Monday, November 30, 2009

ESDC: no tax-exempt bonds for infrastructure will be issued

The Empire State Development Corporation (ESDC), says the Brooklyn Arena Local Development Corporation is not going to issue tax-exempt bonds for Atlantic Yards infrastructure, as documents prepared in September suggested (as I reported this morning).

The ESDC issued a statement:
ESDC was at one time considering additional tax exempt bonds for infrastructure financing. Ultimately ESDC decided not to pursue that type of financing. Last week’s Board authorization of last week is the only financing under consideration by the Brooklyn Arena Local Development Corporation. Additional details of the bond sale will be released once documents are finalized. There will be a formal mid-December closing and we anticipate marketing the bonds prior to that time.
I'm several hours late posting this because I was in transit, but the ESDC had a day and a half last week to tell me that the plan was off.

Lipsky's gyrations on eminent domain: OK for AY, but not for Willets Point

Eric McClure of NoLandGrab has the analysis of Richard Lipsky's Olympic-style gyrations, in which the AY lobbyist says the Court of Appeals decision on AY eminent domain was fine, but the fallout from the Kelo case in New London means that the courts should back property owners (whom he represents) in Willets Point.

I'll just add that the plaintiffs in the Willets Point case, via attorney Michael Rikon, filed an amicus brief in the AY case supporting the AY plaintiffs.

Revealed: state is prepared to issue up to $400 million in tax-exempt bonds so FCR could save on Atlantic Yards infrastructure

According to a previously unrevealed action in September, developer Forest City Ratner could benefit from $400 million in state-authorized tax-exempt bonds for much more than the planned arena.

The recently-formed Brooklyn Arena Local Development Corporation (BALDC) is prepared to authorize up to $400 million in tax-exempt bonds for Atlantic Yards infrastructure, thus allowing FCR to save tens of millions of dollars and filling a funding gap discernible in project documents.

This raises significant questions:
--When, if ever, would such bonds be issued?
--What revenues would back bond payments?
--Could the state be on the hook to pay off the bonds?
--Would the bonds be used to build the new railyard?
--Would the full $400 million be issued?
--Why wasn't this funding mentioned in the Modified General Project Plan issued in 2006 or its update in 2009?
--How could bonds be paid off in the "delayed buildout" scenario envisioned in the Technical Memorandum (p. 55) issued in June by the Empire State Development Corporation (ESDC)?

Partial answers

We know answers to some of the questions, but I'm waiting for the ESDC to provide additional answers (and will update this post when I get them).

After the BALDC was formed, I reported on 1/26/09 that its scope contemplated financing for infrastructure improvements beyond the arena. (No dollar figure was attached, however.) That function had not been mentioned in other ESDC documents and has not been mentioned since.

The infrastructure bonds, ESDC officials said at the time, would be paid back via a development fee to be paid by Forest City affiliate(s) leasing certain development parcels. If bondholders aren't paid, they could exercise leasehold rights, which would be subordinate to the ESDC's rights, so lien holders could develop the project only in accordance with the ESDC’s General Project Plan (which can be amended).

Though ESDC officials said in January that the state would not have obligations to bondholders, last week, BALDC and ESDC officials, when asked (at about 2:25 of the video below) if the state could bail out arena bondholders, refused to definitively rule it out, saying "That's speculation" and "That's not foreseeable."

No disclosure

The size of this important funding component--revealed in response to a Freedom of Information Law (FOIL) request--was not disclosed by the Empire State Development Corporation (ESDC) during the public comment period earlier this year regarding the revised Atlantic Yards plan nor before the ESDC approved the plan in September.

There was no opportunity for the public to comment at the November 24 BALDC meeting authorizing arena bonds.

(The BALDC authorized up to $825 million for the arena, including $150 million in taxable bonds, though in September it set a cap of $1.1 billion. Thus, while the infrastructure cap is $400 million, that total need not be issued.)

"[W]e are issuing governmental bonds and there is no federal or state requirement for a hearing," ESDC spokeswoman Elizabeth Mitchell stated before the meeting. "The distinction is based on the fact that governments are already subject to a public process, in our case ESDC's prior hearings, for governmental projects."

But the public process did not include any mention of tax-exempt financing for infrastructure. Thus, the public costs of such tax-exempt bonds were not available to those examining the project, such as the New York City Independent Budget Office.

Questions pending

I submitted several questions to the ESDC early last Wednesday afternoon before the Thanksgiving holiday and then sent more on Friday morning. Though Friday was a business day, many people were out of the office and I was told a response might not come until today.

Timing issues

The ESDC voted on September 17; the two BALDC documents--an Inducement Resolution and a document listing multiple resolutions adopted by written consent--were signed on September 11.

I received them in response to a Freedom of Information Law request dated October 31. The documents were mailed on November 23, which ensured that I would not see them before the 10 am public meeting of the BALDC on November 24.

State law requires agencies to grant or deny access to FOIL requests in five days or, if more time is needed, to respond within 20 additional business days. While the response to my request fell within the boundary, I suspect that the records sent to me could have been made available within just a few days.

Special-purpose subsidiary

The BALDC last week authorized the issuance of some $800 million in bonds (mostly tax-exempt, with $150 million taxable) for the Atlantic Yards arena.

After the meeting, BALDC President (and ESDC CFO) Frances Walton was asked (at about 3:26 in the video below), "Is there any provision to sell bonds in the future, either taxable rental bonds, kinda like, y'know, the Yankees did, in 2006, they did taxable rental bonds, and they did again, this year."

"There's no expectation at this time that the LDC will be issuing any additional bonds for this project," Walton said.

"Is it permitted, though, in the bond documents?" Bond Buyer reporter Ted Phillips followed up.

ESDC attorney Jonathan Beyer, after turning and seemingly looking for a cue from colleagues, acknowledged "Yes."

The exchange seemingly concerned additional bonds for the sports facility, but Beyer's response could have been an acknowledgment that the BALDC can also authorize bonds for infrastructure.

Walton's statement, while seemingly referring to the "Atlantic Yards Redevelopment Project," may have been more ambiguous. It could have more narrowly meant the "Arena Project" and not the "Public Improvement Project," both subsets of the overall project, as stated in the 9/11/09 BALDC documents.

So even if there is no expectation of issuing additional bonds for the "Arena Project," that doesn't rule out issuing bonds for the "Public Improvement Project."

But it has not been urgent for the BALDC to act on infrastructure bonds. Only the tax-exempt arena bonds face a 12/31/09 deadline.

From the Inducement Resolution

The document states:
    WHEREAS, Brooklyn Arena Local Development Corporation... was formed to finance certain components of the Atlantic Yards Redevelopment Project, including the design, development, construction and operation of an arena for use by a professional basketball team and for other sports and arena events (the "Arena Project") and, if deemed beneficial to the Atlantic Yards Redevelopment Project, to finance certain public infrastructure improvements related to such project (the "Public Improvement Project").
    "Public Improvement Project" needed for eminent domain?

    The term "Public Improvement Project" is previously unmentioned in any Atlantic Yards documents, as far as I know.

    But it may be crucial to the exercise of eminent domain, because the state will not pursue condemnation until arena-related infrastructure is on track.

    The ESDC's 2009 Modified General Project Plan (MGPP) for Atlantic Yards states:
    (p. 9) The Arena Block will contain, in addition to the Arena itself, four buildings, a publicly accessible "urban room," and infrastructure to service the entire complex, including subway improvements and utility improvements.

    (p. 23) ESDC's acquisition of all such properties will not occur until such time as ESDC receives commitments, guaranties and other evidence satisfactory to ESDC that FCRC will (i) promptly commence construction of the Arena, and all of the infrastructure necessary for the Arena (together with the Arena, the "Initial Development")...
    (Emphasis added)

    The infrastructure gap

    In January, I wrote that the 2006 Modified General Project Plan (MGPP) budgeted $544.4 million for project infrastructure, with $205 million coming from government funds but no particular source for the rest.

    The 2009 MGPP, passed in September, budgeted $717 million for project infrastructure, again with $205 million coming from government funds but no particular source for the rest. That gap apparently would be filled by the bonds.

    Would delay leave state on the hook?

    The Technical Memorandum acknowledges the potential for delay:

    However, if current economic conditions persist beyond the timeframes of current projections, it is possible that future delays may occur.
    These potential delays due to prolonged adverse economic conditions would not affect the timing of the development of the arena, the transit access improvements, the construction of the new LIRR railyard, the reconstruction of the Carlton Avenue Bridge or the construction of Building 2. It could, however, delay the construction of some of the remaining buildings on the arena block as well as the Phase II sites. While the current construction plan calls for the continuous construction of the platform over the rail yard in Phase II, under this delayed build out condition, sections of the platform for Buildings 5 through 10 could be constructed as each of the buildings move forward in development.
    A significant amount of infrastructure is implied in the list above: the development of the arena, the transit access improvements, the construction of the new LIRR railyard, the reconstruction of the Carlton Avenue Bridge, and the construction of Building 2.

    Should tax-exempt bonds be used to fund the infrastructure, with the payments based on development fees paid for the lease of certain development parcels, a delay in development could lead to a delay in payments.

    Inducement Resolution

    The authorization is revealed in an Inducement Resolution the BALDC adopted on 9/11/09.

    The document (click to enlarge) states:
    RESOLVED, that the Corporation hereby declares its official intent... to issue tax-exempt Bonds and use the proceeds to finance payment by or reimbursement of Forest City for costs of the Arena Project and the Public Improvement Project incurred for the benefit of the Governmental Project and the Public Improvement Project incurred for the benefit of the Governmental Entities. This declaration of official intent is subject to subsequent approval of the proposed financing of each of the Arena Project and Public Improvement Project by the Corporation. The Corporation understands that Forest City has paid and will pay certain capital expenditures in connection with the Arena Project and the Public Improvement Project for the benefit of and on behalf of the Governmental Entities prior to the respective issuance of Bonds for each. Forest City may use temporary funds that are or will be available on a short term basis to pay for preliminary expenditures, construction and certain equipping costs for the Arena Project and the Public Improvement Project. Said declaration is based upon the representation of Forest City that it reasonably expects that it will seek reimbursement for the use of such funds from the proceeds of tax-exempt Bonds to be issued by the Corporation to finance the respective costs of the Arena Project and Public Improvement Project for the benefit of and on behalf of the Governmental Entities. The maximum amount of Bonds currently expected to be issued by the Corporation for the Arena Project is $1,100,000,000, of which $950,000,000 is expected to be tax-exempt, and the maximum amount of Bonds currently expected to be issued by the Corporation for the Public Improvement Project is $400,000,000, all of which is expected to be tax-exempt, in each case measured by the "issue price" of such Bonds as determined under applicable Treasury Regulations.
    (Emphases added)

    Sunday, November 29, 2009

    In error-filled editorial, Crain's says elected officials should reassure arena bond investors

    In a Crain's New York Business editorial, headlined Affirming Atlantic Yards: In every decision so far, the courts have held for Mr. Ratner, the errors start with the headline.

    The state eminent domain case case was filed against the Empire State Development Corporation (aka Urban Development Corporation), and the courts have held for the state, not the developer.

    Public good?

    The editorial begins:

    New York's highest court did more than affirm the right of the state to use eminent domain in last week's crucial ruling on the Atlantic Yards project. The Court of Appeals endorsed both the public good the project offers and the right of elected officials to implement development plans over the objections of a few holdouts. If bond investors are willing and New York politicians steadfast, Forest City Ratner will break ground in the coming months.

    The basic rationale for building Atlantic Yards has been forgotten amid financing problems, legal challenges and orchestrated opposition. It is nothing less than a bet that New York has a bright future—that the surging growth of the city's population will require new residential neighborhoods near transit hubs. The sports arena is designed to kick off a project that will bring thousands of new residential units to an underdeveloped area and give Brooklyn's prestige a worldwide boost.
    The Court of Appeals, in its decision November 24, did not endorse the public good. It chose not to substitute its judgment for the ESDC's questionable--but still "rational"--determination of the public good.

    Nor have "elected officials" implemented development plans. The ESDC is an agency of gubernatorial appointees.

    Yes, new residential neighborhoods near transit hubs may be needed, but a rezoning could do the trick. The sports arena wouldn't necessarily "kick off" anything, given that the ESDC's delayed buildout scenario contemplates just one residential tower and there's ample reason to doubt the announced ten-year timetable.

    Public opinion

    The editorial continues:

    Also not well-understood is that opposition to the project has been grossly overblown. A 2006 Crain's poll found that two-thirds of New Yorkers—and two-thirds of Brooklyn residents—supported the project. There is no reason to believe that much has changed. The mayor and governor—whether Spitzer or Paterson—have never wavered. A few Brooklyn politicians have defected, but others remain behind the project. Develop Don't Destroy Brooklyn and its earnest but small band of allies essentially demand that they dictate the terms of development in the area, not elected officials.
    The questions in the Crain's poll were stunning generalities, leading the uninformed to a positive opinon. One example: "The project will provide 2,250 low-, moderate-, and middle-income rental apartments."

    Not only would the project itself not provide the apartments--for that we need to scarce tax-exempt bonds, the timetable and total of apartments is in question, while a slice of the subsidized apartments would be more than market-rate.

    Develop Don't Destroy Brooklyn (DDDB) has raised $1.25 million from more than 4700 donors. Numerous local groups have signed on to lawsuits; just recently, several members of the BrookynSpeaks coalition, recognizing the futility of the "mend it don't end it" position, filed a lawsuit very similar to the one filed by DDDB and adopting similar rhetoric.

    The financing issue

    The editorial continues:

    One major hurdle remains for Forest City. The company must sell tax-exempt bonds by the end of the year in a difficult market or lose access to that source of inexpensive financing. Investors must be willing to buy the bonds despite at least three new lawsuits filed in recent weeks against Atlantic Yards that theoretically could end the project and cause them to lose their money.

    The idea of mounting a successful legal challenge is far-fetched. All the court decisions so far—and there have been 24—have turned back the lawsuits against Mr. Ratner. The strategy of Don't Destroy Brooklyn and its allies isn't even about the law anymore; it is about trying to scare the investors away.
    While it's fair to say that clouding the investment climate may be one part of the strategy, the lawsuits, backed in several cases by local elected officials, aim to do much more than that: to hold government accountable.

    Political leaders

    The editorial concludes:

    That's where political leaders should come in. It is up to the mayor, the governor, the borough president and other elected officials in Brooklyn to reconfirm their support and their commitment to making this project happen in order to reassure those investors.
    What does that mean? No local elected officials had a voice in deciding the project. Now Crain's says they should affirm their support to help investors and, not coincidentally, a project that would benefit Russia's richest man.

    Why, for example, should local officials commit to assigning tax-exempt housing bonds for Atlantic Yards without comparing the cost per unit to other affordable housing projects?

    And doesn't Crain's, the voice of the business community, have the slightest qualms about endorsing arena bonds that might--despite state assurances to the contrary--leave the state on the hook?

    Lawyer for developers: expect a crisis every eight to ten years

    From the Spring 2009 issue of Development magazine, the quarterly publication of NAIOP, the Commercial Real Estate Development Association:
    [John W. Waldeck, partner and chair of the Real Estate Group at the Cleveland-based law firm Walter & Haverfield] observed that the commercial real estate industry is in the midst of its third major crisis in 30 years (the first two being the period from ’77 to ’80 and again in the early ‘90s). “If you’re an entrepreneur, is this what you have to anticipate? That once every eight to 10 years the industry will go through the ringer?” The answer clearly being yes, he advised owners and developers to “build up a substantial war chest.”
    In other words, even industry peers might say that Atlantic Yards developer Forest City Ratner and the Empire State Development Corporation aren't realistic in anticipating a ten-year buildout for the project. I've suggested several reasons for skepticism.

    Saturday, November 28, 2009

    Editorializing on AY: Noticing New York's Michael White and the WSJ vs. the New York Daily News editorial

    There was a method beyond Noticing New York blogger Michael D.D. White's running silent commentary on the Atlantic Yards bond deal Tuesday. Remember, and most importantly, no public comment was allowed. Here's part of White's message:
    Of course, you should be worrying that these bonds will default and consequently don’t deserve a good rating. A default will negatively affect the market for all New York issuers. But that is not all you should be worrying about. Moody’s has warned that the entire state is weeks away from a substantial downgrade of its credit rating if it doesn’t close its budget gap.
    Wall Street Journal editorial

    The Wall Street Journal, in an editorial headlined Property Owners Get Dunked On: Another victory for the powerful over property rights, grasped the issue:
    In allowing the property seizure, the Court of Appeals dodged some of the central challenges to the condemnation, including whether the Empire State Development Corporation's designation of blight in the Atlantic Yards area was applied after the stadium project had already been planned, making it a "pretext." Nor did the court take on the question—at the heart of eminent domain law since Kelo—whether economic development may be considered a public use under the New York Constitution.
    Daily News editorial

    Contrast the above with another (duh) wrongheaded New York Daily News editorial, headlined A Net gain for Brooklyn: High court did right by the city in Atlantic Yards lawsuit, which claimed:
    On the upside, the court rendered expeditious judgment, positioning Ratner to meet a year-end deadline for financing the start of construction and - even more important - established a wise standard for the use of eminent domain in New York State.
    It did nothing of the sort. It acknowledged that the standard may be very fuzzy, but said it was not the place for courts to intervene. More critique from Eric McClure of No Land Grab.

    Plaintiff Sheets: "welfare kings," "civic masturbation," and the Michigan cases the Court of Appeals ignored

    At the Develop Don't Destroy Brooklyn press conference on Tuesday, held after the Court of Appeals upheld the use of eminent domain for Atlantic Yards, plaintiff David Sheets (left), a residential tenant, spoke so softly that only those close in could hear him, but the video below captures his words.

    In his pointed commentary, he referenced two court cases in Michigan, a state, unlike New York, where the highest court was willing to reverse itself on eminent domain. While those cases were raised in amicus curiae briefs to the court, none of the three opinions--majority, concurrence, dissent--acknowledged them.

    (Photo by Tracy Collins)

    "It's a scam"

    "I'm not an attorney, but I am a paralegal. I know my way around a legal document," said Sheets, who as a tenant is in a precarious position serving as a plaintiff in the case, since comparable housing is not at all guaranteed. "This is a scam. It's sucking up to the public trough. These are welfare kings, and it needs to be looked at that way."

    There are processes on the books to guarantee public participation, he said, but "the state and developer have done everything they could think of to reduce those to nothing more than occasional acts of civic masturbation. They are utterly meaningless."

    Civic masturbation? Well, state Senator Velmanette Montgomery, using different language, pretty much agrees, declaring:
    Public participation in the process has been reduced to the occasional “Public Hearing,” which is treated as a meaningless exercise in public theater, a quaint custom, a formality.

    (Videography by Jonathan Barkey)

    Life on Dean Street

    Sheets lives three doors from Freddy's Bar and Backroom, the backdrop for the press conference and a business slated to be evicted via eminent domain, and once worked as a bartender there.

    "We should not have to live like this--no one should," Sheets said, a reference to not just the broader battle but the experience of living on a street where utility work and demolition in unoccupied properties can make it very uncomfortable to those still there.

    What the court missed

    "The judges need to wake up, and surely they have," he said, making reference to another state high court that chose to look closely at eminent domain and change its mind. If they read the Poletown cases from Michigan, and then read the Hathcock opinion--the Michigan state Supreme Court overturned itself. We are not asking the impossible."

    Except it does seem impossible regarding Atlantic Yards, unless the longshot strategy proposed by DDDB lawyers can reopen the case.

    Also speaking in the video is plaintiff Henry Weinstein, who owns a building and adjacent lots at the corner of Pacific Street and Carlton Avenue.

    Friday, November 27, 2009

    Atlantic Yards site "blighted"? Some "reasonable difference of opinion"

    Libertarian law professor Ilya Somin calls the Atlantic Yards eminent domain decision "the first major state supreme court defeat for property rights on a public use issue since" the controversial 5-4 Supreme Court decision (2005) in Kelo v. New London, in which state courts and legislatures were invited to draw on local conditions to narrow the use of eminent domain.

    Somin wasn't surprised, given New York's history of court deference to agencies such as the Empire State Development Corporation (ESDC), the successful defendant in this case. He writes:
    To get around this problem, the Court held that “blight” alleviation is not limited to “‘slums’ as that term was formerly applied, and that, among other things, economic underdevelopment and stagnation are also threats to the public sufficient to make their removal cognizable as a public purpose” (pp. 15–16, quoting a 1975 decision).

    Obviously, virtually any area occasionally suffers from “economic underdevelopment” or “stagnation” and therefore could potentially be condemned under this rationale. Moreover, even under this expansive definition of blight, the decision states that courts can only strike down a condemnation if “there is no room for reasonable difference of opinion as to whether an area is blighted.” With respect to any neighborhood, there is nearly always “room for reasonable difference of opinion” as to whether the area is “underdeveloped” relative to some possible alternative uses of the land in question. Defining blight this broadly and then deferring to the government’s determination of whether such “blight” actually exists effectively reads the public use restriction out of the state constitution.
    That's essentially what Judge Robert Smith said in his dissent, as well.

    Taking a look

    After all, "reasonable" is a pretty broad term. Lead plaintiff and Develop Don't Destroy Brooklyn spokesman Daniel Goldstein, a press conference Tuesday, invited Gov. David Paterson to visit the "blighted" neighborhood of Prospect Heights.

    Is the AY site "an extremely derelict stretch," as a Forest City Ratner attorney Jeffrey Braun claimed in court 2/7/07?

    Well, courts (almost always) don't perform fact-finding, because they're not equipped to do so, but former Assemblyman Roger Green, an Atlantic Yards supporter, could've walked them around and reminded them that he said in 2005 that, "For the record, that neighborhood is not blighted."

    Reasonable difference of opinion

    Consultant AKRF, which conducted the Atlantic Yards Blight Study, always finds blight on behalf of its corporate and governmental clients. And, without an opportunity to challenge such a study in court with a dueling expert witness--as is possible in other states--the courts have to defer to the agency determination.

    (Challenging the use of eminent domain for Columbia University's expansion, attorney Norman Siegel tried an innovative tactic, submitting his client's own expert "No Blight" Study.)

    Well, here's a reasonable difference of opinion.

    “I think eliminating blight such as was done in Times Square by the City of New York was commendable because there the blight really amounted to the danger of crime where people simply didn’t want to go to Times Square,” testified Philip Weinberg at an 11/4/05 New York State Assembly public hearing on eminent domain, a highly instructive session that received a virtual media blackout.

    Weinberg practiced for 20 years in the New York State Attorney General's Office and was Assistant Attorney General in Charge of the Environmental Protection Bureau.

    “That’s very different from going into the middle of Brooklyn and using eminent domain to build a sports stadium and some high rise buildings which will mostly be market rate housing and the rest," he testified. "To me it’s easy to differentiate. There’s always a problem in the middle, sure. But it’s easy to differentiate between those two situations.”

    Building castles on air

    Keep in mind that one issue raised during the eminent domain litigation--and still pending in the case challenging the AY environmental review, for which an appeal to the Court of Appeals has been requested--is the state's claim that a building fulfilling less than 60% of allowable development rights is "underutilized."

    "We now hear they don’t like using 60%” of FAR as a criteria for underutilization, ESDC attorney Philip Karmel said at a 5/3/07 hearing in the latter case “You have to have a cutoff somewhere.”

    That would theoretically condemn large swaths of Brownstone Brooklyn as blighted, since they’re not built out to 60% of their development rights, as I've written.

    The ESDC memorandum of law called the agency’s consideration of underutilization, along with other factors, “a permissible exercise of discretion.”

    But how draw the line? Interestingly, an ESDC footnote buttressing that argument cites a 1985 case, G&A Books, Inc. v. Stern, which states, “The FEIS treats the severe underuse of the land in the Project Area’s 13 acres as further evidence of blight.”

    It's hard to argue that the buildings on the Atlantic Yards site exhibit "severe underuse." According to a law dictionary, “severe” means “of an extreme degree.” A building that occupies 53% of its allowable Floor Area Ratio would not seem to represent “severe underuse.”

    The issue of underutilization, though raised in court papers and legal arguments in the eminent domain case, was not addressed in any of the opinions issued this week.

    Thursday, November 26, 2009

    Nets CEO Yormark optimistic about the bond sale, says team will recover from losing streak

    New Jersey Nets CEO Brett Yormark appeared yesterday on WFAN's Boomer & Carton to talk about the team and Court of Appeals' dismissal of the Atlantic Yards lawsuit.

    "It was a big moment for all of us, especially Bruce Ratner," Yormark said, saluting his boss. "He's been fighting so many battles over the last couple of years and, yesterday gave him a chance to feel good about what he's done over the past couple of years."

    I guess that's one way of looking at it.

    Moving forward

    "We feel really good about the financing for the arena," Yormark added. "I think you'll hear some very positive news in the next couple of days from the rating agencies."

    He said the bond sale would be completed by mid-December and "We'll break ground this year."

    He said it was still the goal to move to Brooklyn and play basketball in the 2011-12 season.

    Upside of losing streak?

    Host Craig Carton pointed out the contrast between "this good news" and the team's epic losing streak, which, if they lose three more games on the West Coast road trip [they've lost one of them], would return with a chance to break a record: "If you come back to Jersey o and 17, I think you have a big crowd for that Mavericks game."

    Yormark said that players and staff continue to work hard and, when injured players return, "we almost have a second season."

    Paterson's role?

    "I know you got good news, whether I agree with it or not," Carton said at one point of the decision.

    Co-host Boomer Esiason, having read some news stories, asked Yormark whether Governor David Paterson could intervene--as AY opponents have requested--and stop the exercise of eminent domain.

    "I'm not qualified to answer the question," Yormark replied. "All I know is we've had the support at all the governmental levels."

    Later, Esiason told his co-host that, "According to Brett, New York is pushing it, they're involved in it, so I doubt the governor will do something."

    I think they're right.

    Wednesday, November 25, 2009

    No, Ratner didn't buy the Nets in 2003 to move them in 2009

    From today's Times Sports section, and article headlined Nets Have Dug a Big Hole, but Their Foundation Is in Place :
    Ratner purchased the franchise in 2003 for $300 million, originally planning to transplant the Nets from New Jersey in time for this season.
    NoLandGrab's Eric McClure reminds us that the original move date was 2006 and also points out some other miscues.

    Would you believe that some bloggers in Brooklyn have a heck of a lot more institutional memory than the Paper of Record?

    From the DDDB press conference: a vow to continue fighting

    At Develop Don't Destroy Brooklyn press conference yesterday outside Freddy's Bar & Backroom, slated for condemnation, DDDB spokesman Daniel Goldstein was careful to describe Atlantic Yards as a "proposed project" and to say that "the fight against the abusive, corrupt Atlantic Yards development proposal is far from over."

    He read from Chief Judge Jonathan Lippman's majority decision:
    It may be that the bar has now been set too low -- that what will now pass as "blight," as that expression has come to be understood and used by political appointees to public corporations relying upon studies paid for by developers, should not be permitted to constitute a predicate for the invasion of property rights and the razing of homes and businesses. But any such limitation upon the sovereign power of eminent domain as it has come to be defined in the urban renewal context is a matter for the Legislature, not the courts.
    "It's also a matter for the executive branch," said Goldstein, challenging Gov. David Paterson.

    (Photos by Tracy Collins)

    "So, besides the four outstanding lawsuits and besides what the plaintiffs in this case intend to do," he said, 'we are calling on Governor Paterson to put a stop to the taking of properties... And it's up to Governor Paterson if he wants this part of Brooklyn to be the next New London."

    Goldstein cited the aftermath of the Kelo case and asserted, "This is what we will get at this site in Brooklyn if the eminent domain takings are allowed to go forward and if the project is allowed to go forward. The best case scenario would be a money-losing arena and 20 acres of parking lots."

    That 20 acres is a significant exaggeration.


    He noted that, as a Senator, Paterson called for a moratorium on the use of eminent domain.

    He read a statement from Assemblyman Hakeem Jeffries, who has not stood with DDDB but has said he opposes eminent domain for a basketball arena but yesterday said that the use of eminent domain in this case was an abuse of an extraordinary power.

    (Other statements were read on behalf of Assemblyman Jim Brennan and state Senator Velmanette Montgomery. City Council Member Letitia James, the leading political opponent of the project, was at a Council hearing.)

    Goldstein asserted that the ruling was the first in a long series of steps leading to the takings of people's homes and businesses--likely a stretch, unless DDDB's new lawsuit--and the legal strategy behind it--proves effective.

    New legal strategy

    DDDB attorney Matthew Brinckerhoff also called the ruling the first step in a multi-step process--a statement that obscured the significant victory yesterday for the state.

    The next step is for the Empire State Development Corporation (ESDC) to formally try to seize properties.

    He also said a lawsuit would be filed to require the ESDC to reach new findings regarding the public benefits of the condemnation, noting that that Court of Appeals said it was constrained by the record compiled "in 2004 and 2005" (though it was completed in 2006).

    On what grounds?

    He cited the new Modified General Project Plan, noting that the New York City Independent Budget Office has issued a report saying the project--actually, the arena--is a net money-loser for the city.

    He said that the Vanderbilt Yard, "which is supposed to be upgraded, is now going to be diminished and downgraded"--though the Metropolitan Transportation Authority surely can say that the railyard, though smaller than once expected, would be improved.

    He also noted that the amount of money the MTA would received is diminished over time. The MTA might say that it's still promised $100 million, but it has essentially loaned money to Forest City Ratner at a 6.5% interest rate.

    "We will file a motion to compel the ESDC to issue new [Eminent Domain Procedure Law] Determination and Findings, and once they do that, we will start this process over again," he said. "We lost Round 1, but this is a multi-round fight."

    Any precedent?

    Are there any other eminent domain cases in which such a legal tactic has been successful, asked Eliot Brown of the New York Observer.

    No, said Brinckerhoff, who indicated that many of the legal cases in the Atlantic Yards fight have broken new legal ground.

    He noted that it's one thing to issue a Modified General Project Plan "which doesn't trigger a whole new set of rights.... but if they issued new EDPL findings, they'd restart the clock" and allow people to again challenge the determinations.

    Why would the ESDC's determination of public benefits for the project change?

    Brinckerhoff again said the benefits were less. (There's lots of evidence for lesser benefits, but surely the state would argue that there are benefits in developing a railyard that's the main source of blight.)

    Injunction needed?

    Can condemnations be stopped without an injunction?

    Brinckerhoff said there were two strategies: "One is an affirmative case to get [the court] to order the ESDC to make them issue an amended finding. The other is using the same issue... as a defense to the action that they will presumably now bring that they will use to take the property."

    In other words, he thinks that, in what is generally a process where there's little opportunity for challenge beyond narrow procedural issues, there's an opportunity to raise a major policy argument. That also would be an effort o break new legal ground.

    Court inconsistency?

    He also expressed dismay at the court's willingness to acknowledge the evolving notion of blight but treat literally a provision--untested in court--that the plaintiffs argued confined state subsidies to low-income housing.

    "They said, for purposes of eminent domain, slums now mean anything that looks bad, but for purposes of Section 6, slums only mean what slums were in the 1930s," he said, suggesting that the same language was being interpreted in different ways.

    More from Brinckerhoff, Goldstein

    Brinckerhoff answered more questions. "The problem is that the public use finding... is based on conditions that everyone knows do not exist... all of the benefits... are phantoms, they do not exist. So the argument remains, as it always has been...

    "There's definitely precedent to force an agency to comply with its legal obligations, and its obligation is to make a finding based on reality, not a fantasy," he said.

    "They cannot tomorrow serve anybody with an eviction notice," he said, noting that condemnation is a two-step process, and "we're going to try to go back and re-start step one."

    Goldstein asked what would happen if the sheriff tried to evict him. He paused. Beverly Corbin of United Neighbors of Brooklyn and FUREE (Families United for Racial and Economic Equality) said people would gather in front of his building.

    David Sheets and Henry Weinstein

    Residential tenant David Sheets (left) and property owner Henry Weinstein also spoke. Sheets lives three doors from Freddy's and once worked as a bartender there.

    He spoke so softly that I couldn't hear him, but the video captures his words. "I'm not an attorney, but I am a paralegal. I know my way around a legal document... This is a scam. It's sucking up to the public trough. These are welfare kings, and it needs to be looked at that way."

    There are processes on the books to guarantee public participation, he said, but "the state and developer have done everything they could think of to reduce those to nothing more than occasional acts of civic masturbation. They are utterly meaningless."

    "We should not have to live like this--no one should," he said, a reference to not just the broader battle but the experience of living on a street where utility work and demolition in unoccupied properties can make it very uncomfortable to those still there.

    "The judges need to wake up, and surely they have," he said, making reference to another state high court that chose to look closely at eminent domain and change its mind. If they read the Poletown cases from Michigan, and then read the Hathcock opinion--the Michigan state Supreme Court overturned itself. We are not asking the impossible."

    Except it does seem impossible regarding Atlantic Yards, unless the longshot strategy proposed by DDDB lawyers can reopen the case.

    Goldstein challenges Markowitz

    In column on Goldstein's fight, Daily News's Gonzalez suggests "a slew of politicians" has joined DDDB

    From Juan Gonzalez's column in today's New York Daily News about Daniel Goldstein (lead Atlantic Yards plaintiff and Develop Don't Destroy Brooklyn spokesman) and his family, headlined Brooklyn couple wants Gov. Paterson to stop Ratner's eminent domain win:
    But Goldstein is still in his condo, living in that dust-filled building.

    Only, Goldstein is no longer alone. Thousands of neighborhood residents and a slew of local politicians have joined the nonprofit group he launched to fight Atlantic Yards. The group, Develop Don't Destroy Brooklyn, has become one of the most effective grass-roots efforts this town has seen in a long time.
    It's true that DDDB has become an exemplary grass-roots effort, in significant part to Goldstein and his willingness to organize a media strategy.

    Local politicians?

    But "a slew of local politicians"? Nah. The only local elected officials that have consistently stood with DDDB are City Council Member Letitia James and State Senator Velmanette Montgomery.

    Other politicians, including Assemblymen Jim Brennan and Hakeem Jeffries, yesterday expressed dismay and opposition to the eminent domain ruling. But they haven't steadily joined DDDB but instead have often kept a wary distance.

    Elected officials have felt more comfortable in the past with BrooklynSpeaks, which long practiced a "mend it don't end it" strategy. Now BrooklynSpeaks has gone to court, sounding curiously enough like DDDB.

    Ratner says team will move mid-season, but Times says June 2012

    Developer Bruce Ratner said yesterday in a statement that "the intent [is] that the Nets will play ball in the Barclays Center in the 2011-2012 NBA Season."

    The New York Times reported today:
    The developer expects that it will take about 28 months to build the arena, enabling the Nets to move from East Rutherford, N.J., to Brooklyn around June 2012.
    The season's over by then.

    So if the Nets move to Newark as an interim stop on an expected transfer to Brooklyn, that would mean two years at the Prudential Center.

    Arena architects had said construction would take 26 months. But AY timing is always dicey.

    From the Times: a misleading "Atlantic Yards" photo, a buffing of "tenacious" Ratner, and no rebuttal to claims of benefits

    There are some unsurprisingly dismaying aspects to the front-page New York Times article today, headlined in print "Atlantic Yards Wins Appeal To Seize Land" and online as Ruling Lets Atlantic Yards Seize Land.

    First, though the article correctly states that the state would exercise eminent domain, the shorthand headline inaccurately casts the inanimate "Atlantic Yards" as the actor.

    Public benefit?

    Second, the Times quotes developer Bruce Ratner, unrebutted, as saying "“The courts have made it clear that this project represents a significant public benefit for the people of Brooklyn and the entire city.”

    The courts have made no such determination. Rather, the Court of Appeals decision issued yesterday was based on a record compiled in 2006 by the Empire State Development Corporation. The assertions in that record have not been vetted by the courts and there's much evidence--such as from the New York City Independent Budget Office--casting doubt on official claims.

    "On the railyard"

    Third, the original version of the article posted online said that the "arena would be built on an 8.5-acre railyard;" it took several messages to convince the Times to revise that description to "an 8.5-acre railyard and on adjacent property." (That's a basic error the Times has previously corrected.)

    Actually, part of the arena would be built over the western segment of that railyard, occupying less than 30% of the total railyard acreage.

    Another misleading photo

    Fourth, and most important, the Times published a picture (above) of only a fraction of the Vanderbilt Yard, the railyard, and called it Atlantic Yards. The photo covers the railyard and a few buildings between Sixth and Carlton avenues and Atlantic Avenue and Pacific Street, or Block 1120, outlined in red on the map below left.

    No plaintiffs in the eminent domain case live or own property on Block 1120. Nor is Block 1120 included in the first phase of the project.

    The two buildings pictured, which are not owned by Forest City Ratner, would not be subject to eminent domain in the first phase and, if the project does not go much beyond the arena block, may never be demolished.

    Only the lot in the right side near the top of the photo--Lot 35--might be part of the first phase. The Empire State Development Corporation's Technical Memorandum issued in June, which explained two phases for eminent domain, cited the need, "if necessary for the construction and operation of the LIRR rail yard, easements or other property interests on Lot 35 on Block 1120." Forest City Ratner has "closed on a leasehold" on that lot, according to the ESDC.

    The Times could much more credibly have reproduced a photo (right) of Dean Street between Fifth and Sixth avenues, which it ran accompanying a July 2006 article on blight, especially since this street includes buildings that would be subject to eminent domain for the arena block.

    Loaded language

    The caption attached to the photo today contains some loaded language: Atlantic Yards, in Brooklyn, has been a long-running story of a tenacious developer and his implacable opposition.

    That casts Bruce Ratner in a more positive light than it does those fighting the project, but the adjectives could just as easily be reversed to: Atlantic Yards, in Brooklyn, has been a long-running story of an implacable developer and his tenacious opposition.

    After all, in a David-and-Goliath fight, the David is usually "tenacious."

    But maybe the Timesfolk were busy reading Crain's New York Business, which earlier this month dubbed Ratner "Tenacious B."

    Arena bonds authorized, underwriter Goldman confident, but questions remain about rating, insurance, market

    The news at the meeting yesterday of the Brooklyn Arena Local Development Corporation (BALDC) was not that the special-purpose LDC was going to approve bonds for the arena, but the numbers and terms surrounding the bonds.

    And several important aspects of the bond sale remain unresolved.

    (In photo from video below, BALDC President Frances Walton, at center, begins the meeting, with Robert Godley and Arana Hankin in the foreground.)

    While the Empire State Development Corporation (ESDC) said in a statement that it had "secured investment-grade ratings" (and thus a lower interest rate) for the arena bonds, the Bond Buyer checked with Standard & Poor's analyst Jodi Hecht, who said no public rating had been made, leading ESDC spokesman Warner Johnston to acknowledge that the ratings had been "tentatively secured." Nor has an interest rate been set.

    Also, the bonds do not yet have insurance, a factor that adds a significant safety factor but adds to the cost. Officials of both the BALDC and underwriter Goldman Sachs said that such a "credit enhancement" was under discussion.

    The tax-exempt bonds would be repaid via such revenues as naming rights (the latter essentially a gift from the state), ticket sales, luxury suite license fees, broadcast signage and more. Given the lowered market for high-end spending at new sports facilities, various commentators, as noted in a Wall Street Journal article last month, have aired doubts about the revenue stream, though Goldman Sachs Managing Director Gregory Carey yesterday expressed confidence about it.

    (In photo from a video below, Carey takes press questions, with colleague Marvin Markus looking on.)

    Cost questions

    Another was the size of the bonds: $600-$650 million in tax-exempt PILOT Bonds and $150 million in taxable Rental Bonds, the latter to be paid back by unspecified arena revenues. Given that the arena could approach $1 billion in cost--the latter sum was reported today in the New York Times, while Bruce Ratner has said it would be $800-$900 million--that leaves an equity gap that is being filled by developer Forest City Ratner and other investors.

    Unclear is why, despite the jettisoning of the more expensive Frank Gehry design, the arena cost would still approach $1 million.

    Why just $600 million in tax-exempt bonds, which would be far less costly for Forest City Ratner? Because those bonds would be repaid via PILOTs (payments in lieu of taxes), and the foregone taxes on the arena site would support PILOTs only for that total. (The bonds must be sold by the end of the year to qualify for a tax exemption, under an October 2008 ruling by the Treasury Department that grandfathered in the PILOT process but disallowed it in future deals.)

    Also, state officials acknowledged that, as with the city stadium deals with the Yankees and Meets, the state could issue additional bonds for arena construction, though there are no plans to do so.

    And, while the state would not be on the hook should Forest City Ratner and partners not be able to repay bondholders, officials said it was speculation as to whether the state would step in. (The Manhattan Institute's Nicole Gelinas warns, in NY Fiscal Watch, that Governor David Paterson and Mayor Mike Bloomberg "should make it crystal-clear, publicly and to potential investors, that no New York State or City entity will step in to make up for any shortfall in Atlantic Yards’s revenues, even if it means a bond default.")

    Unclear is the interest rate for the bonds. While the Wall Street Journal reported last month that the developer hoped for an investment-grade credit rating and "interest rates of roughly 6.5%," the documents approved yesterday allow an interest rate of up to 8% for the tax-exempt bonds and 14% for the taxable bonds, the latter well into in junk bond territory. The bonds should be priced next week.

    Bonds could be put into escrow for up to one year while litigation is resolved--a contingency that became somewhat less important after the state Court of Appeals yesterday dismissed the Atlantic Yards eminent domain case.

    Numerous details about the plan--19 Exhibits attached to the resolution considered by the BALDC directors--were not publicly released yesterday. They include such things as a "PILOT Agreement," a "Ground Lease Agreement," and a "Preliminary Official Statement for PILOT Bonds," and a "Preliminary Offering Memorandum for Rental Bonds." (To get the documents, I was told to file a Freedom of Information Law Request.)

    A good mood

    Held at the offices of the Empire State Development Corporation (ESDC) at 633 Third Avenue in Manhattan, the meeting began less than an hour after the Court of Appeals released its decision upholding the use of eminent domain for the project, a crucial hurdle, one that left ESDC officials in a noticeably good mood.

    As shown in the video, when ESDC attorney Jonathan Beyer ad libbed a mention of the decision, there were some smiles.

    In attendance were a few project opponents, several journalists, representatives of Goldman Sachs, and ESDC/BALDC officials.

    The meeting lasted about 25 minutes, with the large majority of the time devoted to a presentation by Beyer. Only in the last minute of the meeting did new ESDC Executive Director Peter Davidson (left in photo, with ESDC General Counsel Anita Laremont), join the group.

    As the video shows, Noticing New York blogger Michael D.D. White regularly brandished mini-posters criticizing the deal; one pointed out that the arena would be a $220 million net loss. (According to the New York City Independent Budget Office, the city would face a $220 million loss if direct costs and opportunity costs were considered.)

    Also, Patti Hagan of the Prospect Heights Action Coalition brandished a yellow bag bearing the logo of State Senator Velmanette Montgomery, a project opponent, and a Stop Eminent Domain Abuse sticker.

    (Videography by Jonathan Barkey)

    Questions from board members

    There were relatively few questions from the LDC members. Gubernatorial advisor Arana Hankin asked why some taxable bonds were included. She asked which would be paid back first; Beyer explained that, as with tax obligations, the PILOT bonds would be paid back first.

    And what if there aren't enough revenues to pay back the bonds? There would be no impact on the future bond issues of the ESDC, Beyer explained. Nor would there be any impact on the BALDC, which is a single-purpose organization.

    Left unexplained was what would happen if revenues were too few; officials later said the state wouldn't be obligated to pay.

    Comments from Goldman

    At one point, Carey explained that the firm would begin a marketing "roadshow" next week to bond funds that are "the main buyers of New York paper," firms that had already bought bonds issued in 2006 and 2009 to fund new stadiums for the Yankees and Mets.

    Would the bonds be insured? Goldman is in discussion with "the last bond insurer," Carey said, a reference to Assured Guaranty, but a decision won't be made until next week. "We're trying to get the lowest possible cost."

    Carey said that the goal is to sell the bonds during the week of December 7. "This transaction will close in mid-December," he said.

    Flexible numbers

    Though the BALDC discussed $600-$650 million in tax-exempt bonds and $150 million in taxable bonds, the resolution passed yesterday allowed a maximum of $825 million. Also, according to documents distributed yesterday, the BALDC in a meeting on 9/11/09 set a $1.1 billion ceiling.

    "The action on 9/11/09 was a maximum number at the time for which BALDC adopted a Declaration of Intent which permits the use of tax exempt bond proceeds to reimburse certain expenditures," ESDC spokeswoman Elizabeth Mitchell later explained. "The $600 million and $150 million numbers are the best estimate right now of the actual issuance amount. The resolution states a maximum of $825 million to give Officers the authority and flexibility to conclude the transaction including all costs within a realistic cap based on current market conditions."

    In September, Bruce Ratner estimated to the Observer that $700 million in tax-exempt bonds would be issued. That same month, however, the New York City Independent Budget Office suggested that "a typical property tax assessment would result in a PILOT that falls short of payments needed to cover debt service in the early years" of paying off a $772 million arena bond.

    Questions for Goldman

    Carey took some questions from reporters afterward.

    In response to WNYC's Matthew Schuerman, Carey said "this project has about $282 million of equity that is in the project from numerous sources" to make up the gap. Carey said that, while that sum included project costs like design, it was for the arena only. (It will be interesting to see how much infrastructure is included.)

    In contrast, FCR executive Maryanne Gilmartin told Bloomberg News that $125 million of equity would be used for the arena.

    Assessments for arena

    I asked about the calculation of PILOTs and total project costs. The Department of Finance, Carey said, will "use the replacement methodology similar to the way the Mets and the Yankees [stadiums] were figured."

    I said I thought it was a mix of replacement costs and land comparables.

    Carey said there are no comparables for such a facility. But "that is up to the New York City tax assessor. The benefit of this transaction--we don't even reach what actual taxes could be... for a period of time. We're not right up against what actual taxes would be, we're less."

    Still, during Congressional testimony in October 2008, then Department of Finance Commissioner Martha Stark said that taxes were estimated for specialty properties like sports facilities based on the "cost approach," the spending on construction, plus the value of the land. And for Yankee Stadium, the city used as comparables lots not in the South Bronx but in Harlem and Alphabet City--a very questionable process.

    Will potential cost overruns be mitigated? "For once, we have someone who actually builds for a living--that is, the developer of the project, but there's a guaranteed maximum price contract with Hunt [Construction]" Carey said.

    Bonds riskier?

    White, a lawyer and urban planner who formerly worked on bond deals in the state housing agency, asked, "Do you consider these bonds to be riskier than the original transaction, the differently designed arena that was originally approved by the PACB [Public Authorities Control Board[?"

    "I think this is actually a much more secure transaction," Carey responded.

    "Although the arena is much smaller than initially approved and can't be used for an alternative hockey team?" White pressed on.

    "We've looked at the revenue streams and feel very, very comfortable, and numerous people will come out and show that they're comfortable with the structure," Carey said.

    White followed up: "Even though it's more than the PACB approved?" (The Frank Gehry arena in 2006 was to cost $637.2 million.)

    Carey demurred, saying he wasn't familiar with what the PACB approved: "There's less leverage on this transaction, and the way people look at this is cost per seat, so we actually view this as a much more secure transaction."

    Construction costs

    I asked why the cost of the arena hadn't come close to the December 2006 approved level of $637.2 million, given the change to a less expensive design with a new architect and a decline in construction costs.

    "They [construction costs] went up so significantly, we're not down to '06 levels," Carey said. "This is New York City."

    Well, as the chart (click to enlarge) from Turner Construction Company shows, as I wrote in June, by mid-2009 national construction costs had subsided to near-2006 levels. Beyond that, local concessions from unions and the construction industry in New York have lowered costs 8% to 20%, as shown in Forest City Ratner's renegotiation after stopping work at the Beekman Tower.

    That raises the question as to whether infrastructure costs and soft costs for the project beyond the arena are being subsumed into the arena price tag.

    Regarding Yankee Stadium, Assemblyman Richard Brodsky, in a report issued in November 2008, The House That You Built, criticized the city Department of Finance for accepting without independent inquiry Carey's "assertion of Stadium costs," though it "is customary and best practice" to have numbers certified "by a project engineer or other construction professional." Brodsky questioned the inclusion of costs such as “Equipment and Furnishing” and “Luxury/Sky/Boxes."

    No details about the arena assessments have yet surfaced.

    Questions for BALDC

    BALDC officials also took some questions.

    Schuerman asked if there was a legal problem given that amount of financing is greater than which was in the Modified General Project Plan. (Actually, the MGPP said the arena would cost $772 million, without financing, so that's close to numbers discussed yesterday.)

    "The GPP was a plan by ESDC," Beyer said. "This entity [BALDC] has the authority to issue the amount of bonds that it intends to issue."

    White tried to re-ask his question about the rising cost of the arena contrasted with its lowered capacity to generate income and house a professional hockey team?

    Officials ignored him.

    Bond insurance

    Ted Phillips of the Bond Buyer noted that Assured Guaranty seems to be the last viable bond insurer.

    "We're talking to several," Beyer responded, but said Goldman was taking the lead.

    Philips asked if there'd be a premium on the bonds given the remaining cloud of lawsuits.

    Walton smiled, responding. "Ted, as you know, bond insurance for any project these days, you're paying a premium."

    Walton said that, while there's only one traditional bond insurer left, "there is more than one option." (Marketwatch reported last week that Assured officials said new players are expected to emerge in 2010.)

    Bond default?

    Schuerman asked, "And if Ratner can't make these payments, you're willing to let the bonds default?"

    "I don't know if I'd characterize it as willing," Beyer responded, "it's just that the documents do not require us to make any payments."

    "This is a bondholder risk," added ESDC Senior Counsel Steve Matlin. "That's what the bondholders are looking at when they're purchasing bonds."

    "That's not saying the exact same thing," Scheurman followed up. "You might actually decide, though you're not obligated, to bail out these bonds."

    "That's speculation," Walton said, shaking her head.

    "That's not foreseeable," Matlin said.

    I asked if they had any concerns about a scenario regarding questions about the land valuations for the PILOTs, as with the stadiums.

    "We've had no discussions with the New York City Department of Taxation and Finance," Matlin said. "There's a methodology laid out in these agreements. I think everybody's very confident that the assessment, when it does come out, will support the PILOT bonds."

    Another try

    White again tried to ask a question: "Aren't these bonds inherently more risky than what was approved by the PACB and the ESDC becuase the arena is smaller--"

    ESDC spokesman Warner Johnston tried to intervene: "We're going to take questions from accredited media."

    White clearly has legitimate tough questions, and his blog is valuable, but his behavior at the meeting made it difficult to switch hats from protester to journalist.

    Additional bonds

    Phillips followed up by asking if there was any plan to sell bonds in the future, as the Yankees and Mets had done.

    "There's no expectation at this time that the LDC will be issuing additional bonds," Walton said.

    "Is it permitted, though, in the bond documents?" Phillips followed up.

    Beyer, after turning and seemingly looking for a cue from colleagues, acknowledged "Yes."

    Did the BALDC need a private letter ruling from the Internal Revenue Service allowing the bonds to be put in escrow for a year? "We don't believe that was necessary," Beyer said.

    White tried to follow up, asking if the BALDC officials had any response to his questions. They turned and walked away. "I will take that as a no response," he said gravely.

    Groundbreaking vs. possession

    ESDC President Davidson, interviewed by the press after the meeting, expressed satisfaction with the court decision and the bond approval. He said a groundbreaking would occur early next year.

    But maybe the ESDC won't have vacant possession of the land until April or May, Schuerman suggested.

    "There's a lot of specifics still to be worked out," Davidson responded. "We're just happy this decision happened... and everything's pretty much on track."

    Are there a lot of homeowners who are going to be losing their places?" a NY1 reporter asked. "What about the displacement of homes and businesses?"

    Davidson seemed a little uncomfortable: "Issues are still going on. It's the process still under way."

    "What can you say about the people who will lose their homes as a result of this decision?" Schuerman asked.

    Davidson demurred, turning to spokesman Johnston. "I'd be more than happy to talk about that," Johnston said, not all that happily. "Peter has a very busy schedule. With regards to condemnation, I can get you specifics, but we're talking about a minimum of people to be displaced. The developer owns the majority of the parcels for this project."

    Yes, it's a relatively low number, in the dozens as of now, but that's not the full point, given that Forest City Ratner made its purchases under the threat of eminent domain. And when it comes down to actual eviction, does the ESDC want to have marshals forcibly removing people evicting people if it comes to that?

    White's critique

    Check out White's interview with NY1, with Johnston in the background keeping watch.

    Board members

    The board of directors consists entirely of state officials. Two of those previously listed as members (Budget Office staffer Andrew Kennedy and Governor's counsel Peter Kiernan) have been replaced; their successors are marked with an asterisk:
    Only the first four were present yesterday, though others may have been represented by proxies.

    From the presentation

    The sections below are excerpted from Beyer's presentation:
    Authorization for the issuance of tax-exempt and taxable bonds to finance the Arena Project is the only part of the Atlantic Yards Project which is to be considered by the Brooklyn Arena Local Development Corporation this morning.

    On September 11, 2009, the Board of Directors of the Corporation adopted a resolution authorizing the inducement of construction of the Arena Project through the issuance of bonds in the aggregate principal amount of up to $1,100,000,000 (measured by the “issue price” of the Bonds as determined under applicable Treasury Regulations). The Atlantic Yards Project and ESDC’s participation were also approved by the New York State Public Authorities Control Board on December 20, 2006.
    Two types of bonds

    Beyer described the two types of bonds:
    There will be two types of bonds that may be issued: Tax-exempt PILOT Bonds and, depending on market conditions, federally taxable Rental Bonds (collectively, the “Series 2009 Bonds”).

    ESDC will own the land and the Improvements comprising the Arena Project. Because ESDC is exempt from the payment of real property taxes, a PILOT Agreement will require the Company to make PILOTs in an amount not exceeding the actual real property taxes which would be levied on the Arena land but for ESDC’s ownership. The amount of the PILOTs are anticipated to be sufficient to pay principal and interest on the PILOT Bonds and a portion of the operating expenses for the Arena.

    Upon delivery of vacant possession of the land upon which the Arena will be situated to the ESDC, ESDC will lease the land to the Corporation for the purposes of the Arena Project for a term not to exceed 37 years pursuant to the terms of a certain Ground Lease Agreement. The Corporation will then sublease the land, and lease the Arena as constructed, to the Company pursuant to the Arena Lease Agreement.
    Paying back the bonds

    How will bonds be paid back?
    The Company’s obligation to pay PILOTS pursuant to the PILOT Agreement will secure the PILOT Bonds and the Company’s obligation to pay rent under the Lease Agreement will secure the Rental Bonds. The Company will use revenues generated by and associated with the operation or use of the Arena Project to make PILOTs under the PILOT Agreement as well as rent payments under the Arena Lease Agreement Such revenues will include, but not be limited to cash and receivables relating to ticket sales (subject to the Nets License Agreement and the League Rules), luxury suite license fees, seat licenses, facility fees, food and beverage concessions, Naming Rights, novelties, memorabilia, broadcast signage and other advertising and product rights. The Corporation will not be financially liable for repayment of the Series 2009 Bonds from its own resources.

    As part of the transaction, the Corporation will enter into various agreements documenting both the bond transaction and the underlying real estate transactions including the : (i) Master PILOT Indenture of Trust and a First Supplemental Indenture of Trust each to be entered into between the Corporation and The Bank of New York Mellon, as PILOT Bond trustee; (ii) Master Rental Indenture of Trust and a First Supplemental Indenture of Trust each to be entered into between the Corporation and The Bank of New York Mellon, as Rental Bond Trustee, (iii) the Ground Lease from ESDC to the Corporation of the land upon which the Arena is to be situated for a term of ninety-nine (99) years; (iv) the Arena Lease Agreement, Partial Rent Assignment, Assignment of Rental Mortgage, PILOT Mortgages, PILOT Agreement and PILOT Assignment, as previously described, as well as multiple other supporting and related documents.

    The bonds may be put in escrow for a year:
    Concurrently with the issuance of the Series 2009 Bonds, the Corporation, ESDC, the City, the Company, the PILOT Trustee, the PILOT Bond Trustee, the Rental Bond Trustee and others, will execute a Commencement Agreement, pursuant to which the net proceeds of the Series 2009 Bonds will be held in escrow by the PILOT Bond Trustee and the Rental Bond Trustee, as the case may be, until the Trustees receive an “Arena Project Effective Date Certificate” establishing, among other things, that vacant possession of the land upon which the Arena will be situated has been delivered to the Company... If such certificate is not issued within approximately one year from the date of the bond issuance (the “Outside Commencement Date”), the net proceeds of the Series 2009 Bonds being held in escrow will be used to redeem the Series 2009 Bonds pursuant to mandatory redemption provisions in the bond documents.
    Bond insurance?

    Bond insurance is yet undecided:
    Finally, we have been advised by the Underwriters that they are exploring the possible use of credit enhancement with respect to the Series 2009 Bonds, although at this time no decision regarding such credit enhancement has been made. If the Underwriters determine it prudent to utilize credit enhancement in the financing structure, the resolution considered this morning shall authorize the Corporation to approve the terms and conditions applicable to the engagement of any such credit enhancer, as well as all documents in connection therewith, without further action by the Board.

    Tuesday, November 24, 2009

    FAQ on the Court of Appeals decision in the Atlantic Yards case

    Why did the Court of Appeals accept the Atlantic Yards eminent domain case, Goldstein vs. ESDC, after it was decided unanimously at the lower court level, the Appellate Division?

    Well, the Court of Appeals was divided. It seems that Judge Robert Smith, who wrote the dissent, wanted to argue that courts should have more of a role in overseeing the exercise of eminent domain. Two judges, Susan Read and Eugene Pigott, didn't think the petitioners even belonged in court, so they concurred with the result but did not address the merits, which they said were decided in federal court.

    Should limitations "upon the sovereign power of eminent domain as it has come to be defined in the urban renewal context" be "a matter for the Legislature, not the courts," as stated in Judge Jonathan Lippman's majority opinion?

    Generally speaking, yes. Legislative bodies can deliberate on the boundaries of a law in a way that courts cannot. However, in many other states courts have refined, and redefined eminent domain law. More state legislatures have done so. Given the failure of the New York Legislature to do so, in the wake of the Supreme Court's controversial 2005 Kelo v. New London decision, the Court of Appeals would not have shocked anybody by intervening.

    What happened to the petitioners' argument that the state didn't perform an (allegedly) required comparison of public and private benefits?

    Nothing. Both the majority and the dissent ignored it.

    What about the "gerrymandered" (Smith's words in oral argument) site map, which supports the contention that it's a developer-driven project?

    It was ignored.

    What happened to the petitioners' argument that blight was a pretext because it wasn't mentioned as a justification for the project more than a year after it was announced?

    Smith took it seriously. The majority ignored it.

    What happened to the petitioners' argument that state funds for such a project could only go to low-income housing? Wasn't Lippman interested in that, noting that the project would be mainly luxury housing?

    Well, he was interested in it during oral argument, but he dismissed it roundly in the opinion.

    What are "relatively mild conditions of urban blight"?

    From the majority opinion:
    The land use improvement plan at issue is not directed at the wholesale eradication of slums, but rather at alleviating relatively mild conditions of urban blight principally attributable to a large and, of course, uninhabited subgrade rail cut.
    This raises the question: can't such blight be alleviated in other ways, such as rezoning the land and putting it out for bid?

    Did the court say anything about the state's claim that a piece of property not fulfilling at least 60% of its zoning capacity is blighted?


    Are the blocks where the petitioners live and own property "a normal and pleasant residential community," as stated by Smith?

    Only in part. Dean Street between Fifth and Sixth avenues is--well, was--a pleasant enough residential block, while Pacific Street between Fifth and Sixth was a mixture of industrial buildings (some of them dormant) and housing. The part of Dean Street just east of Sixth Avenue was a pleasant set of row houses, while the counterpart on Pacific Street is industrial space. Most buildings on the southeastern block of the AY footprint are industrial, not residential. But then-Assemblyman Roger Green, an AY supporter, did say that the neighborhood wasn't blighted.

    Can the new lawsuit promised by DDDB, charging that the ESDC relied on an outmoded Determination and Findings--given, for example, the recent New York City Independent Budget Office analysis that the arena would be a money-loser for the city or the decrease in the value of the replacement railyard--stop the project?

    The lawyers say it can.

    Can they really interfere with the process of condemnation? Aren't challenges to that process narrowly limited to procedural defects?

    Usually they are. In this case, the lawyers say that the failure to rely on the current record could be fatal. But, like so much of the Atlantic Yards litigation, this case would try to break new legal ground and thus be a longshot.

    When was the record completed that the ESDC relied on?

    Late 2006.

    Wasn't there supposed to be an office tower, one that would supply a good chunk of expected new revenues?


    What's up with that tower?

    “Can you tell me when we are going to need a new office tower?” Bruce Ratner told Crain's earlier this month.

    Can cases cited by the ESDC really be read, as Smith stated, "to support an interpretation of 'public use' that would permit the transfer by eminent domain of almost anyone's property to a private entity if a state agency thinks the area would benefit from 'redevelopment'?

    Well, the ESDC lawyer admitted in court as much.

    Doesn't that sound a lot like Justice Sandra Day O'Connor's dissent in Kelo, that all property is vulnerable?


    What is "characterized by blighted conditions"?

    The careful language used by the consultants for the Blight Study, cited by Smith, who added:
    They did not find, and it does not appear they could find, that the area where petitioners live is a blighted area or slum of the kind that prompted 20th century courts to relax the public use limitation on the eminent domain power.