Arenamania: Newark nets deal

Real Estate Weekly, June 13, 2001 by Natalie Keith

The New Jersey Devils and Nets will have a new $355 million home in 2004 under a tentative agreement announced last week by Acting Gov. Donald DiFrancesco.

"What is most unique about the proposal is that the general taxpayers of New Jersey will have no obligation. There will be no budget appropriation, not contract bonds. The economic activity generated by the arena and the resulting economic improvements will self-finance the construction of the arena," DiFrancesco said.

Under the agreement, state taxpayers would not provide any of the upfront costs to construct the stadium. Rather, it would be financed in part by diverting up to $190 million in sales taxes over the next 30 years to service construction debt. YankeeNets, the holding company that owns the Devils, would provide $115 million and $50 million will be financed by revenues generated to Essex County and the City of Newark. YankeeNets will oversee the construction and be solely responsible for any cost overruns.

The agreement also calls for $30 million in public roadway improvements in Newark undertaken through the Transportation Trust Fund.

"We had a sports arena in the Meadowlands that was losing money and' that required a taxpayer subsidy of more than $10 million a year," DiFrancesco said. "We also had team owners who were expressing a desire to compete in Newark or, if that wasn't possible, to leave the state."

Lewis Eisenberg, chairman of the Port Authority of New York and New Jersey, finalized the deal last week during a meeting in midtown Manhattan with philanthropist and businessman Raymond Chambers, Nets principal owner Lewis Katz and Finn Wentworth, YankeeNets chief financial officer. DiFrancesco participated by telephone.

Under the plan, the state will create a new entity called the "Sports Entertainment District," which will allow a portion of the sales tax revenues to service construction debt. The new district will replace the current Urban Enterprise Zone and result in the Newark sales tax to return to the state rate of 6 percent.

The arena will be owned by a New Jersey government entity and the Devils and Nets will enter into a 30-year, triple net lease with responsibility for all operations and operating costs. The YankeesNets, which will manage the arena when it opens in 2004, will make payments of $500,000 per year for the first five years and $1 million per year thereafter to fund future capital improvements. YankeesNets will retain all revenues generated at the arena, under the agreement.

Newark officials said the arena would help revitalize the city's downtown area. It would be built on a 40-acre site at Market and Mulberry Streets and would be surrounded by $100 million in privately built restaurants office buildings, parking garages and a hotel and television studio.

"Talk of the arena has generated strong interest from the private sector, including the possibility of a major hotel and a massive retail center," DiFrancesco said.

After the new arena is completed, the Sports and Exposition Authority will shut down the Continental Airlines Arena in East Rutherford. The state is in discussions with entertainment companies about the future use of the Meadowlands site, including the possibility of building a new stadium for the New York Giants and Jets.

The agreement between DiFrancesco and YankeeNets comes three years after Newark officials' first pitched the idea to Gov. Christie Whitman. She offered YankeeNets $125 million in cash, loans and tax breaks and authorized Newark and Essex County to provide up to $90 million. DiFrancesco killed Whitman's proposal his first day in office and vowed to negotiate his own.