N.Y. top court rules for state in Atlantic Yards case

NEW YORK (Reuters) - New York State lawfully seized land needed for the $4 billion Atlantic Yards project in Brooklyn, the state's highest court ruled on Tuesday.

The project, which includes plans to build a basketball arena for the New Jersey Nets alongside office and apartment buildings, has been repeatedly delayed by lawsuits and financing problems.

The court was asked to rule on a suit brought by Brooklyn landowners and grass roots groups questioning the state's use of eminent domain to clear land for the site, a 22-acre expanse dominated by a rail yard owned by the public transit system.

Eminent domain is the power of a government to seize privately owned land for a public purpose after paying compensation. In the past, it has been used to clear land for roads, utilities and hospitals, or to replace slums with low-income housing.

The suit claimed the state had abused its authority for a project that will benefit a private developer, Forest City Ratner. Shares of Forest City were up 2.64 percent at $11.26 in afternoon trading on the New York Stock Exchange.

Developer Bruce Ratner on Tuesday welcomed the Court of Appeals decision, which he said made clear the project represents a "significant public benefit" for the people of Brooklyn, particularly during the current economic downturn.

The project is expected to create almost 17,000 jobs during the construction phase and more than 8,000 permanent jobs, he said in emailed comments. Tax revenue for the city is expected to exceed $240 million during construction and reach about $70 million a year after that, he said.

Ratner is aiming to have the Nets, which he partly owns, play at their new arena in the 2011-2012 National Basketball Association season.

But a lawyer for the homeowners and property owners near the site said he will continue to challenge the development.

"We're disappointed, but the fight is not over," said Matthew Brinckerhoff. "We lost round one and now it's time for round two."

The group will likely file another lawsuit requesting that the court order the state to conduct another public-use determination for the project, which has undergone a number of changes in the past three years, he said.

The proposed railyard improvements no longer constitute an upgrade and the project will now take 25 years instead of 10, he said.

"It would be perverse and unfair if my clients' homes and businesses were confiscated based on circumstances that no longer exist," he said.

Ratner must start building the arena before the end of 2009 or will lose out on $700 million of low-cost, tax-free debt to be issued on his behalf by the Empire State Development Corp.

The agency said on Tuesday it has already secured investment grade ratings for the debt and is still in talks with rating agencies and bond insurers.

"Following these two hurdles, Forest City should be able to close the property and receive an initial $40 million from Barclays PLC for the arena naming rights," Mark Biffert, Oppenheimer & Co analyst, said.

The ESDC expects to issue taxable debt alongside the tax-exempt debt for the project, and expects to start marketing the bonds in early December, according to a statement.

Ratner still faces another lawsuit over whether the state's mass transit agency sold the site for too low a price.

The Metropolitan Transportation Authority originally agreed to sell the site for $100 million in cash at the time of closing. But in June, it revised the terms to allow Ratner pay $20 million on closing and the remaining $80 million over 22 years. At the time, officials blamed the sweetening of terms on the credit crisis and real estate market slump.

In September, Ratner sold an 80 percent share in the Nets to Russia's richest man, Mikhail Prokhorov, in a deal worth more than $200 million.

Prokhorov will partner with Ratner to help finance the development.

(Additional reporting by Ilaina Jonas; Editing by James Dalgleish)