Friday, February 29, 2008

Atlantic Yards opponents gain procedural edge in court, with arguments delayed until September

The potential timetable for building the Atlantic Yards arena just got pushed back a bit more, with the 2011-12 season now a more likely best-case scenario.

Without explanation, a state appellate court has rejected the request by the Empire State Development Corporation (ESDC) and developer Forest City Ratner (FCR) that the appellate arguments in the case challenging the Atlantic Yards environmental review be heard before this summer. (The decision, dated Feb. 26, was received today by the parties.)

Instead, the five-judge panel of the Appellate Division, First Department, ordered the petitioners, whose case was denied by Judge Joan Madden in a ruling January 11, to file their legal papers by July 7, in anticipation of the court hearing oral arguments in the September Term.

The defendants, as expected, did see the court deny the petitioners' motion for a preliminary injunction to block the demolition of the Carlton Avenue Bridge.

But the court's timetable for the appeal represented an implicit denial of fervent arguments made by the ESDC and FCR.

Arguments for speed

ESDC attorney Philip Karmel had argued, "Delay in construction would delay completion of the Project, postponing it significant public benefits. It is thus critically important that the appeal be perfected so as to be argued before this Court's customary summer recess."

FCR attorney Jeffrey Braun had written, "The issue presented by ESDC's cross-motion is straightforward: Is the public interest in the Atlantic Yards project of sufficient importance to compel the parties to brief this appeal on an expedited schedule that will allow this Court to hear the appeal this spring? The answer to this question is, resoundingly, yes."

Braun continued, "Petitioners make no commitments as to when they will perfect this appeal. Instead, all that they say is this: Currently, it is anticipated that the appeal will be perfected approximately three to four months after the Notice of Appeal was filed on January 18, 2008."

(That would be, at the latest, May 18, 2008.)

"Even if this equivocal non-commitment is viewed as a commitment, it would mean that, at the earliest, the appeal would be heard by this Court during its September 2008 term, which is approximately seven months from now," Braun stated. "This case should not be treated in such a lackadaisical manner."

Braun pointed to the apparent contradiction in the petitioners' asking for what they believe to be sufficient time to file the appeal and the contention that construction work on the site represents irreperable harm: "If the petitioners truly believed that the work was causing irreperable harm, they would be perfecting this appeal expeditiously and pressing for a prompt determination."

Precedent, or evaluation?

The court didn't offer any explanation for its procedural ruling, so it's unclear whether the judges were simply drawing on precedent regarding similar cases or making a judgment regarding the likelihood of the public benefits, given other factors also causing delay, such as the credit crisis and the difficulty in getting bond financing for the affordable housing.

It's not clear how much the timetable has been pushed back. It might take two years to build the arena, once construction starts, but it would be unwise to open the arena until bridges around it have been reconstructed, a three-year process likely not complete until January 2011.

In a best-case scenario, a ruling on behalf of the defendants next fall or winter, would have to be coupled with the U.S. Supreme Court's unwillingness to hear a challenge to the eminent domain case, as well as a dismissal of the emiment domain plaintiffs' effort to bring the case to state court.

That would have to be followed by condemnation proceedings to acquire remaining property and those buildings would have to be demolished.

Nets to Newark?

In other words, the 2011-12 season in Brooklyn may now be the realistic best-case scenario for the opening of the Barclays Center, leaving the Nets three more years in the Izod Center, where crowds have been sparse.

Could Bruce Ratner and fellow team owners be thinking a bit harder about the option of moving--[updated] at least temporarily--to the Prudential Center in Newark? It would cost them a significant penalty as of now, but state officials in New Jersey, thinking they might have a chance of keeping the Nets, might be amenable to negotiation.

The city's pension funds finally take on "predatory equity"

When in November, I reported on a conference where participants discussed the practice of "predatory equity"--investment funds making speculative investments in rental housing, intending to raise rents significantly--I was astonished that only the grassroots policy publication City Limits had previously covered the story.

After all, housing advocates had discovered that city pension funds had a stake in such investment funds. Politicians like City Council Member Letitia James weren't making a huge case about it, either, apparently waiting to get New York City Comptroller William C. Thompson and the city pension funds on board.

New policies

Yesterday, the above parties, as well as other elected officials and housing advocates held a press conference in which they announced a new residential real estate investment principle:

* Engaging building management to ensure fair treatment of tenants, especially in instances when ownership changes;

* Creating an “investment opt-out,” under which the Pension Funds can decline investing in individual properties that might adversely affect tenants and affordability; and,

* Encouraging new affordable housing opportunities to be presented to the Pension Funds in response to their open RFP for Economically Targeted Investment (ETI) Programs, which would protect and preserve the affordability of buildings. ETI objectives are to provide the Funds a market rate of return that is commensurate with the risk assumed, to fill capital gaps in New York City, and to provide specific quantitative or qualitative benefits to New York City and, in particular, its low-, moderate- and middle-income communities and populations.

It should go without saying that this would have more of an impact on affordable housing than the delayed units promised for Atlantic Yards.

The change in the Senate and the stakes for housing

The special election Tuesday to elect a State Senator in the 48th Senatorial district reduced the Republicans margin to 32-30, with several vulnerable Republicans expected to face tough competition in November. Portrayed in the press as a victory for Gov. Eliot Spitzer--and it is--the ramifications for New York City may be felt most sharply in the area of housing.

"The election today may change how we look at the rent laws," Manhattan Borough President Scott Stringer said at a housing panel at the New-York Historic Society on Tuesday, when the results of the election had not yet surfaced.

Since 1971, the legislature, not the City Council, has held the most power over rent regulation, thanks to the Urstadt Law. A Democratic legislature, with a Democratic governor, will be far more receptive to maintaining and strengthening rent protections, and restoring "home rule."

While rent regulations are always an issue for debate, it's pretty hard to argue against, for example, acknowledging the effects of inflation. Tenants and Neighbors reports:
As a result of changes to the rent laws between 1993 and 1997, landlords can permanently deregulate any rent regulated apartment when it becomes vacant, provided they can push the new rent over $2,000. This provision in the law, called high-rent vacancy decontrol, is an incentive to landlords to push out tenants so that apartments can be removed from rent regulation forever.

$2000 was once a very high rent--not so much today. Had it been indexed to rental inflation when established in 1994, it would be over $3300 today.

AY affordable housing a myth? Better to call it delayed

Like a game of "telephone," in which a message gets mangled as it gets passed from one party to another, the Atlantic Yards affordable housing story grows ever murkier.

The New York Observer's summary yesterday:
Federal funding crunch means Forest City Ratner won't be able to build 3,000 affordable-housing units at Atlantic Yards, fulfilling the prophesies of its opponents. [Brooklyn Paper]

But the Brooklyn Paper article reported only that a federal cash crunch threatens the promised 2250 units of affordable housing, adding some more voices to a story I reported a week ago.

That doesn't mean the promised affordable housing is dead. After all, a Democratic administration in Washington just might allow a state like New York much more capacity to authorize tax-exempt bonds.

The value of delay

And the clogged funding pipeline may make the delay caused by lawsuits that much more palatable, no matter how much Forest City Ratner protests. (Forest City's priority is the arena, which comes with a $400 million naming rights deal.)

Either way, the ten-year plan to build 2250 affordable units almost certainly won't be fulfilled by the 2016 timetable announced when the project was approved. It could take another five years, or ten, or longer, and Forest City is a patient company when it comes to big projects. In fact, if you take December 2003, when the project was announced, as the starting date, the delay stretches further.

Escape clause?

The Brooklyn Paper reported inaccurately (and in an editorial) that Atlantic Yards developer Bruce Ratner could get out of the affordable housing promise by paying a $500,000 penalty.

The Paper's correction: In fact, under the Community Benefits Agreement, there is no penalty if Ratner does not build the units.

That's not the full story. As I reported in September 2006, the CBA provides for binding arbitration, as well as the opportunity to go to court to enforce the agreement.

An ACORN spokesman told me:
I can safely say that if the MOU were not fulfilled ACORN could seek injunctive relief. The legal standard for obtaining this kind of relief is (a) likelihood of success on the merits and (b) irreparable injury if FCR were to proceed without compliance which cannot be satisfied with monetary damages. While courts tend to favor monetary damage remedies, we believe we have a strong legal argument for injunctive relief since the goal of the parties to the CBA is community benefit rather than financial gain and it would be difficult to quantify the damages arising from the breach in financial terms.

That could get complicated, since Forest City Ratner could say it wanted to build the housing but just couldn't get the bonds. And I've been told by Empire State Development Corporation officials that state documentation also would lock in the affordable housing, beyond the CBA--though no such documentation has yet emerged.

Either way, "no penalty" seems to me a significant shorthand for a process that might leave Forest City Ratner with some major obligations.

Driving Miss Brooklyn, a troubled Brooklyn condo market?

Apparently Forest City Ratner's decision to shift flagship Atlantic Yards tower Miss Brooklyn from condos to office space was based on discernible trends in the industry. (Then again, things can change, given that Miss Brooklyn was supposed to be office space when announced in December 2003.)

In yesterday's New York Sun, real estate columnist Michael Stoler suggested that many in the real estate community see a growing divide between the luxury market in Manhattan and some of the more speculative projects in fringe areas.

The Atlantic Yards project wouldn't exactly be located in a "fringe area," but at least one Brooklyn developer offered some general cautions:
A principal of Troutbrook Company, Marc Freud, said: "The past five years has been the era of ever increasing prices of condominiums in downtown Brooklyn, DUMBO, and many parts of Williamsburg. That era has now ended, with the for-sale condos in the 750- to 1,000-square-foot mark stalled, and pricing decreasing by as much as 15% to 20%. The overamenitizing of certain developments in these areas has done little to compel the buyer today to sign a purchase contract."

Fun fact: Freud was the developer of the Atlantic Arts Building, a converted warehouse home to Atlantic Yards uber-opponent Daniel Goldstein.

Thursday, February 28, 2008

The UNITY plan expands, and will be up for discussion

The UNITY plan for the Metropolitan Transportation Authority's Vanderbilt Yard was unveiled in September, the project web site was re-launched in mid-January, and there's a public meeting Saturday, from 10 a.m. to 2 p.m., to update people and seek further input on UNITY.

The discussion will broaden to more of the Atlantic Yards footprint rather than just the 8.5-acre Vanderbilt Yard.

Indeed, when the graphic at right was unveiled, it raised some questions. Why was the triangular plot of land west of Fifth Avenue included and planned for park space, given that it's not part of the yard.

Urban planner Tom Angotti of Hunter College, one of the designers of UNITY, responded, "As a practical matter, Forest City Ratner owns most of the land and much of it is vacant. Its location is important, and leaving it out of the plan would lead to questions about what to do with it."

That, of course, would require the developer to both abandon its project and, if so, to give up piecemeal development.

Site 5 too?

Angotti added, "As a side note, I am going to propose that the next UNITY workshop consider incorporating Site 5 (Modell's, P.C. Richard and the Brooklyn Bears Garden) in the park, thereby dramatically changing the character of the area. The two stores could be easily relocated (and are slated for removal anyway)."

"The park would be compatible with the Bear's Garden and relieve it from its isolation," he added. "This is my idea alone; I don't mind it being publicized but it should be attributed to me and not UNITY or anyone else since we haven't discussed it."

Given the traffic surrounding it, I asked, what kind of safeguards regarding noise and pollution would be necessary to make it work as outdoor park space?

Angotti responded, "UNITY calls for traffic reduction on the major arteries that converge there, so the noise and pollution resulting from traffic would be sharply reduced. In addition, design measures can be used to buffer the most actively used portions of the park from traffic and noise. We're calling for bicycle lanes on Flatbush and Atlantic, and they can be part of the solution."

Big contrast

What's clear is that two very different visions have emerged. While the UNITY plan would add significant residential density (1500 units over eight acres would be 187.5 units/acre, compared to 6430 units over 22 acres, or 292 units/acre), it would concentrate the tallest buildings at the east end of the site, near Vanderbilt Avenue.

It would place a park at the congested intersection of Atlantic and Flatbush avenues, while Forest City Ratner's plan would have an Urban Room, which will serve as a subway entrance and an entrance to the arena and arena block buildings, while housing an atrium, retail, and Nets ticket windows.

In the Empire State Development Corporation's General Project Plan (p. 10) suggests that the western-most portion of the Arena Block presents the most significant potential for mixed use and commerical development due to its location on the two major commercial arteries (Atlantic and Flatbush Avenues) and its ability to connect direclty to the Atlantic Avenue/Pacific Street subway station. In addition, Site 5... also has high potential for either commercial or residential development, while providing a transition (in height and scale) to its surroundings.

...The Project would create a new neighborhood context along the Atlantic and Flatbush Avenue corridors in keeping with the stature of these streets as two of the principal (and widest) routes through the borough.

And while Angotti sees Site 5, bounded by Fourth, Flatbush, and Atlantic avenues and Pacific Street (and row houses on the south side of Pacific), as potential parkland, the City Planning Commission, in its 9/27/06 endorsement of minor modifications to the Atlantic Yards plan, wrote:
Site 5, located on a site bounded by Atlantic, Fourth and Flatbush avenues, is proposed for a height of 350 feet and to contain approximately 572,000 zoning square feet. The Commission recognizes the prominence of this site, which is located across from both the Williamsburgh Savings Bank and Building 1 of the Arena block, as well as directly adjacent to the low-rise buildings west along Atlantic Avenue and the terminus of the Fourth Avenue corridor. The Commission believes that Site 5’s height should be carefully assessed within this context. Given this location, the Commission therefore recommends that Site 5 be reduced to a height of 250 feet with a reduction of approximately 180,000 zoning square feet to approximately 392,000 zoning square feet in order to provide a more varied composition of building heights and to provide a stronger transition to the Fourth Avenue corridor to the south.

This was the only cutback recommended that has apparently not been proposed by Frank Gehry nine months earlier.

So, why didn't Forest City Ratner announce the cut planned for Miss Brooklyn?

It seems that the flagship Atlantic Yards tower Miss Brooklyn has been cut in bulk, from 908,144 square feet to either 528,000 square feet or, perhaps, with the addition of a hotel of 164,652 square feet, to 692,652 square feet. (It was originally announced at 1.1 million square feet.)

A reduction in some bulk was inevitable, given that the building, once projected to be 620 feet tall, was cut, as the project was approved, to be a sliver below the 512-foot Williamsburgh Savings Bank building.

So why did Forest City Ratner tell investors but not the public? FCR is smart at public relations, so its leaders had to be waiting. And what might they have been waiting for? I can only speculate:

  • Perhaps the building would be even shorter than the anticipated 511 feet, and would no longer block the bank's iconic clock.

  • Perhaps the developer was simply waiting until construction could begin, with the lawsuits cleared. A reduction in bulk might be seen as magnanimous.

  • Given that a less bulky building would be seen as a concession, perhaps Forest City Ratner was waiting until it faced a significant public relations setback, such as a loss in court.

  • Perhaps FCR was waiting to let Brooklyn Borough President Marty Markowitz announce the cut, and the BP's waiting to decide whether it would boost his undeclared mayoral hopes.
Numbers murky

The numbers are still murky, given that the cut in bulk does not seem commensurate with the cut in height.

As I wrote yesterday, a reduction to 528,000 square feet would be a more than 40% cut in bulk, while the height of the building was (seemingly) reduced only 18%, from 620 feet to 511 feet. Include the hotel and the cut in bulk is less than 24%. Maybe the building is getting a little shorter, too.

Then again, there was no cut announced between the figures of 1.1 million square feet and 908,144 square feet, so maybe there's some slack in the building program that was never explained.

So it would be good to get an official word.

Democracy Now? Ratner Plays Hardball When It Counts

I threaded together some reporting and commentary I've done for the blog into a piece for this week's Brooklyn Downtown Star, headlined Democracy Now? Ratner Plays Hardball When It Counts.

It covers the Atlantic Yards gag order, Michael Ratner's political contributions, Forest City Ratner's contribution to the Democratic Assembly Campaign Committee's Housekeeping account, and the New York Times's editorial standoffishness.

Would the AY arena get a billion-dollar subsidy?

Take a look at the long comment posted by lawyer and planner Michael D.D. White, contending that the Atlantic Yards arena would represent a $1 billion subsidy.

I can't confirm it. But I sure think it deserves a closer look.

Wednesday, February 27, 2008

FCR official: no such thing as too much sharing of information

From today's New York Observer article, Blame It on Eminent Domain! Ratner Pays D'Amato, on Forest City Ratner lobbying, which breaks the news that the firm had hired former Sen. Al D'Amato to lobby [corrected] against anti-eminent domain legislation in Washington:
In a statement, Forest City said it strives for transparency with its lobbying reports, suggesting an explanation for the high numbers. “When it comes to lobbying reports, we definitely err on the side of disclosure, including even law firms that do work for us,” Forest City spokesman Loren Riegelhaupt said in a statement. “When it comes to sharing information with the public and governmental bodies, there’s no such thing as too much, as far as we are concerned.

OK, then, how big would Miss Brooklyn be? And why no comment on the slush fund story?

AY scaleback? Well, at least Miss Brooklyn, apparently

As I wrote yesterday, the evidence from the transcript of Forest City Enterprises' "Investor Day" last October suggested that "the size of the project may have been reduced" and "the flagship Miss Brooklyn tower has apparently been trimmed." But I didn't put them in the headline or lead sections because the evidence was murky.

But the potential scaleback was apparently the news of the day, as Brownstoner declared in a headline, Atlantic Yards Scope Trimmed; Funding Still Fuzzy and commenters piled on, suggesting that the affordable housing would be cut, even though a company executive said in the transcript that "we are committed to creating [the 2250 units] over the life of the project."

Miss Brooklyn cut

And if Miss Brooklyn no longer would contain condos, as Forest City Ratner officials seem to have confirmed, part of a reduction in total bulk as well as a tradeoff for office space. The loss of some 435,000 square feet of condo space suggests a reduction in planned residential units from 6430 to about 6000, assuming an average of 1000 square feet a unit.

That means the project's residential density would go down, as well, from 292 apartments/acre to 273 apartments/acre.

Indeed, as I should've pointed out yesterday, just before Atlantic Yards was approved in December 2006, Miss Brooklyn was reduced in height from 620 feet to shorter than the 512-foot Williamsburgh Savings Bank. That implies some reduction in square footage. I kept asking about the revised bulk, but never got an answer.

And it's not clear whether the building would still contain a hotel, as originally planned.

(Update) To clarify, FCR officials described the building as 528,000 square feet "of zoning rights." It was to have 908,144 square feet. A hotel would add 164,652 square feet to 528,000 square feet of condos, but the use of the term "zoning rights" implies an overall cap. Then again, a reduction to 528,000 square feet would be a more than 40% cut, while the height of the building was reduced only 18%, from 620 feet to 511 feet. Include the hotel and the cut in bulk is less than 24%. Maybe the building is getting a little shorter, too.

Crain's confirms, sort of

Later in the day, Crain's New York Business weighed in, in an online article headlined Atlantic Yards quietly scaled back? A representative of the developer asserted that the project had not been scaled back but acknowledged that Miss Brooklyn had been cut.

There's a gap there. As I commented on the Crain's site, If "the square footage adds up to what was previously projected" and Miss Brooklyn has "smaller square footage," then where has the developer *added* square footage to stay at square one? The evidence suggests there's been a reduction of a couple of hundred thousand square feet, but until full dimensions of the project are released, we can't be certain.

A company rep confirmed that, as I had suggested, the discussion in October had omitted the portion of the project at Site 5, hence the omission of one building and a significant amount of square footage.

Signed agreements?

According to the transcript, FCR Executive VP MaryAnne Gilmartin said, “In June of 2007, we received [a] favorable decision on the Federal eminent domain lawsuit, in September of 2007, executed critical funding agreements with the City and State of New York, which allow us to be reimbursed for investments made in infrastructure and land to date on the project.”

That seems to contradict some public statements, as I noted. Crain's followed up:
Yet company sources suggested to Crain’s last month that said no such funding agreements had been completed because litigation against the development was still pending.

A source familiar with the agreements says they were indeed signed by Forest City Ratner last fall but are still waiting for approval by the city and state comptrollers.

OK, so they've been signed, but not completed. But the term "executed" sure sounds like the process is finished.

Yassky come lately on AY costs, which still need a thorough accounting

Term-limited Brooklyn City Council member David Yassky, running for the citywide position of Comptroller, has decided to target subsidies for Atlantic Yards, part of a tougher line he's shown lately regarding the project.

Among the tactics he recommends in an article in this week's Gotham Gazette is ending corporate tax loopholes:
Of course, the single biggest example of corporate welfare is the proposed Atlantic Yards development. The Bloomberg administration has agreed to give the project's developer at least $100 million in direct subsidies, plus another $400 million to $500 million in tax breaks. In the current financial climate, this handout is impossible to justify.

While some significant increases in subsidies--including a doubling of the city's contribution and the "Atlantic Yards carve-out" for 421-a benefits--have surfaced in the past year, there was a longer list worthy of concern before that.

And Yassky did not raise the issue of AY subsidies in his comments during the Atlantic Yards approval process. In his 8/23/06 letter to the Empire State Development Corporation, he expressed "grave concerns" and requested "substantial changes," but those regarded the size of the buildings and plans for traffic and transit.

He concluded, in his mend-it-don't-end-it posture:
Again, I do believe that development of an arena and housing at the Atlantic Yards site would have genuine benefits for Brooklyn. The current GPP [General Project Plan], however, imposes an unacceptable cost to achieve those benefits.

When Yassky ran for Congress that summer, he tried to steer $3 million in job-training funds to AY Community Benefits Agreement signatory BUILD. He took a distinctly moderate position, refraining from bringing up issues like corporate welfare, while rival Chris Owens needled him for not asking tough questions.

$500 million, $3 billion?

Would the total in tax breaks be $500 million, as Yassky says, and the total in government benefit be $3 billion, as Develop Don't Destroy Brooklyn suggests (right)?

Well, it depends how you do the math. Yassky, I believe, is adding direct subsidies and the 421-a tax break. DDDB's chart suggests that the bonds for the arena--to be repaid by payments in lieu of taxes--represent a complete subsidy, but the Independent Budget Office (IBO) does not agree, because it assumed that the railyard portion of the land would've remained tax-exempt anyhow.

And tax-free bonds valued at $1.4 billion do not represent savings of $1.4 billion, but rather the spread--perhaps 15%--between taxable and tax-free bonds.

New analysis needed

Still, if DDDB's numbers don't fully stand up, neither do anyone else's. The IBO, in its September 2005 report, did not attempt to assess the full fiscal impact of the Atlantic Yards project, just the arena. The New York City Economic Development Corporation and the Empire State Development Corporation, in their analyses, focused on costs rather than benefits.

So there's still a significant need for a government-sponsored, fully-vetted effort to analyze Atlantic Yards costs and benefits. Maybe Yassky, or even fellow Comptroller candidate Jim Brennan--who's pushed to get Atlantic Yards financial information but hasn't made AY a rhetorical centerpiece of his candidacy--can put the issue on the agenda.

LeBron James to the Brooklyn Nets? A marketing bonanza, both ways

In an article Monday headlined Jay-Z, James relationship should worry Cavs, Adrian Wojnarowski, the NBA columnist for Yahoo! Sports, suggests that the hip-hop star, a part owner of the New Jersey Nets, may be manuevering to lure the superstar LeBron James from the Cleveland Cavaliers once he can opt out of his contract in the summer of 2010.

That would be the right before the fall when the Nets, as announced, intend to move to Brooklyn, thought construction schedules suggest an arena opening in early 2011 is a best-case scenario.

Wojnarowski noted that James wants to become "sport’s first billionaire athlete," hence the appeal of a larger platform. Says noted sports marketer Sonny Vaccaro, "Jay-Z is the one person that I can put in a parallel universe with LeBron from where they started and where they are now."

He suggests James will be on a "marketing roll" after he leads the United States basketball team to victory this year in the Olympics.

No tampering

Two years ago, Jay-Z, according to the writer, paid no mind to league tampering rules and gushed, “How amazing would that be? I tell people all the time, he’s my friend first. If Cleveland is building a championship team around him then my advice is to stay there. If it’s the Nets who are building a championship team that could be around him then my advice is to come to the Nets.”

There was no fine for tampering, and Cleveland didn't complain. And James, suggests Wojnarowski, may get his endorsement deals increased if he comes to New York.

Nets' flexibility

The front-office moves by the Nets are part of the peculiar NBA game called clearing salary cap space. Wojnarowski writes:
James is the unmistakable target. So much so, the Nets have an internal business plan for the move into the new Brooklyn arena that includes a modest section on his eventual recruitment, estimates of his marketing worth and the salary-cap space that needs to be cleared for his signing.

Wojnarowski suggests there will be "a fascinating story line" between now and 2010, with Jay-Z competing for James's heart and mind against the owners of the Cavaliers, who signed a hometown star to a huge first contract.

For the savvy owners of the Nets, playing a high-stakes game with flexibility, there could be a huge payoff.

The project could stall, with the arena delayed even past 2011. But if it proceeds, the Nets will try to get James. If so, even if the Nets alienate fans in New Jersey with a mediocre team for a couple of years, King James could change the equation across the river.

There's no great push for the Nets in Brooklyn right now, as Borough President Marty Markowitz recognized earlier this month. But good marketing can create momentum, and a star like James wouldn't be good marketing, it would be great marketing.


And the reality...

The Record's Ian O'Connor writes today:
Last night, in a 102-92 loss to the Magic, it took some straining to see past the empty banks of Izod Center seats and toward a meaningful future either here or in Brooklyn. Kidd breathed life into the building, and then slowly but surely sucked the life out.

As for the James deal, O'Connor suggests it's not impossible:
They want Jay-Z to help make that free agent signing happen.

"Pretty much a pipe dream," one high-ranking official called it.

It wasn't long ago that the same was said about Thorn's stated goal of building a winner in the Meadowlands. Then the Nets' president completed the Stephon Marbury-for-Kidd trade, and his team hasn't missed the playoffs since.

Tuesday, February 26, 2008

Forest City to investors: more AY office space, slowed railyard, less upfront cash than city & state

Last October 9, Forest City Enterprises (FCE) held an Investor Day meeting at the New York Times Tower, built by subsidiary Forest City Ratner (FCR) in tandem with the New York Times Company. The developer shared several important pieces of news about the Atlantic Yards project that have not been aired publicly.

Among the highlights, thanks to the transcript (for sale):
  • The developer has apparently signed funding agreements with the city and state, despite reports that it has not done so
  • It would take 4½-5 years to build a new railyard, not 3½ years, as promised in the Atlantic Yards environmental review
  • The size of the project may have been reduced
  • The flagship Miss Brooklyn tower has apparently been trimmed, and would have more office space
  • The number of planned arena suites has been reduced from 170 to 130
  • Additional arena sponsorships were supposed to be announced in January, but that didn’t come to pass
  • The developer has invested $250 million in the $4 billion project, its largest single investment, but that's only 25% more than its developer fee, and less than the direct public investment of $305 million
  • The residential project at 80 DeKalb is a test run for Atlantic Yards.
Representatives of the developer stressed the importance of flexibility in reacting to changing markets. “Atlantic Yards is different than what we thought,” declared FCE CEO Chuck Ratner.

Funding agreements signed

FCR Executive VP MaryAnne Gilmartin said, “In June of 2007, we received favorable decision on the Federal eminent domain lawsuit, in September of 2007, executed critical funding agreements with the City and State of New York, which allow us to be reimbursed for investments made in infrastructure and land to date on the project.”

That seems to contradict the (anonymously sourced) New York Post article published January 29, which said that “the developer never signed binding contracts for the project.” AY ombudsman Forrest Taylor, asked last month if funding agreements had been finalized, said, “There’s a city part and a state part. I think the state is done.” However, it’s one agreement, so “until both are done, neither are done.”

Yesterday, I asked the Empire State Development Corporation if Gilmartin’s statement was accurate and whether it contradicted or complemented the statements made in the Post and by Taylor. I didn’t get a response.

Five years for new railyard

It seems that the developer’s construction consultant low-balled the time it would take to create a temporary railyard and then finally a new railyard. Robert Sanna, FCR’s Executive Vice President and Director of Construction & Design Development, said, “We have been working with about 20 different operating divisions of the Long Island Railroad over the last 24 months to redesign and relocate that storage facility all the way down at [block] 1127. And that project itself is about a four and a half to five-year build.”

(The Construction Schedule attached to the Final Environmental Impact Statement indicates 10 + 18 + 14 months = 42 months, or three-and-a-half years, as opposed to Sanna's estimate. Click to enlarge.)

“But in order not to encumber the arena site proper, we've devised a plan to create a temporary yard, which we're in the process of constructing now and will complete so that we can begin construction on the arena site in earnest on that project. The temporary yard work is underway at the moment as we speak.”

Only 6.5 million square feet?

Joanne Minieri, FCR President and Chief Operating Officer, said, “Atlantic Yards Development Company, LLC is the entity in which Forest City owns 58.2%. That entity will be the owner of the master plan for the real estate development of over 21 acres in downtown Brooklyn with 6.5 million square feet of residential and commercial development rights.”

That’s very tantalizing, since Atlantic Yards is supposed to be 8 million square feet over 22 acres. Add the 850,000 square foot arena to the figure Minieri mentioned and the total is 7.35 million.

It’s possible that another entity, in which Forest City is a partner, owns the development planned for Site 5, now the home of P.C. Richard/Modell’s, which was subject to a second Memorandum of Understanding (because there were two investment groups). (Gilmartin described the project outside the arena as “15 buildings,” which again seems to be excluding Site 5.

Then again, maybe they've cut a building.

Site 5 was not part of the FCR-created Atlantic Yards financial projections unearthed as a result of the lawsuit filed by Assemblyman Jim Brennan and State Senator Velmanette Montgomery. Nor was it part of the KPMG report. Site 5, once to be 400 feet tall, was cut to 350 feet tall, with 572,000 zoning square feet.

The City Planning Commission recommended that Site 5 be reduced to 250 feet and about 392,000 zoning square feet; that was accepted. Added to 7.35 million square feet, that would make 7.75 million square feet. Also, there would be some space for community facilities, including a school.

It’s possible there's no significant cut, but Miss Brooklyn has been reduced. And there may be a discrepancy between "square feet" and "zoning square feet." It's time for someone to come clean on what the dimensions of the project would be, as currently considered.

(Graphic from 12/14/06 ESDC memo to PACB.)

Miss Brooklyn: more office space, and smaller

Gilmartin described “the buildings that surround the arena and then what we call Phase 1." She apparently was pointing to Miss Brooklyn: "That is a commercial building with plus or minus 528,000 square feet of zoning rights. And there are three residential buildings that comprise what we call Phase 1.”

According to documents unearthed in the Brennan lawsuit, Miss Brooklyn, or Building 1, was to have 308,801 zsf (zoning square feet) of office space, 164,652 zsf of hotel space, and 434,691 zsf of condo space, for 908,144 zsf. Apparently there’d be no more condos, which makes some sense, because the financial projections suggested that the office space would be highly profitable, with a 17% internal rate of return on top of development fees.

Meanwhile, the condos in that building were projected to lose money. Brennan suggested last July that that was an argument for reducing the size of the project; the current plan for that building suggests both a cut in size as well as a shift in function.

What’s not clear is whether the building has been cut to 528,000 sf or to 692,652 sf or to some other number. Either way, it would be a lot smaller than the total of more than 900,000 sf as contemplated in late 2006, not to mention the 1.1 million sf as initially contemplated.

Maybe the office market is picking up, despite setbacks early last year. An 11/8/07 article in the New York Sun, headlined Downtown Brooklyn Finally Arrives, suggested that demand for office space is growing:
An executive director at Cushman & Wakefield, Glenn Markman, said: "In my 20-plus years of representing landlords and tenants in downtown Brooklyn, I have never seen the demand for office tenants be stronger than today. The interest is coming from Manhattan office tenants, such as advertising agencies, media companies, law firms, and consulting companies."

130 suites, not 170

Minieri explained that Forest City owns 21.5% of Nets Sports and Entertainment, LLC. (There are numerous individual investors. “That entity owns the Nets franchise and will be the owner of the new state-of-the-art arena, The Barclays Center. The arena will be an 18,000-seat arena with 130 suites, 12 of which will be bunker suites and be the home to over 200 new events.”

(Photo of Nets billboard at 553 Waverly Avenue at Atlantic Avenue, one block from the eastern edge of the Atlantic Yards footprint, by Tracy Collins.)

A December 2006 audit conducted by KPMG on behalf of the Empire State Development Corporation noted that Forest City Ratner projected 170 suites, “a combination of first ring suites, second ring suites, courtside suites, and log boxes.” KPMG suggested that the total number of suites and the average price “appear to be on the high end,” given that NBA arenas average about 90 suites, and that only six offer more than 125 suites, and five of those six host both NBA and NHL teams.

Sponsors for the Nets

Brett Yormark, President & CEO, Nets Sports and Entertainment, explained how the team has vaulted from $5 million in sponsorship sales to more than $15 million, as sponsors and marketers “understand that they need to get involved now, build some equity with the franchise in route to Brooklyn.”

On the heels of the Barclays Center deal announced in January 2007, Yormark said, the team aims for “14 totally integrated partners, Barclays of which will be the lead.” He added, “And I think in January, we'll be able to announce half of those partnerships that we've been able to come to an agreement on.”

That has not come to pass. Nor has there been a public announcement yet of the Barclays Center Showroom in the Times Tower, which Yormark said should open “some time in January.” Perhaps the delay in the project arena opening has pushed things back.

Still, Yormark said suites had already been sold: “This past summer, we went out on a bit of a private sale to friends and family. And the response has been overwhelming. We're different. We're special. Frank Gehry, Brooklyn, the whole Brooklyn story in general is providing us with a different story that we can tell in the marketplace, and people are responding. “

$250M is "risk-appropriate"

An audience member asked what the total equity investment was in Atlantic Yards. Minieri responded, “ Us and our partners together, approximately $250 million invested in the Atlantic Yards Development Company, LLC. As it relates to the future equity levels, we'd like to keep it as low as possible and hopefully, that $250 million will be our peak equity. That's as much as I can tell you right now.”

An “unidentified company representative” added, “That's a very direct answer, huh? It's a large investment. It's clearly the largest investment we've made in any project of scale or not of scale. But it, we think, is a risk-appropriate investment. The opportunity here is... unlike an opportunity we've had probably anywhere else.”

Indeed, the developer, as the New York Times first reported, would get a 5% development fee, or $200 million, though over a longer period of time. And the city is spending $205 million upfront, the state $100 million.

As for the financing, Gilmartin said, “So, as we proceed and we move forward with both the construction of the arena and each of the towers, we will allocate similar to what we do on all our master plans, the land and infrastructure costs out of that LLC into its individual single-asset entity, which will then have its level of construction costs, vertical builds as well as equity in connection with the single-asset development.”

Arena financing

FCR Executive VP and Director of Finance Andrew Silberfein explained arena financing, “We are working closely with Goldman Sachs and Barclays Bank, who are our advisors on the financing of the arena. And we expect the structure to be somewhat similar or actually very similar to what was done on the Yankee Stadium as well as on the Jets/Giants deal where we're going to be issuing a combination of tax-exempt and tax-exempt bonds for -- to pay for the construction of the arena.”

[I’m assuming that the transcript is in error and he said “taxable and tax-exempt.”]

“In addition, we're also exploring the possibility of doing a separate securitization of the naming rates contract that we signed with Barclays Bank. Obviously, given the credit and long tenure of that contract, it lends itself pretty nicely to that type of a financing on that.”

[I'm assuming he meant "naming rights."]

The Beekman Tower

Gilmartin spoke of the Frank Gehry-designed Beekman Tower in Lower Manhattan: “We have not gone public with any images of the tower. It's a striking design again rising 865 feet in the air. It's about as aspirational I think as this building you're in was -- it's the residential equivalent of what the New York Times Building was for us in 1999/2000.”

“It's architecturally significant. It's an iconic addition to the lower Manhattan skyline and it holds the promise of redefining the standards of luxury rentals in New York City. The good news is that it's priced to perform within its competitive set. We're not assigning any premium to the Gehry component, the star power of his architecture both outside the building and inside each of the units.”

“The building has we believe tremendous upside because nobody has ever built a rental building in New York City with this type of aspiration. And so Gehry will design, not only the curtain wall, but inside of the units, including the bathrooms and the kitchens and the hardware. And so this building as I said is 100% designed and we started some activity on the site to preserve the very valuable 421-a tax benefit, which allow us to insure the receipt of that benefit through the life of the project.”

Gehry is not designing interiors for Atlantic Yards.

The 80 DeKalb example

Gilmartin said “we think the critical mass of new residential construction along Flatbush Avenue validates the corridor as a thriving and desirable residential location. This is important not just for 80 DeKalb… but for all that we intend to do with Atlantic Yards.”

Indeed, the transformation of Flatbush—a spine of towers—makes Atlantic Yards less anomalous, even as the latter would extends well beyond major thoroughfares and extend the boundaries of Downtown Brooklyn.

Gilmartin described the 80 DeKalb project at the border of Fort Greene and Downtown Brooklyn as “the first opportunity for our company to capitalize on… the residential renaissance that we see in Brooklyn. And it allows to sample the market firsthand as a preview for Atlantic Yards. So in many ways it will inform the rollout of our residential product for the Atlantic Yards project. And so this is a 365-unit rental apartment building located in downtown Brooklyn, again, a stone's throw away from the Atlantic Yards.”

“It is the redevelopment of a vacant portion of a piece of property, an asset that we already owned. It will have doorman/concierge services, a 150-car garage, a lifestyle center that includes a gym, a library and a lounge and retail at the ground floor level.”

The plan is to open in 2009.

Flexibility & "chaos theory"

Executives emphasized the importance of flexibility. “This is a project that has, as we've mentioned, a ten-year horizon,” Gilmartin said, apparently on message that it won’t take 15 years, as Chuck Ratner once indicated.

"[T]he division between rental and condominium is flexible so long as we create the 2,250 affordable housing units, which we are committed to creating over the life of the project," she said. "And even the commercial space here, 528,000 square feet, there is some flexibility there as well to respond to the ever-changing markets within which we operate. And you can see that there are eight acres of publicly accessible open space, 200,000 square feet of retail, and the arena itself is 850,000 square feet.”

FCR Chairman and CEO Bruce Ratner similarly emphasized flexibility: “It's not like acquiring buildings. It takes a long time, a lot of dedication. There's constantly changing times. You have to remain flexible. I'm a person that believes a little bit in the chaos theory and if you're not flexible, you cannot overcome chaos.”

Chuck Ratner said that he was a “pessimist” about the real estate downturn, though “New York is clearly an exception to that… and perhaps will remain.” Bruce Ratner commented, “I don't want to make predictions, because I think the New York market as so many markets really at the end of the day depends a lot on the overall economy and the job market.”

Echoes in Chicago

Chuck Ratner also wanted to tell attendees about the Central Station project in Chicago, which would contain 8500 residential units, 2.5 million square feet of commercial space, and 500 hotel rooms—over 80 acres, far less dense than Atlantic Yards: “Let's put the picture up for just a minute. I want you to think about this when Bruce and Joanne and MaryAnne are walking you through Atlantic Yards. I want you to think about what this is."

(Graphic from Central Station site.)

He continued, "What you see outlined in yellow is the Illinois Central Railroad Yards empty 18 years ago, other than the railroad tracks. Next to it, you see an arena, a stadium in this case, Soldiers Field. We, together with a partner in Chicago, bought that land. We thought it was going to be all office buildings. You see it's right south of the Loop…. We thought this was going to be the next great office building market."

Instead, it became a residential project, over and near railroad tracks, "exactly what Atlantic Yards is. And we will make the same thing happen here that happened there and it will be even better because Brooklyn is a fabulous place to do business."

Actually, strict building guidelines regarding Central Station protect the view corridors of Lake Michigan and Grant Park. In Brooklyn, there are no such strictures regarding blocking the clock the Williamsburg Savings Bank, though maybe Forest City Ratner has a surprise for us.

A 30-year plan?

Later, Gilmartin showed a slide of the existing conditions on the Atlantic Yards site, though it’s not clear whether it was the whole site or just the Vanderbilt Yard.

An “unidentified company representative,” according to the transcript, said the slide was “almost identical” to one concerning the Chicago project: “It's taken us 15 years there, and we're only halfway through. That's both good and bad news. It's good news, because you have tremendous opportunity over a long time. And you -- obviously, the challenge is to keep your money moving through there so that it doesn't eat you up alive.”

Actually, it’s taken 18 years, since the project began in June 1989.

A 9/23/90 Chicago Tribune article gave a large range: “Development of all the Central Station land is expected to take 10 to 30 years, depending on economic conditions.”

However, the Tribune reported 1/12/89 that lead developer Gerald W. Fogelson, when announcing the land purchase, said that “he hoped the project could be completed in seven to eight years.”

Would AY be done in the ten years projected? Doubtful.


Gilrmatin described success at MetroTech: “The interesting thing about our office strategy in Brooklyn is that we are now through some of the original leases and so our leases have started to roll and we've been very successful in retaining the tenants that were early pioneers to MetroTech so Bear Stearns, Morgan Stanley and KeySpan all have opted to stay for the next cycle in Brooklyn. And again that is one of the best indicators of success."

Then again, last year The Real Deal reported that JP Morgan Chase and Empire Blue Cross were vacating space.

Gilmartin added, "And the vacancy rate is 2.6% which is a very nice number and is expected to continue." (It's not clear, but I think she was talking about housing, not office space.)

"A lot of the construction we see in downtown Brooklyn is condominium construction but we see that the rental market is robust. We see changes in the 421-a tax programs, which means that the barriers to entry are higher than ever making it more difficult to bring on new supply.”


FCR General Counsel David Berliner said that “we did get a good decision” in the eminent domain case and the appeal, heard that morning, “went very well.” (He was right.) “And the last one is the challenge to the Environmental Impact Statement. I think that we expected a decision any day now…. We feel good about that one as well.” (He was right.)

And when will construction start? Chuck Ratner quoted Gilmartin: “I think her phrase was, begin construction in earnest on the arena and some of the adjoining stuff by the middle/end of '08, maybe earlier than that hopefully.”

That’s very much in question.

Later, Chuck Ratner said, “Our objective here is to create the 6 million square feet of FAR at a land cost that will enable us to make profit on the buildings. And as you've seen, it's been a market that's grown and we should be able to do that.” (Was "6 million" just an estimate?)

Mystery investor

If Forest City owns only 58.2% of Atlantic Yards Development Company, who owns the rest? Unclear.

But Minieri said, “And to the extent that our outside partners choose not to proceed with each individual building, we have the opportunity to increase our ownership percentage as we spin off each building. At this point in time I think that it is our outside investor's intention to go and invest in each building as we proceed, but they do have a right to decline as we move into the individual asset development.”

New York thriving

Bruce Ratner gave his thoughts on New York’s rebirth: “I've never seen anything like what's happened in New York in the last ten years, I never could have predicted that it would be this strong. I will say that you have to look at some underlying factors in New York that make it particularly good, I think first and foremost is security. The change in crime, the positive aspect of security in this city has made new neighborhoods.”

"The second thing is the importance of intellectual capital… I think obviously the issue of immigration… So I'm very bullish on New York. You do have to look at the long cycle aspect always in New York, we may hit a national [recession], hopefully that won't happen. But the long-term prospects, I think, for this city are just so strong."

Historic preservation, elsewhere

Forest City has a history doing historic preservation, and Chuck Ratner brough that up. He noted that the Westfield San Francisco Centre would be opening in a few weeks, the largest “urban center of its kind… But the important lesson here is it's all the strategies we talk about. It's an urban strategy, it's a historic rehab, it's a public-private partnership, it's all of the things that make these projects work and presented all of the challenges that they present.”

“We took a dome inside, you see it here, this was from the early 1900s and we lifted it 60 feet in the air, built a new property underneath it and set it back down,” he continued. “The same sort of thing Bruce and his team did… on 42nd Street with the Liberty Theater all those years ago… It's a historic facade, as you saw in the earlier photo. We preserved that facade. That was necessary in order to get the public support for the project. The same thing's happening again and again to Forest City.”

In Brooklyn, Forest City Ratner is demolishing the Ward Bakery for interim surface parking. It apparently wasn't necessary to get public support, given that the governor and mayor had already signed on.

Bruce learns accessibility

Bruce Ratner may not be so accessible to the press, but for business colleagues he’s there. He said, “It's great to see investors, analysts, friends and I'll try to sort of meet everybody at lunch and so on, who hangs around and say hello. And I want to be very accessible and you can talk to me during lunch or you can call me sometime, email me. And the real issue, and I learned it from Brett Yormark who runs our Nets, always be accessible. So I want to be that.”

Learning from Katrina

Chuck Ratner cited a discussion by FCE board member Scott Cowen, president of Tulane University, about reacting to Hurricane Katrina: “What does it take to succeed. And he said the trick is to be resilient. And he defined three aspects of resiliency. One is the ability to make sense out of a situation, the ability to analyze the options. And that's what we've been talking to you about all day. That's what we did at Beekman is we considered the options we have. That's what we're constantly doing at Atlantic Yards as the project and the dynamics in the market keep changing.”

"The challenges are immense and the obstacles and barriers are high," he continued. "That provides for a larger return if you're able to overcome those obstacles and surmount those barriers. But it requires a real skill for improvisation. These things change dramatically, Central Station is different than what we thought, Stapleton is different than what we thought, Atlantic Yards is different than what we thought and you have to have the ability to improvise as you go. And you have to have the liquidity in the balance sheet and most importantly the talent to do that.”

Core values

He closed, "And the third was a set of core values that guide you. We spent no time on that today. I hope that our core values come out as we share with you our business. We've actually articulated them. They're on everybody's wall. We've lived them every day. Integrity and openness, performance ethics, sustainability, diversity and inclusion, community involvement, all of these are crucial to our success.”

Well, there must be some flexibility there, since the Atlantic Yards saga also includes lying in court papers, making large contributions to what's essentially a slush fund for Assembly Democrats, and fudging the project's timetable.

Monday, February 25, 2008

"Bulldozed": on the Kelo eminent domain case and beyond

Despite the title, Carla T. Main’s recent book Bulldozed: “Kelo,” Eminent Domain, and the American Lust for Land tells the story of eminent domain by focusing on a particularly heavy-handed (but little-known) case in Freeport, TX (population approx. 13,000), a Gulf Coast city some 50 miles south of Houston. Freeport officials wanted to take waterfront property from the salt-of-the-earth Gore family operating a longtime shrimp business to create a low-risk deal for a wealthy developer to build a private marina. The Gores fought back, fiercely, with more resources than the typical eminent domain plaintiff, and the story includes numerous twists and turns.

The case is striking enough that even the liberal/populist Texas Observer, which, in its review says Main "relentlessly hawks her mantra" against eminent domain and criticizes her for black-and-white portrayals of the antagonists, considers the Gores are sympathetic characters, albeit unusual among those faced with eminent domain, since they could afford to fight back. The Wall Street Journal review is mostly approving.

The battle in Freeport is ongoing, but the aftermath includes the election in May of a new mayor who opposes eminent domain; he survived a recall vote in November.

The background

In other chapters, Main also explains the background of eminent domain, and even mentions Atlantic Yards. She suggests that eminent domain law in the 20th century “is largely the story of idealism gone haywire;” the law broadened with the 1954 Berman v. Parker case, allowing the razing of both rundown housing and solid businesses in Washington, DC, but producing far less housing than was replaced.

(As I noted, Justice William O. Douglas wrote with eloquent outrage about a situation that didn't sound much like Prospect Heights:
Miserable and disreputable housing conditions may do more than spread disease and crime and immorality. They may also suffocate the spirit by reducing the people who live there to the status of cattle. They may also be an ugly sore, a blight on the community which robs it of charm, which makes it a place from which men turn.

She tells the story of the controversial 2005 Kelo v. New London case as well as bookend cases in Michigan, Poletown, which in 1981 expanded eminent domain in the state, and Hathcock, which in 2004 narrowed it. While state governments have responded to the post-Kelo backlash, she, as do conservative scholars like Ilya Somin, remain skeptical that eminent domain abuse will be reined in.

The evolution of eminent domain

Main suggests how eminent domain has evolved:
Nominally, the term “highest and best use’ is employed in determining the value of land for purposes of compensating the owner when the land is taken from him. But the words also describe a change in American culture, the tendency of courts and communities to think about property in a different way. The modern approach to eminent domain in the mid-twentieth century essentially evaluates whether owners are deserving or undeserving of their land, based on factors such as tax revenue and the physical appearance of the property… The current owner is viewed in comparison with another potential owner and found deficient, because the property is not being put to its “highest and best use.” This is wholly different from taking a property, with regrets—no matter what its conditions—because it stands in the way of a necessary public project.

…The municipality can make the owner out to be a slacker by measuring the current real estate taxes (and, if the land is occupied by a business, payroll taxes and other secondary economic benefits to the community) against the limitless dreams served up on a platter by the white-knight developer or big-box retailer.

Timothy Sandefur of the libertarian Pacific Legal Foundation, who filed a friend-of-the-court brief supporting the Gores, reviewed the book in the Recorder and suggested that Main should have tracked "the Progressive origins of eminent domain abuse." In other words, the evolution of the concept of “public use,” while it has roots in the antebellum era, more properly dates back to judges like Louis Brandeis and the New Deal.

He wrote:
One problem with Progressivism is that it assumed that government can allocate property more justly than the market. Yet the power to redistribute wealth and opportunity will invariably fall into the hands of politically sophisticated lobbyists who stand to make a buck by exploiting that power. This is why wealthy, white neighborhoods are rarely condemned, while blue-collar or minority towns frequently are.

Sketching the debate

Encounter Books has a conservative bent, thus indisposed to eminent domain--though Kelo, as Main points out, galvanized a wide range of opponents concerned that endorsing eminent domain for economic development would advantage the wealthy and political powerful.

Still, I think the book could give more credence to the arguments by municipal officials and urban planners about the importance of eminent domain, still, in repairing certain urban neighborhoods.

For example, New York City officials say it was crucial to the successful—and noncontroversial—Melrose Commons development, achieved with much community input. Another argument is that condemnation is needed for “site assemblage,” to achieve significant mass for major projects.

The legitimacy of that argument deserves more discussion.

What about AY?

And what about Atlantic Yards, which Main in the book erroneously calls an “economic development taking” rather than one justified, according to the Empire State Development Corporation, by several public purposes, including removal of blight, creation of open space, and the building of affordable housing. (Critics argue that some of those public purposes, especially the removal of blight, were only added later to ease the process.)

It’s not easy to assemble land for a sports facility. But whether a sports facility is a public use is in question; in the Atlantic Yards eminent domain case, plaintiffs' attorney Matthew Brinckherhoff, arguing in court 10/9/07, called it "a private, money-making enterprise,” not different from a hotel that offers public access. While the Atlantic Yards arena would be nominally publicly owned, it would be rented to a private owner for $1, who would pay for construction (via tax-advantaged bonds that are repaid as payments in lieu of taxes, or PILOTs) and collect hundreds of millions of dollars in naming rights.

In its dismissal of the appeal February 1, the Second Circuit Court of Appeals noted "a publicly owned (albeit generously leased) stadium."

A twist regarding Kelo

One of the bedrock arguments in the Atlantic Yards eminent domain challenge is that, unlike in the New London case, city and state officials did not create a comprehensive plan but instead anointed developer Forest City Ratner from the start. But Main suggests that the Supreme Court was making a shaky summary.

She writes:
Justice [John Paul] Stevens wrote in essence that the city would not be allowed to “take property under the mere pretext of a public purpose” if its real intent was to benefit a specific private party. But New London, said Justice Stevens, had a “carefully considered development plan.” If only Justice Stevens could have been a fly on the wall at all the city council meeting where the New London Development Corporation and council members were at each other’s throats over the ever-evolving plans, with the NLDC demanding money and the council repeatedly seeking further explanations of what the devil they intended to do.

Indeed, several months after the 2005 Supreme Court decision, the New London Day reported that, despite denials by Pfizer, the main private beneficiary of the redevelopment, that the project wasn't its idea, "the company has been intimately involved in the project since its inception."

So, perhaps any legal challenge based on Kelo—as with the Atlantic Yards eminent domain challenge—is based partly on a chimera. Then again, there's even less evidence that Atlantic Yards was the product of a “carefully considered development plan”

Yes, the Empire State Development Corporation (ESDC) compiled an extensive record. But did state and city officials do sufficient due diligence?

As I noted, former New York City Economic Development Corporation (NYC EDC) President Andrew Alper said that it "is not really up to us then to go out and find to try to a better deal." Also, the ESDC and governor's office both on 3/4/05 issued press releases relying on revenue projections made by the developer’s paid consultant, Andrew Zimbalist, rather than conducting their own analyses. And both the ESDC and the NYC EDC conducted fiscal impact analyses without looking at a range of costs.

AY as poster child

In another mention of Atlantic Yards in the book, one passage suggests that Public Advocate Betsy Gotbaum is a prime example of a politician caught up in contradictory statements about eminent domain.

Main writes:
Not to be outdone by their neighbors across the Hudson, the challengers in the New York City primary race for public advocate, always a slugfest, were also slinging mud over eminent domain. In the post-Kelo world, it seems to be de rigueur for politicians to at least appear as if they despise eminent domain. The incumbent public advocate, Betsy Gotbaum, was attacked for publicly supporting the highly controversial Atlantic Yards redevelopment project on Brooklyn’s waterfront—in which eminent domain had been threatened but not yet deployed—while at the same time insisting she was opposed to such takings. Among Gotbaum’s critics was a city councilwoman who introduced a bill to prevent the use of city funds to facilitate such takings. Gotbaum reasoned that the powerful and well-funded developer was still negotiating buyouts with the holdout residents, and besides, the developer had told her “he didn’t want to use eminent domain.” That’s a bit like saying that robber who puts a gun to a man’s head and takes his wallet did not obtain it by force, since he never actually pulled the trigger.
(Emphases in the original)

The project, of course, is not on the waterfront, but otherwise Main nails the issue. Gotbaum's record, and the failure of major media outlets to hold her accountable, represent a notable mini-chapter in the evolving saga of eminent domain.

Sunday, February 24, 2008

HDC head curiously unconcerned about AY funding availability

From yesterday's New York Post, an article headlined ATLANTIC YARD$TICK FOR POOR HOUSING, in its entirety:
A federal-funding shortfall that could hamper affordable housing projects in the city likely won't affect the Atlantic Yards project, a top official said yesterday.

"Given the scale of the project . . . we're not concerned that the money won't be there," said Marc Jahr, president of the city's Housing Development Corporation.

That's curious.

Less than two weeks ago, Jahr wrote in City Hall News, as I reported Friday:
It is only February, but over $960 million in private activity bonds are required for affordable housing deals in HDC’s 2008 pipeline alone, while New York State overall has a pipeline of more than $6 billion. Unfortunately, however, New York State’s yearly allocation of cap is only around $1.6 billion.

And, as I reported, he earlier this month told the Bond Buyer, "It's a pity to have good affordable housing projects in a city that desperately needs affordable housing for virtually all income levels, to have them sitting at the starting line with their engines idling.”

Simple physics suggests that the scale of Atlantic Yards, which would require $1.4 billion in bonds, should make it harder, not easier to find the funds--even if the scale makes AY "too big to fail."

Until and unless additional volume cap is found, thus allowing the city and state to issue more bonds, a lot of projects are going to be at the starting line.

That's not to say it can't happen, if Congress acts. But it hasn't happened yet. And maybe a project that's supposed to take a decade--and might take two decades--could have its housing bonds doled out in many, many stages.

Still, there's a major shortfall right now. Whatever he told the Post, Jahr can't be unconcerned about Atlantic Yards.

Saturday, February 23, 2008

The "spirit of the Times," or why there's no editorial criticism of Ratner

Maybe you were wondering why the New York Times editorial board, despite being capable of skepticism about development puffery, has produced confused and lame editorials supporting Atlantic Yards and remained (I speculate) in the gridlock of silence, failing to take a stand pro or con when a questionable process finally reached the Public Authorities Control Board at the end of 2006.

Well, the parent New York Times Company partnered with Atlantic Yards developer Forest City Ratner on the new Times Tower headquarters on Eighth Avenue, and the Times even agreed to guarantee a loan, as Editor and Publisher reported last year.

While that doesn't mean the business relationship influences coverage--though I've long argued that obligates the Times to do a better job--the editorial page is not so insulated. The Times itself has acknowledged publicly that its publisher influences the editorials.

And even clearer explanation of the connection between boss and doctrine came from Editorial Board Member Carolyn Curiel, the main writer of editorials on local issues, interviewed 10/31/07 by "One to One" CUNY-TV host Sheryl McCarthy.

The "spirit of the Times"

At about 1:57, Curiel explained: Our goal is to reflect the spirit of the Times and the opinion of the publisher, Arthur Sulzberger, Jr.

She continued: And a lot of it is driven by the news pages, but we don't consult with the news pages. We arrive at our own opinions, we do our own reporting. It's very time-consuming, for what will end up in the paper to be maybe five, six, seven, eight inches of copy, sometimes days, sometimes weeks have gone into processing all the information. But that's our task... it's the result of 18 people hammering something out.

But reporting in this case didn't extend to, say, attending a board meeting of the Empire State Development Corporation.


McCarthy wanted to know how decisions are reached: So you talk it out, you reach a consensus...?

CC: It's not a democracy. Consensus is often arrived at, sure, but not always.... There is something of a position being hammered out at the table.

At 11:04, Curiel reiterated the point: Again, we're not a democracy. We are reasoned, in how we come to opinion. But no, it's not a democracy; it's reflective of the spirit of the Times.

Of course, every newspaper, from the New York Post to the Brooklyn Paper, reflects the spirit of its owner. It's just that we expect a little more from the Times, that the editorial page's voice of urbane liberalism, tinged with pragmatism--to offer a rough summary--would lead to skepticism about a project such as Atlantic Yards.

The spirit of the Times in the case of AY is a muddled one, undoubtedly reflecting both private as well as civic goals.

Ignoring news broken on blogs

At about 19:20, Curiel sounded like she never learned a thing from a blog:
The industry is changing in ways that no one can really accurately predict at this point...I believe the Times will be forever, in whatever format... it will always be around. People point to all of the online content, and I say it's all derivative, and much of it derives from the New York Times. You will always need quality reporting, quality editing, and presentation that people can actually use.
(Emphasis added)

If only she recognized how many print stories that go into the Times (and other papers) were generated by local bloggers/reporters. Or how many stories the Times ignores.

Will the Times comment on Forest City Ratner's large "soft money" donation to the Democratic Assembly Campaign Committee's Housekeeping account, a gift that has drawn criticism from the watchdog Brennan Center for Justice and from Common Cause, and which generated only silence from the donor and donee?

Don't hold your breath.

Friday, February 22, 2008

AY affordable housing jeopardized not by lawsuits but by funding "crisis"

Forest City Ratner has heavily promoted the 2250 units of subsidized housing in the Atlantic Yards project, and that's been cited as a public use by two courts. However, there's no money available for it right now, more than a half year after a city official cited a "crisis" in the provision of affordable housing bonds.

In arguing for an expedited schedule to hear the appeal in the state lawsuit challenging the AY environmental review, the developer says resolution of the case would dampen uncertainty regarding arena financing and even would help build the project’s affordable housing, according to lawyer Jeffrey Braun.

Yes, the developer must start on the arena block as a whole to build the housing towers that would ring the arena. However, delay may be a silver lining for the housing component of Atlantic Yards. The city and state don’t have nearly enough capacity to allocate bonds for affordable housing projects, an issue highlighted last November by the Independent Budget Office.

Wrote Marc Jahr, president of the New York City Housing Development Corporation (NYC HDC) earlier this month in City Hall News:
It is only February, but over $960 million in private activity bonds are required for affordable housing deals in HDC’s 2008 pipeline alone, while New York State overall has a pipeline of more than $6 billion. Unfortunately, however, New York State’s yearly allocation of cap is only around $1.6 billion.

The AY demand

Atlantic Yards would require $1.4 billion in housing bonds, according to information the Empire State Development Corporation disclosed to the Public Authorities Control Board and made public in the lawsuit challenging the AY environmental reviews.

(The project is officially supposed to take a decade, so it’s not clear what segment of the total bond request would be sought each year. There's no evidence FCR has even applied for the bonds, though HDC officials didn't respond yesterday to a request for confirmation.)

So those bonds would be well behind requests made by many other developers seeking to make use of a very limited pool of affordable housing financing, a situation Shaun Donovan, commissioner of the city’s Department of Housing Preservation and Development (HPD) told Congress last May was a “crisis” threatening 6700 units in the city’s pipeline.

Such bonds allow the developer to borrow money at a lower interest rate, serving, essentially, as a discount mortgage, saving perhaps 15% on a project like Atlantic Yards. Most 80/20 projects, involving 80 percent market-rate and 20 percent low-income, are in Manhattan, and funded by the state agency, HFA.

The NYC HDC, which Donovan chairs, funds projects geared to a greater mix of incomes, such as Atlantic Yards, where the rental units would be 50 percent market-rate, 30 percent middle- and moderate-income, and 20 percent low-income.

Officials hope for the best

Volume cap is allotted nationally on a per capita basis, $85 per person. The federal government limits the amount of bonds a city or state can authorize, because the tax-exemption represents foregone federal revenue. Two weeks ago, I checked with city and state housing officials whether they expected federal help to deal with the “crisis.”

The answers indicated some optimism but great uncertainty.

HPD spokesman Neill Coleman responded, “We continue to pursue both an increase in the volume cap allocation and proposals to recycle bonds used to finance only the construction phase of multi-family rental housing and retired after two or three years. Congressman Charles Rangel, as Chair of the Ways and Means Committee, and Senator [Chuck] Schumer have been much-needed champions in Washington for the City’s affordable housing needs and are assisting us. We are hopeful we will see progress in the next few months.”

State Housing Finance Agency (HFA) spokesman Philip Lentz responded, “In Washington, there's not been much progress. Congress did not act on either idea Shaun mentioned in his testimony. There was an effort in the last week to put an amendment in the stimulus package to increase volume cap, but it was not successful. Sen. Schumer was one of the leaders in that effort.”

“Going forward, that means the state has virtually the same allocation of volume cap for '08 as '07 at a time when there is more demand for housing volume cap than there is supply. Making things more difficult this year is that most of the excess volume cap that had built up over the last few years (called "carryforward") was used up last year to meet the tremendous housing demand, which means there will be much less carryforward going into '08.”

New pressures

Because volume cap is in such short supply, Lentz noted, last month HFA announced new allocation criteria for 80/20 projects seeking volume cap financing, including projects that maintain affordable rental units for a longer period, “construction readiness and financing readiness;” and compliance with the city’s planning and development goals.

Michelle de la Uz of the Fifth Avenue Committee, a nonprofit developer, told me, "The fact that we're faced with limited volume cap means we're going have to reevaluate how existing and additional volume cap is used. It's seems to me that we've finally woken up that, whatever the volume cap, we have to ensure that it's used for the maximum public utility."

And that would lead to debates about supporting middle- and moderate-income housing versus low-income housing, as well as the reliance on for-profit developers, who typically charge higher developer fees than nonprofit developers, though the former would argue they have additional capacities to accomplish complex projects.

Also, Crain’s reported this week that the state strictures mean that only two or three of some 30 developers now seeking 80-20 housing bonds will get approval.

There are other pressures on affordable housing finance. The Real Deal reported that there’s a lowered market for Low Income Housing Tax Credits (LIHTC), a fallout from the mortgage crisis. The New York Observer reported that HPD has been lowering its estimates of new affordable housing construction, from 11,587 to 8,568 in the current fiscal year from 11,587 to 8,568, with 7,947 for the next fiscal year, beginning in July.

Movement in DC?

Earlier this month, Schumer raised the issue of volume cap. In his February 4 critique of the Bush administration’s budget proposal, Schumer noted that, while the Bush Administration has proposed a $15 billion increase in private activity bond cap over three years to respond to the subprime mortgage crisis, the plan offers too little money, should offer a permanent increase in the cap, and should finance multi-family housing, not just single-family housing

On January 30, the Senate Finance Committee adopted a key part of a proposal offered by Schumer that would allow state governments to issue more tax-exempt bonds to fund new construction of affordable housing. That measure, as Lentz said, apparently failed. Meanwhile, Schumer supports a more long-term proposal, which would provide a $10 billion-per-year increase nationally in the bond cap for 2008 and 2009 and make a $3 billion increase permanent.

That would serve a lot of projects in New York, so city and state officials are undoubtedly watching the issue closely. And so is Forest City Ratner.

AY not at starting line

Jahr, in his City Hall News article, cited increasing demand for affordable housing, a “rapid run-up in construction costs, the effects of rezonings, and changes in the 421-a tax program, as pressures on demand for housing bonds.

Besides the increase in volume cap, the city would like capacity to “recycle” bonds used to finance only the construction phase of multi-family rental housing, a process currently allowed only for single family homes--a policy “unfair to urban areas like New York City."

Jahr earlier this month told the Bond Buyer, "It's a pity to have good affordable housing projects in a city that desperately needs affordable housing for virtually all income levels, to have them sitting at the starting line with their engines idling.”

Atlantic Yards, apparently, isn’t even at the starting line.