US State Department.)
Transitions within Forest City and surrounding its ownership stake culminated last August in Atlantic Yards being rechristened Pacific Park. At first, there was little explanation of the change. But Gilmartin has since said since Atlantic Yards was “always a working title” and that the rebranding came about to distance the complex from the defunct rail yards it has overtaken that bore the same name. (Perhaps an even bigger development site above old rail yards, these ones on Manhattan’s Far West Side, was another justification.)
It was also tempting to read the Pacific Park moniker as an attempt to shed the decades’ worth of baggage accumulated during the project’s still-bumpy road to realization.
The Greenland arrangement did little to dispel criticism of a housing lag at the development. Delays stretch back to 2009, before construction even began at the complex, which Forest City had promised would include 6,000 apartments, 2,250 reserved for moderate- and low-income tenants.
At this time last year, just one residential tower had broken ground: B2 BKLYN, a modular housing building that at 32 stories will be the tallest of its kind in the world. Like so many facets of the development—and any of comparable size in New York—things did not go according to plan. The tower ballooned over its initial $116M budget and did not deliver, as expected, in late 2014. The overruns led to more corporate squabbles—Forest City last September had a bitter, costly breakup with the tower’s construction firm, Skanska USA—and public skepticism.
Housing development could, at long last, be turning a corner. Gilmartin cited “significant progress” at B2 BKLYN, where construction has reached the 18th floor. She said the company now expects it to open in Q3 2016. Work has also begun at 550 Vanderbilt Ave, a 17-story building that will include 278 condos. Sales launched this summer, with studios starting at $565k. Construction is also underway at 535 Carlton Ave, whose 298 units will all be affordable.
Gilmartin called an eight-acre park (above) whose master plan was recently revealed “the spine of” the development. “There will no longer be a dearth of green space in the heart of Brooklyn,” she says. The creation of the park will proceed over the next decade.
That time frame also applies, and will be more strictly enforced, to delivery of the promised affordable rate apartments. If they are not completed by 2025—10 years earlier than initially required—Forest City will have to pay a $5M fine.
The steroidal growth of Downtown Brooklyn beyond Pacific Park has shed the development’s struggles in an especially harsh light. Since Jay-Z first took the Barclays Center stage competing, albeit more highbrow, cultural venues have rushed to the surrounding neighborhood.
New sites include the Brooklyn Academy of Music’s BAM Fisher Building, a 32-story mixed-use tower complete with 50k SF of “creative space” and the Theatre for a New Audience at Polonsky Shakespeare Center. BAM is also at work on a $25M renovation that will unite three of its sites and bolster the institution’s reputation as an increasingly viable competitor of Lincoln Center.
Retail-wise, name brands like Shake Shack, Sephora and Neiman Marcus have moved or plan to move into the downtown area. And the pedestrian-only Fulton Street, once filled with dowdy discount stores, is undergoing an upscale touch-up. Gilmartin pointed out that local businesses near the Barclays Center see an average 3,000 guests spill over from the arena each night.
More ostentatiously, high-rise condo towers have risen heavenward. The Downtown Brooklyn Partnership estimated earlier this year that a staggering 13,000 affordable and market rate units were in the pipeline, inevitably tacking on the real estate jargon of that influx making downtown a “24/7 neighborhood.”
Downtown Brooklyn has come such a long way that even Extell Development, the firm responsible for One57, among other billionaire stacking blocks in Manhattan, entered the fray. This summer, Gary Barnett’s company bought the last development site at the $1B City Point projects, its first foray into Kings County.
And that may not be the area’s most improbable growth spurt: A-Team developers Michael Stern and Joe Chetrit have plunked down $90M on a site whose bountiful air rights could allow a skyscraper to soar above the Empire State Building’s height of 1,454 feet. (The tower will more likely top out between 1,000 and 1,200 feet.)
Atlantic Yards became the bête noir of Brooklyn’s gentrification shortly after it was announced. It was the catalyst for the creation of Develop Don’t Destroy Brooklyn, the organization whose high-profile backers include(ed) Steve Buscemi, Jonathan Safran Foer, Jonathan Lethem, Michelle Williams and the late Heath Ledger. (Pay no mind to what the influx of indie screen darlings did to Brooklyn real estate values.)
Ironically, though, the anger lavished on the project seems to have distracted people from the more seismic changes redefining the broader borough. It’s not always easy being the frontrunner, and Pacific Park’s freighted history has, to an extent, lingered through its problematic present. Its ultimate success may hinge on how those affordable units allay a housing crisis in the increasingly chic borough and for that burden Pacific Park has itself to blame.