Thursday, April 30, 2015

Atlantic Yards, Pacific Park, and the Culture of Cheating

I offer a framework to analyze and evaluate Atlantic Yards (in August 2014 rebranded as Pacific Park Brooklyn) and the Barclays Center: Atlantic Yards, Pacific Park, and the Culture of Cheating.

Note: this post is post-dated to remain at the top of the page. Please send tips to the email address above, rather than posting a comment here.

model shown to potential immigrant investors in China in 2014,
though not shown publicly in Brooklyn.

Saturday, April 18, 2015

Looking for Greenland USA on the web, coming up blank

How do you find out more about the Greenland Group, which via its Greenland USA subsidiary owns 70% of the Atlantic Yards/Pacific Park project going forward (except the arena and B2)?

If you go to the web site of Pacific Park Brooklyn, the Our Team page suggests that the website represents the Internet home of Greenland USA. Except the link is dead.

Friday, April 17, 2015

Transparency deficit: announced overnight work didn't happen, Community Update meeting said to be postponed

As I wrote Tuesday, there was supposed to be noisy overnight work last night at Sixth and Atlantic avenues.

There was even a Community Notice circulated (see right).

But nothing happened last night, so the work was apparently postponed.

Was there any announcement?


I've also heard secondhand that the Community Update meeting (formerly known as the Quality of Life meeting) scheduled for next Wednesday, April 22, has been postponed.

Has there been any official notice?


These are not major transparency challenges for developer Greenland Forest City Partners and Empire State Development, the state agency overseeing/shepherding Atlantic Yards/Pacific Park.

They should be easy to fix, by circulating notices or having a central web site/blog with updated information.

Student hoops at the Barclays Center: pretty much either an all-star game or pay-to-play

I wrote in July 2012 about the promise--in a 20014 Forest City Ratner flier and other propaganda--that the Atlantic Yards arena would be a venue for "amateur athletics."

That was reinforced by elected officials.

When the first Memorandum of Understanding signed by the city, state, and Forest City was released, then-Gov. George Pataki, in a 3/4/05 press release, promised that "The new Arena will not only be home to the Nets, but will host local community events, as well as concerts and school athletics for neighboring high schools and colleges."

Well, not so much. 

Yes, there are several college tournaments with teams of national or regional interest.

And Brooklyn-based Long Island University plays a few games a year.

But the arena is a hardly a home for high school basketball, so the promises were out of line. Rather, as described below, it's been a home for pay-to-play.

There has been one regular high school event: today is the third straight year of the "country's premier prep basketball event, Jordan Brand Classic," at the Barclays Center. It includes an International Game, then the first annual Girls All-American Game, then the Regional Game, and the National Game.

The PSAL blip

New York City's Public School Athletic League (PSAL) championships did come to the Barclays Center in 2014 for the first time (press release), but returned to Madison Square Garden this year. Last year's blip was a scheduling conflict with MSG.

As the Daily News reported, the one downside of using the Barclays Center last year was a condensed playoff schedule, with fewer days between games in the tournament.

“God forbid a kid gets injured (in the semifinals), you don’t have that extra couple of days to nurse that kid back to 100%,” [Cardozo boys coach Ron] Naclerio told the newspaper last year. “That is the one negative. When you’re dealing with corporate America, unfortunately they don’t adjust to you; you adjust to them.”


You can get to the Barclays Center, it turns out, if you pay

As shown in the screenshot at right, there's a Fan Experience Package that includes:
Court of Dreams
Play where the pros play before or after a Brooklyn Nets game! Do not miss this opportunity to play an authentic basketball game on the court with the same amenities as the pros including announcers, access to the player benches, and the ability for your fans to watch and cheer you on. Call for ticket requirement.
This is hardly novel in the NBA, though the Nets are more opaque than some, since they don't announce a ticket requirement.

The Miami Heat requires at least 150 group tickets per hour. The Cleveland Cavaliers require at least 300 tickets purchased. The Indiana Pacers require 100-300 tickets. The Atlantic Hawks require 200-300 tickets. The Dallas Mavericks require $9.000-$10,000 in tickets. (For the Knicks, you only get the training center.)

A high school game at the Barclays Center

Two New Jersey high school teams did play at the Barclays Center in January of last year.

They just had to sell some tickets, as shown in the flyer at left. This is one of several examples of high school and other teams playing on the Court of Dreams.

A youth team at the Barclays Center

The youth basketball program FunSport was one of the first, in December 2012, as noted here:
* Each player will receive new uniforms, shoes, socks, backpack, headband, and t-shirt
* This weekend tickets will be on sale. Minimum tickets are $50pp or premium package which includes courtside seating during championship game and closer seating for Nets-Sixers game for $175pp (limited quantity available)
The video of the event shows a rather sparse crowd.

Barclays Center updates event calendars for April-June 2015, adds playoff games, more events

Updating my previous post, here are the updated event calendars from the Barclays Center for April through June 2015.

Note the addition of at least two home playoff games for the Brooklyn Nets, on April 25 and April 27, as well as a private event this Saturday (book launch for a major church), three more events in May, and a boxing match in June.

Thursday, April 16, 2015

Nets CEO Brett Yormark thanks "the Brooklyn community and our entire fan base for your unwavering support"

Now that the Brooklyn Nets (barely) made the playoffs, those on the team's mailing list got a personal note from team/arena CEO Brett Yormark:
We want to thank the Brooklyn community and our entire fan base for your unwavering support. You are instrumental in the team’s success and have helped us advance to the playoffs each year we’ve been in the borough.
Um, that's reminiscent of the alleged "unwavering" support from Barclays when it came time to renew the naming rights agreement in November 2008, as the project stalled during the financial crisis. Barclays actually renegotiated, and a reported $300+ million deal became a $200+ million deal.

In legal battle over modular factory, Skanska targets Forest City associate BerlinRosen, partner Greenland; seeks civil contempt ruling

No, the battle over the ill-fated modular partnership between Forest City Ratner and Skanska USA is not over.

They fighting in court over cost overruns and alleged flaws regarding B2, the unfinished modular tower they were once building together, and over Skanska's decision to shut down the modular factory they once ran together at the Brooklyn Navy Yard.

And now an associated dispute has gotten bitter, as Skanska seeks to hold BerlinRosen, a Forest City p.r. firm (and a major player in NYC politics), and Greenland USA, Forest City's new joint venture partner (and majority owner of Atlantic Yards/Pacific Park), in civil contempt of court based on their alleged failure to properly respond to subpoenas seeking documents.

A hearing is scheduled for May 6. Skanska requests compliance with the subpoenas, court costs and attorneys' fees, and a statutory penalty of $250 each against BerlinRosen and Greenland.

What Skanska seeks

The subpoena issued to BerlinRosen seeks discovery of facts related to a 9/5/14 press release that Skanska attorneys claim is "libelous per se" regarding Skanska's Richard Kennedy, a party to the case.

The press release stated that the complaint claimed Kennedy "knowingly, wrongfully, intentionally, maliciously, in bad faith and without reasonable justification or excuse induced Skanska Modular to breach" the agreement with FC Modular.

Skanska and Kennedy have separately filed a counterclaim charging those statements were libelous. Skanska "wants to know the identities of the persons or entities which authorized the issuance of the Press Release and the scope and extent of the Press Release’s dissemination." 

(In other words, Skanska's beef is really with Forest City.)

The Greenland subpoena relates to plans for the next two buildings on the arena block, B3 and B4, which Skanska says Forest City initially indicated would be built modular. (In dispute is how firm a promise that was, since Forest City says the pipeline would have had to work more smoothly to get the next buildings up.)

"Because Greenland has allegedly acquired the controlling interest in the Atlantic Yards Project and presumably has rights in the B3 and B4 buildings, it is apparent that Greenland possesses information concerning the decision that was made for B3 not to be built modularly and/or as to the manner in which B4 is to be built," Skanska says.

Thus Greenland possesses information as to how or why the modular factory has been "allegedly deprived of future work," according to Skanska

Timing and response

Skanska says that both Greenland and Berlin Rosen ignored the March 16 return date of the subpoenas and filed objections only after that date.

Both Greenland and BerlinRosen say they'd produce documents only if Forest City's’ motion to dismiss is denied and if no other party in the case can produce the documents.

Not only are the subpoenas premature, say BerlinRosen and Greenland, they are also overbroad, and seek documents that are privileged and confidential.

Skanska responded that the "meritless objections" impede its ability to oppose the motion to dismiss made by Forest City, adding that "it becomes apparent that the non-parties are acting in concert with Plaintiff to deny access to discovery."

The documents at issue

Here are the documents that describe the battle: 
Skanska Motion for Contempt of CourtSkanska Memorandum of Law backing motionSkanska lawyer's AffirmationSkanska Subpoena Request to Berlin Rosen
Skanska Subpoena Request to Greenland
Berlin Rosen Objections to Subpoena
Greenland Objections to Subpoena

Journalism, or advertising? 550 Vanderbilt gets hype in Daily News, Post

There's a famous (if murky) quote that states "News Is What Somebody Does Not Want You To Print. All the Rest Is Advertising."

Sometimes the advertising is more blatant. 

Consider excerpts from two real estate feature articles just published by the tabloids, which hype the coming Atlantic Yards/Pacific Park tower at 550 Vanderbilt, and the northwest corner of Dean Street and Vanderbilt Avenue.

(They of course ignore the skewed renderings I pointed out in the GIF reproduced at right, in which the three-story brick building directly south on Vanderbilt is stretched out so as to diminish the scale of the tower across the street. Note especially the width of the windows.)

If LIC is a template, should we expect "value priced rent stabilized" Atlantic Yards apartments?

I wrote last November how the developers of affordable housing at Hunters Point South in Long Island City resorted to advertising "the best apartment deal in New York" and sending a street team out to recruit applicants for the "affordable" middle-income housing.

(They were inundated with applications--more than 92,000 for 924 units--but I suspect a large majority sought the low-income housing. Those reporting on the issue should suss this out. When I asked last year, I didn't get an answer.)

While the housing is below market for new construction in the Long Island City waterfront neighborhood, it's hardly cheap. It was last year advertised as costing up to $2,509 for a one-bedroom and $3,300 for a two-bedroom.

Perhaps, as shown in the photos below (which I took earlier this week), that's why they seem to have added a phrase: "value priced rent stabilized apartments."

Could such phrasing be in store for Atlantic Yards/Pacific Park Brooklyn?

(Note that in LIC, there's a truly public park across the street--actually, a state park and city park that nudge up against each other--as opposed to privately-managed interior space, as in "Pacific Park Brooklyn.")

Wednesday, April 15, 2015

A second look at that 2006 ACORN report on "sweetheart development" and the shifting Atlantic Yards housing configuration

When I looked recently at the report on minority- and women-owned business enterprises (MWBE or M/WBE) from the Black Institute, it sent me back to another report issued by an organization headed by Bertha Lewis--and how the portrayal of Atlantic Yards was, in retrospect, too rosy, portraying the project as more affordable than it would be.

Compounding the challenge, the passage of time has lifted the Area Median Income (AMI), which relies not just on New York City but wealthy suburban counties, pushing subsidized units further out of reach of ACORN's low-income constituency.

Not only did the ACORN report describe an affordable housing configuration that differed from that soon tweaked by developer Forest City Ratner, the latter's configuration has undergone further changes.

The subsidized housing, at least in the next two all-affordable buildings, is skewed toward middle-income households, rather than low- and moderate-income ones. That means two-bedroom units renting for $3,000 or more.

It's another reminder that "affordable" merely means "income-linked," with renters paying 30% of their household income.

And it's a reminder that ACORN and its successors are too entangled with Forest City Ratner--getting direct support and also expecting to help manage the process of recruiting/selecting tenants--to criticize Atlantic Yards/Pacific Park.

Report makes waves criticizing 421-a

Sweetheart Development: Gentrification and Resegregation in Downtown Brooklyn (embedded below) was issued 3/16/06 by New York ACORN. When issued, the report prompted New York Times coverage, focusing on a valid observation that has taken too long to sink in: tax breaks for market-rate development were no longer needed.

The Times reported on the context of the mayor's rethink of the 421- subsidy:
"What we're trying to do is inform that process," said Jonathan Rosen, an Acorn spokesman. "We want to take the mayor's opening and point out that in places where you're selling condos for a million dollars overlooking the East River, you probably don't need to subsidize those developments with money from middle-class homeowners."
The Times briefly referenced Atlantic Yards:
New York Acorn, which successfully pressured the Forest City Ratner Companies to include mixed-income housing in its 9.1 million-square-foot Atlantic Yards project in Brooklyn...
Ah, but the devil's in the details, then and now.

From the report

The report stated, with emphases I added in bold:
One notable exception to these trends in Downtown Brooklyn development, the Forest City Ratner Companies’ Atlantic Yards Project, will lie on a 22-acre site, bordered for the most part by Flatbush, Atlantic and Vanderbilt Avenues and Dean Street. It will include a professional sports arena, a hotel, an office complex and residential mid-and high-rises containing 4,500 units of new rental housing. 
Forest City has entered into a Community Benefits Agreement (CBA) with ACORN and seven other community groups that commits the developer to making 50% of the rental units – 2,250 units – affordable. Developers and government agencies typically define “affordable housing” using broad income brackets that encourage the development of housing affordable only to the highest-earning members of each bracket, who may earn as much as $141,600 for a family of four. But the CBA tiers Atlantic Yards’ affordable housing to much smaller income brackets, ensuring that units will be affordable to every low- and moderate-income family:
The remaining 450 apartments, 20% of the affordable units, could include people making 101-160% of the AMI, depending on the development’s financing negotiations and funding commitments. The project will also include between 600 and 1,000 affordable condos. 
With 2,250 total units of affordable housing, including 1,350 affordable to low-income families, Atlantic Yards will far exceed both the 467 units of affordable housing of the other 87 developments combined and the 201 of these units affordable to low-income families. The project is currently undergoing environmental impact review.
What was missing from the report

Instead of having 450 units over 100% of AMI, the scenario soon shifted, with 900 units over that threshold.

The ACORN report referenced one of the three potential configurations in the Affordable Housing Memorandum of Understanding, with 80% of the affordable units (1800 total, representing 40% of the total rentals) up to 100% of Area Median Income, and 40% of the units between 50-100% of AMI. (At the time, AMI was $62,800 for a four-person household.)

That changed significantly, since developer Forest City Ratner understandably chose the configuration that generated more revenue (and required less scarce subsidy):

In other words, 900 units (40% of the affordable total, or 20% of all rentals) would be geared to middle-income households over 100% of AMI.

Would 1,350 units be "affordable to low-income families"? Not quite, though the issue is fuzzy.

Rent for that middle tier would be based on 80% of AMI, which is now the upper limit for low-income under some programs, though the New York City Housing Development Corporation, which places Atlantic Yards/Pacific Park in its 50/30/20 program, stops at 60% of AMI.

Also, households in that middle-tier could earn up to 100% of AMI, which is definitely not low-income by federal standards--and, this year at $86,300--clearly out of sync with Brooklyn incomes.

That scenario has persisted, as suggested--focused only on Phase 2--in the Final Supplemental Environmental Impact Statement, issued last June:

But it neither reflects reality today, nor ACORN's recommendation from 2006.

ACORN's recommendation

In the 2006 report, ACORN proposed a more formalized program of guaranteeing affordable housing: rezoning, with a requirement of 30% affordable housing in exchange for tax-breaks.

The report stated:
3. All affordable units in all developments should be income-tiered so that the units are targeted to and affordable for all low- and moderate-income families, at 30 percent of household income.
4. Any developer who receives a tax exemption should be required to enter into a Community Benefits Agreement (CBA) with relevant community organizations, covering labor participation and training, minority contracting, etc., as well as affordable housing.
Well, we know that CBAs don't necessarily work unless they have teeth, and the Atlantic Yards CBA signatories--including ACORN--have been compromised because they have received financial support from the developer.

And we know that, as long as there's no formal requirement, developers will choose to provide affordable housing at the highest price point possible--middle-income households.

The plan now

Based on the new AMI, here are the income maximums for residents in one of the two all-affordable towers, B3. (The configuration is the same for the other, B14, but with a slight difference in the total of units. Note that the two all-affordable rental buildings will be matched by two all-market rental buildings, so the planned 50/50 scenario is maintained.)

Note that not only is the configuration of units skewed toward middle income households, the income maximums for each band have gone up.

The rents will be calculated at a discount from the maximum income; residents will pay 30% of the figures in the table below.

Below is my calculation of the rents for each unit, taking 30% of the figures in each box above and dividing by 12 monthly payment. The number of units per band is an estimate, since, as footnoted, some units may have more people, and they will pay a higher rent.

But it's clear that the building is skewed to Band 5--middle-income households.

ACORN SweetheartDevelopment 3-16-06 by AYReport

Tuesday, April 14, 2015

Ex-Net Pierce: "It was a tough situation (in Brooklyn) last year. Horrible, really."

From ESPN today, an interview with an ex-Net who was part of the onerous trade with the Boston Celtics that aimed to make the Brooklyn team contenders, Wizards' Paul Pierce speaks the truth:
"I'm much happier,'' he said. "It was a tough situation (in Brooklyn) last year. Horrible, really.
"It was just the guys' attitudes there. It wasn't like we were surrounded by a bunch of young guys. They were vets who didn't want to play and didn't want to practice. I was looking around saying, 'What's this?' Kevin (Garnett) and I had to pick them up every day in practice.
"If me and Kevin weren't there, that team would have folded up. That team would have packed it in. We kept them going each and every day.''
Pierce suggested that the pressure got to point guard Deron Williams and that shooting guard Joe Johnson was too quiet to be a leader. Both of course are paid very well.

Pierce's candor is only possible because he's gone--otherwise, players are usually quite careful in discussing the team that pays them.

Note this comment from NetsDaily's Net Income (aka Bob Windrem):
Nets vs. Knicks
Writes Times columnist Harvey Araton:
As soon as the Nets are eliminated [from the playoffs], the Knicks will retake the stage with their roughly $30 million in salary cap space for potential free agents and a high first-round draft pick that has, suddenly and comically, been imperiled by the prideful résumé padding of next season’s possible end-of-bench players.
While the Knicks invent fascinating new ways to infuriate their fans, the Nets continue providing few reasons to consider them as a viable alternative.
Nets merch sinks

From NetsDaily:
The Nets last season in New Jersey, sales of their merchandise were 31st in the league, behind the defunct Seattle Supersonics. Their bold black-and-white gear jumped to No. 4 their first year in Brooklyn, selling more merchandise in their first day than they had sold the season before. Last season, they dipped a bit to No. 7.
But with the team losing more than they won this season, and playoffs now in question, their sales dropped out of the NBA's top ten, according to the latest numbers released by the NBA Tuesday. The bad news didn't end there: for the second straight year, the Nets didn't have a player in the top 15 of jersey sales. Deron Williams had finished sixth two years ago. D-Will, Paul Pierce and Kevin Garnett weren't in the top 15 last season.
The rankings are based on overall retail sales on since the beginning of the 2014-15 season, not worldwide retail sales. And the Nets have pointed out that their sales overseas have jumped, particularly in China.
Note that the actual ranking is not listed by the NBA, which only enumerates the top 10.

From the latest Atlantic Yards/Pacific Park Construction Alert: noisy overnight work coming Thursday

According to the latest two-weeks Atlantic Yards/Pacific Park Construction Update, dated April 13 but circulated today at 1:42 pm by Empire State Development after preparation by Greenland Forest City, there will be major disruptive work overnight Thursday night at the intersection of Sixth Avenue and Atlantic Avenue.

The work, necessary for phone connections and the prepare for future utility relocations, will close the northbound travel lane between Pacific Street and Atlantic Avenue. Notably, it will include "directional lighting"--which may or may not shine in neighbors' windows--and loud equipment like excavators and a jackhammer. (Here's the previous Update.)

From the document:
During the overnight hours of Thursday, April 16th the contractor will be trenching across the 6th avenue intersection at Atlantic Avenue. This work is needed for the installation of shoring for a Verizon conduit servicing the arena and to prepare for the temporary water and sewer utility relocations which will occur within the same trench. The trench will be covered with road plates following the installation of shoring and conduit. While this work is underway, the crosswalk along the south side of Atlantic Ave and the sidewalk along the east side of 6th Avenue will remain open; the northbound travel lane between Pacific Street and Atlantic will be closed. Individuals looking to cross to the north side of Atlantic Avenue will be directed to do so at the intersection of Ft Greene Place and Atlantic Avenue. Flagman will be posted at the intersections of Pacific Street/6th Avenue and Atlantic Avenue/6th Avenue to direct traffic and pedestrians. Given the need to close the intersection at Atlantic Avenue and 6th Avenue, this work is being performed at night pursuant to the DOT work permit; work would commence after 9:30 pm and is expected to take 8 hours. While the work is underway, the contractor will have directional lighting in the work area and will be using various equipment, including excavators, hoe rams with a mounted jackhammer and a boom truck. 
Modular restarts

The document also states:
• Work related to the erection of modules for floors 11, 12, and 13 will commence during this reporting period.
It does not indicate, as was stated two Updates ago, that modules on the 10th floor would be realigned, or that they have been realigned. Nor is it clear whether work "related to" the erection of modules includes the actual placement of modules.

Work on the southeast block

The document also notes, re B11 – 550 Vanderbilt Avenue, that "Installation of slab tie-down anchors will commence during this reporting period."

Whatever that exactly means. (Shouldn't they explain?)

The unexplained factor in Atlantic Yards sale to Greenland: Forest City knew modular plan was troubled (but land value has since risen, leaving bottom line murky)

When it emerged in August 2013 that Forest City Enterprises would put 50 to 80 percent of Atlantic Yards on the block, the Times quoted “real estate analysts” as suggesting Forest City could “reap as much as $800 million.”

That suggested significant profit. But CEO David LaRue soon said Forest City was not aiming to get more than book value for the property, a proportionate share of the $545 million it had spent.

Those questions didn’t faze analysts. “This is consistent with what they do,” commented Paul Adornato, an analyst at BMO Capital Markets. “They’ll take all the risk at the early stage of a project. Once they create value, they look to monetize that by bringing in investors. The layup will be to build the rest of the Yards as the market allows.”

Actually, one document filed with the SEC disclosed that the joint venture could mean Forest City would lose control of the asset and could result in “future impairments, some of which would likely be significant." That's real-estate speak for losses, at least on paper.

Today, Forest City's deal --with a stated loss of $148.4 million after taxes--seems perhaps hasty, as the value of buildable land has continued to shoot up, raising the value of the market-rate housing, including condos and rentals. Also, the city has agreed to fund subsidized housing at a higher price point than the developer originally promised, thus pointing to higher returns.

The unexplained factor

Still, Forest City's desire to deal was surely driven by the recognition--as has only recently become clear--that its ambitious and costly modular construction gambit was not working as anticipated.

Though there was no public announcement, the plan was troubled even as the prototype was assembled and the factory fit-out delayed in 2012, we now know.

So Forest City knew that it would not save money on the first tower, and--with the factory still devoted to modules for the first building--might not promptly produce modules for the subsequent towers.

So the corporation may have decided it didn't want to extend its exposure, even if property values were rising.

To make that deal, Forest City found a partner less driven by the immediate bottom line but eager to make a splash in the world's media capital, and to move its money from China to a more stable investing environment.

Deal initially murky

Indeed, by early October 2013, the deal had emerged: Forest City would sell 70% of the remaining project, including towers and infrastructure, to the Shanghai government-owned Greenland Holdings Group.

It was appropriate that the largest commercial real estate deal ever for a Chinese company in the United States would involve Greenland, a huge company with $58 billion in assets, known for putting up huge towers in China and eager to spread its footprint around the world,

That lowered the risk and ensured development fees for Forest City, which is slated to consistently take 5% from all projects.

Since the price was not initially disclosed, we couldn't tell if Forest City was cashing out or taking a hit. Still, it was clear that, as with the entrance of Russian oligarch Mikhail Prokhorov as majority buyer of the Nets and minority buyer of the arena, global capital would flow into Brooklyn after the locally nimble Forest City did the heavy lifting.

"This investment would allow us to move forward with one of the most ambitious affordable housing programs in our City's history,” Mayor Mike Bloomberg piously declared, regarding the Greenland deal.

Or, to be more clear, to help Forest City offload the risk and reward. Forest City stock jumped 5.45% at the news, on a day the general real estate sector rose about 1%.

Readjusting the value

Maybe the Greenland deal wasn’t so great for Forest City, after all. In its third-quarter investment results, Forest City on Dec. 9, 2013 revealed a potential hefty impairment, or lowering their Atlantic Yards investment value by $250-$350 million.

The factors included "construction timing and costs, expected future rents and operating expenses from the vertical development, holding periods, cash proceeds at the end of the estimated holding period," according to Forest City's Form 10-Q.

CFO Bob O’Brien cited the "ten years of carry on our existing costs”—the long wait—and rising infrastructure costs.

The announcement prompted calls from investors and analysts "expressing surprise and disappointment," CEO LaRue acknowledged.

"Clearly we are disappointed with this possible impairment as well," he told investment analysts. "It spotlights two of the hard lessons we've learned coming out of the recession. We need to control land rather than own it, prior to being ready to go vertical, and we need a strong capital partner up front for a project of this magnitude.”

In other words, they overshot. Investors frowned: Forest City's Class A shares on the NYSE dipped 2.9%, even as the market overall rose slightly.

Forest City and its partners had invested some $545 million, with total costs of approximately $770 million, including debt. "Basically, you take an impairment when the probability of future cash flows dictate it," O'Brien elaborated. "It’s clear that the costs incurred to date, plus the future costs, as we evaluate them with Greenland, result in the range of impairment that we’ve indicated in our filing. It is accounting driven, but it reflects market values..."

Forest City on December 16, 2013 revealed an unspecified capital contribution from Greenland, then four days later provided the number: Greenland would pay $200 million--which suggested the value of the total current investment was only about $286 million.

That meant the impairment, at Forest City's pro rata share of Atlantic Yards, would be $242.4 million, or $148.4 million after taxes.

That's not a small number, but it's also far less than the fees Forest City expects to earn. And, though Forest City's proportionate share of profit goes down, it also stands to earn its share from the condo buildings and the subsidized housing.

The cost of land, and the returns now

“Based on the 6.4 million square feet of remaining entitlements in both phases," Forest City said in December 2013, "the total anticipated costs yield an expected average cost per square foot of approximately $180-$220 per square foot, prior to vertical development.”

As of 2013, that was a relatively high number. One broker reported $173 as the record price per buildable square foot in Downtown Brooklyn.

A year later, however, the numbers were much higher. Forest City Ratner was looking to sell its development site at 625 Fulton Street for $300 to $350 per buildable square foot or more, Crain's reported last October.

That leaves some questions. Was it unwise, in retrospect, not to wait?

Or was Greenland the only investor available?

And was Forest City's board, running a public company that has quarterly earnings reports, simply unable to look at a longer time horizon?

After all, Greenland Forest City is now marketing condos at 550 Vanderbilt, the first condo building, starting at $550,000, and going up to $5.5 million, surely above the prices projected just a few years ago.

And the first two all-affordable towers, however below market, will have rents that ensure more return than the original promises for the subsidized housing.
2015 rent levels for B3; rent should be higher when building opens in 2016

Going forward, Forest City CEO MaryAnne Gilmartin has said, "every building will be a conversation with the city around exactly how we put that building together."

That implies shifts in affordability based on available subsidies and the developer's push to profit.

The murky bottom line

So, despite the nearly $150 million hit that Forest City appears to have taken in the sale to Greenland, I'd say it's premature to assess what Atlantic Yards/Pacific Park Brooklyn ultimately means to the bottom line.

After all, they sold 80% of the Nets for an apparent loss, but now should get a good chunk of that back when selling the remaining portion. And the Barclays Center is well behind its revenue goals, but they're aiming to sell their share of the arena at a profit.

Then again, in February they announced a $146 million impairment regarding B2, presumably to be reduced somewhat after taxes, and with some portion potentially recoverable through litigation. 

Then there's the question of returns over the long term from the condos and rentals. And, of course, the prospect of new subsidies or grants, or tweaks in the income formulas for the subsidized housing. 

Heck, even though they claim this is the third and final round of fundraising via the EB-5 program, they may go back to China for more cheap capital from millionaires seeking green cards.

Atlantic Yards/Pacific Park, when analyzed in the soaring real-estate market of 2006, was said to offer a billion-dollar profit. Conditions have changed.  

But even the impairments can't be seen as definitive. Atlantic Yards, as I've said, is a "never say never" project. After all, it's not even Atlantic Yards any more.

Monday, April 13, 2015

Black Institute slams city's M/WBE program; Atlantic Yards unmentioned (good news would've been hyped)

The Black Institute, the "action tank" led by former New York ACORN head Bertha Lewis, last week released Not Good Enough: The Myth of ‘Good Faith and Best Efforts’/Report on Minority- and Women-Owned Businesses (embedded at bottom).

The report, launched with a press conference including several prominent black elected officials, has been seen as a challenge to Mayor Bill de Blasio by a long-time and continuing ally, Lewis, a founder of the Working Families Party and former head of New York and national ACORN.

The report suggests several reforms, including:
  • hiring a Chief Diversity Officer assigned solely to such programs 
  • extending the M/WBE program to all 72 city agencies/bodies (from the current 34)
  • assistance to ensure prompt payment and thus cash flow
  • start-up capital from 1 percent of the state/city pension funds
  • increased data and statistics on M/WBE participation.
The report has been covered in the Daily NewsNew York ObserverCity & StateCapital New York, and on NY1’s Inside City HallCity & State TV, and Capitol Pressroom (note how Lewis talks over her interviewer).

What's missing: AY

Unmentioned in the coverage so far, however, is the absence of Atlantic Yards/Pacific Park Brooklyn as either a positive or negative example, Those with long memories may recall how, in 2006, Lewis's New York ACORN praised Atlantic Yards as the anomaly in a "Sweetheart Development" report about the lack of affordable housing in/around Downtown Brooklyn projects.

Presumably, if Atlantic Yards were a good example regarding M/WBEs, that would be highlighted. The new report includes quotes from three people (beyond Lewis) with ties to Atlantic Yards as supporters or contractors, so the absence of the Brooklyn project is glaring.

Notably, severe criticisms of Columbia University's Manhattanville project in the report--including use of eminent domain and lack of transparency--could be lodged regarding Atlantic Yards/Pacific Park. But Lewis is a signatory of the Atlantic Yards Community Benefits Agreement (CBA), describes herself as a "partner" of the developer, and raised $1.5 million from Forest City Ratner to bail out ACORN.

(She's also a member of the recently constituted Atlantic Yards Community Development Corporation, set up to oversee project commitments. She attended the first meeting but not the second.)

Moreover, the Atlantic Yards Community Benefits Agreement requires an Independent Compliance Monitor to report back on statistics--and that hasn't happened.

Some previous statistics suggest that, however the results exceed the low average reported by the Black Institute, they're behind the goals for Atlantic Yards, according to the state and the CBA.

As I reported 2/3/12, developer Forest City Ratner had a much lower M/WBE than previously reported. Initial statistics released by Empire State Development (ESD), the state agency overseeing Atlantic Yards, the MBE awards totaled about 16.3% of purchases, while the WBE awards totaled about 6.3%.

That suggested the combined M/WBE participation was 22.6%, about three-quarters of the way toward the goal of 30% (20% MBE plus 10% WBE) in the CBA. However, those statistics did not reflect the ESD's own analysis. ESD has a certified M/WBE contract goal of 20%, but the total was 15.4%. (Not all firms are certified.)

More recent statistics have not been issued. Who knows what the M/WBE role was in the factory and supplies for modular construction?

Beyond that, I'd suggest that some issues highlighted in the new report may apply to Atlantic Yards, such as "Concentration of opportunities in the hands of a few already long-established M/WBE contractors, some of which cannot be really considered disadvantaged any longer."

I've made that point regarding McKissack & McKissack, which is long-established. (Then again, company head Cheryl McKissack is a member of the Black Institute's Advisory Board.)

The coverage

The Daily News exclusive highlighted the fact that the criticism came from a de Blasio ally.

In 2014, only 4% of the city’s contracts were awarded to MWBEs, minority- and women-owned business enterprises. That was lower than the 5% under the Bloomberg administration in 2012, though above that administration's figure in 2013--actually 57% higher (which shows how percentages can skew from a very low base).

“In a city that is majority-minority, to have MWBEs get a pittance of contracts is outrageous on its face,” Lewis told the Daily News. The report criticizes the fact that the city lacks a Chief Diversity Officer, a role filled by counsel Maya Wiley.

The Observer noted the appearance at a press conference by allies including Public Advocate Letitia James, Congresswoman Yvette Clarke, Assemblyman Michael Blake, and Brooklyn Council members Laurie Cumbo and Robert Cornegy.

"I say to everyone, we’ve got a new bird in the City of New York and it’s called a crane—because cranes are everywhere," Clarke said, referring to construction.

"Boosting the number of contracts to over a third, as Ms. Lewis demands, also may not be feasible because the city is mandated by law to choose the lowest bidder or best proposer," the Observer noted.


On City and State TV, Lewis explained that she tried to give the administration a head's up, but they didn't respond. She said she wanted the administration to succeed, but "here in a city that is majority people of color, for MWBE, to have to scrape and beg and grovel for only 4% of the city contracts is obscene and is disgraceful."

Interviewer Gerson Borrero, who noted his Puerto Rican heritage, said he'd heard from pastors that, despite de Blasio's black wife and children, he's not "feeling it."

Lewis said she'd heard that too, " but here's what I'm concerned about. I'm not concerned about one white man. Even though he's the Mayor. I'm concerned about a whole passel of white man that have the ear of this administration. I'm concerned about those white folks who are still in the administration who have been there for a while and you can talk about being progressive all you want to, but we're the permanent government. So when we go out, we do stuff the way we always do."

"I'm concerned about the 1%, who still have a grip on the real estate industry," she said, noting no requirements for MWBE participation in Hudson Yards.

On NY 1, Lewis appeared with Lou Coletti, President and CEO of the Building Trades Employers' Association. In response to the city's statement that hard goals are illegal, Lewis said "there are contracts in construction where they classify things as specialty, it's set aside for folks who can do that."

The obstacles

As stated in the report, M/WBEs still face many obstacles to their success and even survival, including:
  • Weak legal guarantees against discrimination in the absence of M/WBE’s mandatory inclusion in public contracting;
  • Lack of information transparency in the contract bidding process;
  • Certification hurdles;
  • Exclusion of so-called “sole source” or specialty contracts, from M/WBE participation requirements by New York State and City laws and Community Benefit Agreements;
  • Flawed contract agreements due to the lack of access to good legal counsel;
  • Barriers in access to start-up capital;
  • Payment delays by larger contracting entities;
  • Concentration of opportunities in the hands of a few already long-established M/WBE contractors, some of which cannot be really considered disadvantaged any longer;
  • Restrictive definitions of ‘minority’ in disparity studies and, consequently, in legislation, which exclude some disadvantaged groups, such as Arabs or immigrants from non-English-speaking countries.
  • Lack of a ‘central address,’ such as a Chief Diversity Office, in NYC Government for dealing with M/WBE issues, i.e. of an office with exclusive responsibility for them.
Potential solutions

After interviewing those involved in the issue, the Black Institute suggested solutions:
  • New York State and New York City governments must establish M/WBE contracting requirements of 35 percent M/WBE of the total contracting budget, as should subcontracting by larger firms that have contracts involving taxpayer dollars.
  • Chapter 862 of New York State Laws of 1990 and New York City Local Law 1 must be amended to provide equitable access for M/WBEs to ‘sole source’ or ‘specialty’ contracting opportunities.
  • Federal Government must encourage the establishment of Chief Diversity Officer positions, along the lines of the New York State and New York City Comptroller’s Office positions, in other cities and states that have set goals for M/WBE participation. 
  • NY State and NYC Chief Diversity Officers must monitor M/WBE contracts to ensure that they are being upheld by all parties and that M/WBEs are actually completing their assigned work to minimize the chances of contractors signing M/WBEs on to projects only to pass the contracts over to other businesses half way through to complete the job.
  • New York State and New York City contracting offices must revamp the bidding process to maximize openness and transparency in access to information about available government projects from the very start of the process, i.e. before their approval.
  • Any for-profit company that is granted tax privileges or breaks from city or state government must be subject to legal requirements of M/WBE participation in the subcontracting of any of its projects. (Thus, the definition of the “bidder” in NYC Local Law 1... must be amended..)
  • NYC Local Law 1 of 2013 must also be amended to establish M/WBE requirements for all city agencies, authorities, commissions, etc. (as opposed to the 34 mayoral agencies currently covered).
  • DMWBD and SBS must provide legal and other assistance to M/WBE contractors whose payments are delayed. The State’s Prompt Payment Law passed in 1998 seems not to be well implemented or not sufficient.... NYC should consider adopting the Los Angeles practice of withholding payment from prime contractors for non-payment of their subcontracting obligations.
  • New York State and New York City legislatures must address the lack of M/WBEs start-up capital by instituting the use of 1 percent of NY State and City pension funds to provide a funding pool for M/WBEs....
  • New York State and City authorities must include representatives of minorities’ and women research institutions among other key stakeholders in developing M/WBE policies....
  • NYC Mayor’s Office must establish an M/WBE Advisory Council comprising all key stakeholders...
  • Data and statistics on MWBE participation must be made more transparent and easily accessible to the general public, as well as more detailed...
  • In addition, New York State and New York City governments must include a larger educational component in their M/WBE assistance programs, to help new companies reduce their learning curve...
Better from Cuomo?

The report states:
In 2011, in his first State of the State speech, Governor Cuomo established MWBE participation goal for NY state contracts at 20 percent. By the end of the 2013-14 fiscal year, official data indicated that New York State jumped ahead of the rest of the country, with over 25 percent, or $1.96 billion in contracts awarded to MWBEs. For 2014-15, the goal is set at 30 percent, or $2.4 billion.
(So is the Atlantic Yards goal now 30 percent? If so, that's news to me.)

However, the report notes that there's a lot of fuzziness behind the numbers, such as the distinction among minority groups.

Concentrated results

The report notes:
Further, M/WBE spending remains heavily concentrated in a few agencies (topped by the School Construction Authority, which is not subject to LL1, and yet has spent 37.7 percent of all M/WBE money). Likewise, the largest chunk of M/WBE spending ended up in the hands of a handful of companies: top 10 prime vendors have received over 30 percent of all contract spending - incuding five WBEs, three companies owned by Asian Americans, one Hispanic/ Latino-owned, and one whose ownership has not been identified for security reasons. As for subcontracting, of the top 10 M/WBE subvendors, 4 were Asian-owned, 2 WBEs, 2 Hispanic/Latino-owned, and 2 owned by Blacks. (On the bright side, Black-owned firm, R & D Contractors and Builders, has been the largest city subvendor, with almost $478,000, or 10% of total M/WBE subcontracting funds.)
One reason for this is the state requirement to  award contracts to the lowest bidders only.

Beyond good faith

The report notes:
M/WBE participation goals in New York State and New York City laws and regulations are not mandatory. Instead, they limit agencies’ responsibilities with regard to identifying an M/WBE contractor to “best efforts” or “good faith efforts”:84 agencies and their contractors are required to show that they made just such an “effort” to attain the goals. In the view of many observers, this wording provides leeway for city agencies and their traditional contractors to circumvent the government-set goals for M/WBEs’ participation.
Note that the M/WBE percentages in the Atlantic Yards CBA are goals.

Recent public/private projects in New York region

The report states:
To get a better idea of opportunities still available for a substantial M/WBE participation in New York, it is worth reviewing at least some of the most recent and ongoing construction projects in New York State and the city.
Projects mentioned include LaGuardia Central Terminal Project,  JFK Airports Delta Terminal Redevelopment Project, George Washington Bridge Bus Station, Willets Point Development, and the sale of Long Island College Hospital. Also cited is Hudson Yards. Atlantic Yards is unmentioned.

Criticism of Columbia

Columbia University's Manhattanville project gets the most critical discussion.The Columbia section states:
To begin with, Columbia resorted to the use of “eminent domain,” i.e. basically the seizure of small businesses’ property, which was widely criticized but ultimately upheld by the Supreme Court; local critics, including the leadership of Community Board 9 (which tried to ban eminent domain and voted unanimously against a Community Benefits Agreement with Columbia in May 2009), had to accept it as a “reality.” The leadership of CB9 changed hands and adopted a more collaborative stance toward Columbia. NY State Assemblyman Keith Wright echoed the feelings of many at the time: “If my constituents can make some money off of it, it is good. If my constituents can benefit, it is good.”
The same criticism of eminent domain, of course, was lodged regarding Atlantic Yards.

The report notes Columbia's pledge to assign 35% of contracts to minority-, women-, and local-owned companies and notes that Columbia was supposed to fund the hiring of an Independent Monitor to review compliance.

The report notes:
However, some of those who acquiesced to the expansion soon found themselves protesting in the streets against what they saw as Columbia’s failure to live up to its CBA commitments. Black architects, in particular, felt that they were shut out of Manhattanville’s contracting. Arch527, a group of African-American architects in Harlem, said that they were offered contracts for such types of work as moving a piece of furniture a few feet.... Larry English, CB9 Chair in 2009-2011, who was initially viewed as a supporter of Columbia, sided with the protesters, stating that “local and minority architects have not been given a fair opportunity to work on that project.” He charged Columbia with reneging on CBA.... even after he ceased to be CB9 chairman, Community Board under the new leadership of Rev. Georgiette Morgan-Thomas – the third chairperson in 3 years – continued to be critical of CU compliance; in March 2013, it unanimously passed a resolution calling for a state audit of Columbia’s promises. 
The report notes:
“The West Harlem Local Development Corporation should immediately hire a law firm to audit Columbia’s compliance to the CBA and take appropriate action to bring Columbia into compliance. The community should insist the Empire State Development Corporation do the same with the GPP,” wrote Larry English in a moving post on his personal blog. “Today, the redlines no longer surround neighborhoods, but instead they circle the city’s mega projects such as Barclay, Hudson Yards, World Trade Center, Second Avenue subway line and Manhattanville like a medieval moat. A barrier built on a mixture of race and greed that says to professionals of color - you need not apply.”
That backhanded "Barclay" mention by English is the only Atlantic Yards-related reference in the report, as far as I can tell.

Similar criticisms of Atlantic Yards/Pacific Park could be lodged. But Lewis and her organization are not in position to do so.