Sunday, August 31, 2014

Atlantic Yards, Pacific Park, and the Culture of Cheating (links)

I offer a framework to analyze and evaluate Atlantic Yards (in August 2014 rebranded as Pacific Park) 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.


Thursday, August 28, 2014

Bitter dispute between Forest City and Skanska over cost overruns stalls work at B2 modular tower; raises questions about pre-fab future

Forest City Ratner has had very high hopes for its modular construction plan, at one point calling it their "iPhone moment" and claiming to have "Cracked the Code" for high-rise modular, expecting to build towers faster than conventional construction, steadily supplied by modules fabricated at a new factory in the Brooklyn Navy Yard.

But the first tower, the 32-story, 363-unit (half market, half subsidized) B2, which broke ground in December 2012, faced steady delays. It was originally said to take 20 months (though Forest City in one earlier interview hoped for 14 months!), but the delivery date then became December 2014. As of April 2014, it was slated to open in the fourth quarter of 2015.

Even that may be too optimistic, now that Forest City and its general contractor, Skanska USA, are in a bitter dispute regarding cost overruns (worth tens of millions of dollars, according to a source quoted by the Wall Street Journal), which has caused the jointly owned factory at the Brooklyn Navy Yard to furlough workers.

That dispute is such that Forest City's spokesman blamed Skanska for "failures and missteps as the construction manager" and claimed the firm is trying "to to weasel out" of its obligations.

It's a reminder of the prescient warning, as I wrote in a 10/31/11 analysis of the secret history of Forest City's prefab plans, from Brooklyn architect Jim Garrison: "The American modular industry typically builds up to four stories. It has not yet built a 30-plus-story modular tower or anything nearly that tall. The challenges are those of engineering, assembly, and production. "

“Having designed several modular buildings I can say that they are intricate and if they are to be cost effective require development totally outside of normal building practice," he stated. "They are more like product or automobile design where assembly and detail may be considered together.

And it's a reminder of the verb in the headline in a 7/26/12 Engineering News-Record article, Developer Gambles on Modular High-Rise for Atlantic Yards Sports Village.

What next?

Forest City's charges sounds like bridge-burning, a prelude not to mediation but rather to a lawsuit. That would be a significant snag, since the tower, located at Flatbush Avenue and Dean Street, is only ten stories complete, less than one-third of the total.

And even if by chance they wanted to open a truncated building, they can't: the tax-exempt bonds and subsidies are premised on a completed building, of course, and a full rent roll would be necessary to recoup costs.

Note that, unlike the rest of the towers, which will be owned 70% by Forest City's new partner/overseer, the Greenland Group, and developed by Greenland Forest City Partners, B2 is co-owned by the Arizona State Retirement System, which likely is not happy its expected investment return has been jeopardized.

(The ASRS is actually the majority owner, since funding for the venture "will be 75 percent from ASRS and 25 percent from Forest City," the developer said in a 12/21/02 press release, which noted that "Forest City will serve as fund manager" for the $400 million fund, which invests in multiple buildings.)

Greenland has announced that the next set of towers will be built conventionally, but Forest City's Ashley Cotton said 6/27/14 that "as soon we can, we'll move forward with more modular buildings." It's an understandable wish to want to recoup their investment in both the factory and in research and development, and to perfect a process they hoped to sell to other developers. That plan is in question.

As noted in the latest Atlantic Yards/Pacific Park Construction Alert, issued 8/18/14, no more modules were delivered to the B2 tower in the previous two weeks, leaving a total of 297 (of 930), with the tenth floor complete. Erection of 11th floor modules was begin in September 2014.

The dispute emerges

According to an Aug. 26 letter (obtained by Capital New York), an attorney representing FCRC Modular told Skanska that its threat to unilaterally furlough workers at the factory violated the joint agreement since such "such decisions may not be made by any officer of FC+Skanska without approval of the Board of Directors," but the board did not approve it.

(Note that Forest City and Greenland also have an agreement which requires mutual assent on major decisions.)

Thus, wrote attorney Harold Weinberger, Skanska was was breaching the agreement, which would make it "responsible for the significant damage these actions will cause."

Richard Kennedy, chief operating officer of Skanska USA, told Capital New York, Work stops at Atlantic Yards as partners fight over cost, “It finally got to the point where we said, ‘OK, this project is requiring from us an investment that is much more significant than anything we ever anticipated or agreed to."

In the Wall Street Journal, Eliot Brown, who had the scoop, wrote that Kennedy blamed "'technological issues' that made it difficult to fabricate the modules, which he said were the fault of the design."

Forest City responded with a blistering statement blaming Skanska's "own failures and missteps” and violation of a fixed-price agreement. “Now faced with over-runs, they are employing a typical strategy to try to weasel out of that obligation,” said Jonathan Rosen.

“We are extremely disappointed that Skanska has unilaterally and wrongfully stopped work at our factory—unnecessarily putting the livelihoods of hundreds of employees at risk and causing unneeded delays in a critical project for New York City’s future,” he said. “Forest City remains deeply committed to completing B2 and meeting our commitments to the people of Brooklyn … We intend to pursue all of our rights and remedies under the law to enforce our agreement and resume work at the factory.”

The furlough notice

According to the notice below, obtained by Crain's New York Business, FCS Modular told workers that "a significant commercial dispute exists between the Atlantic Yards B2 Owner, the project Owner, and Skanska USA Building, the project Contractor, in connection with the B2 project. FCS is not a party to that dispute, but our factory operation here at the Brooklyn Navy Yard depends directly on the continuation of production of the B2 modules...at this time we do not know if, or when, the dispute will be resolved."







http://blog.usa.skanska.com/construction-history-in-the-making-skanska-raises-the-first-modules-at-b2-atlantic-yards-the-worlds-tallest-modular-building/

Construction history in the making: Skanska raises the first modules at B2 Atlantic Yards, the world’s tallest modular building

December 23, 2013

Construction history was changed December 12 in New York City when the Skanska team raised the first modules into place at B2, the 32-story residential tower that will be the world’s tallest modular building.

Nine hundred thirty modules – weighing between 10,000 lbs. and 40,000 lbs. – will go into this tower, with the units being assembled by the Forest City Ratner /Skanska team at the Brooklyn Navy Yard. But the focus that chilly Thursday morning was on that first module. It was just after 2 am when a tractor-trailer pulled that oversize load away from the Navy Yard for a one-and-a-half mile trip to the Atlantic Yards project site. At 9:30 a.m., the crane hoisted the module into place. Union ironworkers took 15 minutes to make the structural connections.

“There was a certain sense of excitement and a little bit of nervousness, just like on any jobsite when you’re moving and lifting something new,” said Susan Jenkins, Skanska vice president and operations head of the modular assembly plant. “And definitely a sense of pride for Skanska, and for myself being part of Skanska.”

Jenkins added: “It was a tremendous moment. A lot of people – from both Skanska and our partner and client Forest City Ratner – have worked very hard to develop and make modular construction possible on this project.”

When the modules leave the 100,000-square-foot Navy Yard assembly plant – operated by a joint venture of Forest City and Skanska – they are fully assembled, including kitchens, bathrooms and appliances. This isn’t how a building normally goes up, not even for Skanska, which has done much with off-site construction of mechanical, electrical and plumbing (MEP) systems on many projects (especially in the healthcare sector). Fully modular construction was needed on this project to ensure efficient, safe and sustainable construction.

Now that lifting modules into place has begun, it won’t be a daily activity, Jenkins said. Some days will be dedicated to setting into place the steel brace framing that rises the height of the 348,000-square-foot tower, and also surveying. However, the assembly plant will continue to send module units to the site. Our team plans to have at least two floors of modules – of which there are six types – ready and waiting at the Navy Yard to be sent to the site for the duration of the project, designed by SHoParchitects and Arup engineers,

Wednesday, August 27, 2014

As state is poised to give Fresh Direct subsidies, project relies on funds from immigrant investors under dubious EB-5 program; pitch in China was misleading

This isn't about Atlantic Yards/Pacific Park, or even a similar megaproject, but the EB-5 angle is too glaring to ignore.

Update: the subsidies were approved unanimously. Nearly everyone making public comment offered support of the project, while one representative of South Bronx Unite asked the board to take more time and acknowledge the health impacts. No one mentioned EB-5, though it's obviously crucial to the project.

---

At a board meeting (webcast) this morning starting at 9:30, Empire State Development, the state economic development agency, is set to approve what the agenda describes as:
A. Bronx (New York City Region – Bronx County) – Fresh Direct Capital – Urban and Community Development Program – Urban and Community Project Development Assistance (Capital Grant) – and Metropolitan Economic Revitalization Fund (Capital Loan) – Findings and Determinations Pursuant to Sections 5(4), 16-d and 10(g) of the Act; Authorization to Adopt the Proposed General Project Plan; Authorization to Make a Loan and a Grant and to Take Related Actions; Determination on No Significant Effect on the Environment
From ESD Board Materials; go to p. 51
In other words, ESD is about to give Fresh Direct a $9 million grant and a $1 million loan to move/expand from Long Island City to the South Bronx.

That's on top of $10.5 million from the New York City Industrial Development Authority and $1 million from the New York State Department of Transportation and $5 million in New Markets Tax Credit Equity.

Add $15 million from the investment fund Brightwood Capital, $40 million in the company itself, and a whopping $84,168,000 in an EB-5 loan.

Unmentioned are previous promises (which may have been adjusted) of $18.9 million in state Excelsior tax credits; $4 million in state energy grants and incentives; up to $1 million in vouchers for the purchase of electric vehicles; about $74 million in city sales tax exemptions, mortgage recording tax deferral, and real estate tax exemptions; $4.9 million in city energy benefits; $1 million capital grant from Bronx Overall Economic Development Corporation; and a $3 million loan and $500,000 capital grant from the Borough President

Pitching Fresh Direct to Chinese investors
Let's put aside the strangeness of the city and state subsidizing a cross-borough move based on a perceived threat from New Jersey, an unlikely base for a delivery service that needs quick access to Manhattan.

Or that Fresh Direct is moving after having gotten subsidies to stay in Queens through 2025.

Or that neighbors (see South Bronx Unite) pose some heavy concerns about the project's environmental impacts, and that if the promised job total is not reached, there's no "clawback provision" to recover subsidies. (See Good Jobs New York timeline.)

Looking at EB-5: total funding

The really strange thing is the reliance, according to ESD Board Materials (p, 51ff.), on the EB-5 immigrant investor program, in which foreign millionaires, mostly from China, park $500,000 in a purportedly job-creating investment, get green cards for themselves and their families, and later get their money back. (In this case, they're getting a relatively high--for EB-5--rate of 4.5%.)

The pitch in China, translated
The developer gets cheap capital. The public is supposed to get 10 jobs for each investor.

According to promotional material supplied almost surely by the New York City Regional Center, the private investment pool set up to market EB-5 investments (and reap fees), the project would not be $166 million in total, but $208 million.

Looking at EB-5: percentage of funding

That's not the only misleading part. EB-5 funding is said to make up just 40% of the project, rather than more than 50%.

And Fresh Direct is said to be providing the rest of the funds, which is clearly not true.

In fact, the "government support" is key in reassuring potential investors that the project is solid.

Looking at EB-5: projected funding doubled in less than a year

Also particularly strange is, as of last December, when the project was up for Bronx Economic Development Corporation funding via the New York Empowerment Zone Corporation, the EB-5 funding was only supposed to be $40 million. See graphic below.

That's a huge jump in eight months or so.

Looking at EB-5: the jobs

As noted in the graphic above, 170 investors contributing $85 million--or, apparently, 168 contributing $84 million--must create about 1,700 jobs.  And the EB-5 project, according to an economist's report--not a head count--is said to create 2,145 jobs.

However, the New York City Economic Development Corporation has said the new project would retain nearly 2,000 existing jobs, create almost 1,000 new jobs, and create about 684 construction jobs.

Pitching Fresh Direct to Chinese investors
So, even under this optimistic scenario, there would be less than 1,700 new jobs.

However, we must consider an extraordinarily generous feature of the EB-5 program (see overall analysis in Fortune), one which makes the program especially attractive to developers and entrepreneurs, since, as long as they go through the hoops of the EB-5 project, they can profit by selling public property (visas) they should not own.

No wonder, according to the Wall Street Journal, the annual quota for visas is subscribed. (No, despite the caption in the article, EB-5 funds did not help build the Barclays Center.)

Job creation for the immigrant investors is calculated based on the value of the entire project, not their investment. So the job calculations should be based on the entire $166 million project. (Or, if they're based on the purported $208 million project, they're completely bogus.)

Another twist: different state programs have different job requirements. In order to retain state tax credits, Fresh Direct must create 946 new jobs. But ESD's grant and loan merely require retention of 1,949 jobs through 2025, according to the graphic below, from board materials.




Tuesday, August 26, 2014

My essay from Next City: "After 11 Years of Controversy, Atlantic Yards Becomes Pacific Park Brooklyn"

See: After 11 Years of Controversy, Atlantic Yards Becomes Pacific Park Brooklyn, from the online magazine Next City.


It distills several of the arguments I've been making about the name change.

PHNDC forum tomorrow for candidates vying to fill Millman's Assembly seat, Adams's Senate seat

52nd Assembly District
This year, two legislative seats representing parts of Prospect Heights are open, given the retirement of Assemblymember Joan Millman and the ascension of state Senator Eric Adams to the Borough Presidency.

So, tomorrow night, Wednesday, August 27, the Prospect Heights Neighborhood Development Council (PHNDC) will host a moderated discussion with candidates running for office in Brooklyn’s 52nd Assembly District and 20th State Senate District

52nd Assembly—Doug Biviano, Pete Sikora and Jo Anne Simon
20th State Senate—Rubain Dorancy, Jesse Hamilton and Guillermo Philpotts
Moderator—Janet Babin of WNYC

When: Wednesday, August 27, 7:30PM

Where: Duryea Presbyterian Church, 362 Sterling Place (corner of Underhill Avenue) [Map]
The Democratic primary election is Tuesday, September 9.
20th Senate District

Community members may submit questions for the panels using Google Moderator. All questions will be reviewed and compiled by the forum organizers prior to the event.

Links to coverage

Here's a past state Senate debate and analysis of those backing Dorancy and Hamilton.

Here's last night's Assembly debate and a summary of that debate.

Here's past coverage of the race, focusing on Simon and Sikora, and a recent account of Biviano's success in getting in the debate last night.


Monday, August 25, 2014

From Forest City's latest investor presentation: Atlantic Yards becomes Pacific Park (gif), office space still ignored

First, a gif chronicling the morphing of the Atlantic Yards plan to Pacific Park, according to slides from Forest City Enterprises investor presentations December 2013, February 2014, and August 2014.

Note how only in the latest slide, announcing Pacific Park Brooklyn, highlights "8 acres of landscaped open space." That open space became much more important with the name change.

(Also note how the outlines of all the towers are irregular, unlike in the site plan released with the Pacific Park rebranding.)
Atlantic Yards to Pacific Park Brooklyn on Make A Gif



From the latest  Investor Presentation

The below slides are from the August 2014 Investor Presentation, as disclosed to the SEC.


Note that the project plan, as in previous iterations, does not mention the promised office space, source of the largest share of projected full-time jobs.



Brooklyn is a big part of Forest City Enterprises' business.



The Barclays Center is now the "anchor of our Pacific Park Brooklyn mixed-use project."

There's no mention of the fact that B2 has been delayed a year and was supposed to open in December 2014. Or that the next towers in the project would be built via conventional means.


"I guess we all just have to adjust": music critic, once no fan of arena, celebrates Arcade Fire show

In Metro 8/24/14, Gina Angelotti, who moved to Prospect Heights in approximately 2005, wrote Arcade Fire concert review, Barclays Center, Brooklyn, Aug. 22.

The lead to this review, I have to say, is exactly what developer Bruce Ratner and former Borough President Marty Markowitz were hoping for, an acknowledgment that what happens inside the Barclays Center erases previous opposition:
Moving Past the Feeling (Or, A personal account why I was — and still am — so moved by Arcade Fire)
When I moved to Prospect Heights, Brooklyn nearly a decade ago, I soon became aware that I was living in the epicenter of gentrification and development in the borough. I moved into a neighborhood that would rapidly change faces and fa├žades, and I was by default among those thousands causing it, even though like many of its longtime residents, I also begrudged the idea of a sports arena breaking ground just blocks from my new apartment, on the corner where my new favorite dive bar stood. At the time, I wanted to live in “old Brooklyn,” a city that I’d constructed in my imagination naively based on television series like “The Cosby Show” and that looked very different form the one I landed in after abandoning the Florida suburbs. Somehow it didn’t matter then; I still optimistically clung to my ideals. And my soundtrack to that dying world that I was looking at through fresh eyes was an album thematically about growing up and that I listened to relentlessly, aptly called “Funeral.” I was the child that the Arcade Fire described in verse, holding my mistake up.
Nine years have passed — my first roommates have all escaped New York, the dive bar was demolished and I can no longer visualize what it once was that the Barclays Center arena replaced — but two things haven’t changed; I still call Prospect Heights home and I still tear up (with bittersweet longing for a lost time? With awe at how far I’ve come?) when I listen to Arcade Fire. I never thought that I would be beaming with joy while mouthing the lyrics to “Neighborhood #1″ — a song about the march of time — inside an arena I’d once opposed being built in my neighborhood, nor did I imagine myself among those filling the cold space between our energized bodies and the arena’s high ceiling with the wordless yet loaded chorus of “Wake Up.” I guess we all just have to adjust.
And, of course, forget.

That's not a surprising phenomenon. But there may be other ways to refract Arcade Fire and Prospect Heights nostalgia.

Sunday, August 24, 2014

Post: court papers indicate that indicted lobbyist Lowe admits fraud; consultant had ties to Forest City, though not part of charges

The New York Post reported 8/2014, Ex-Sampson aide admits to swiping $100K from officials
Indicted state Sen. John Sampson has been thrown under the bus to the feds by a former top aide who is also in big trouble with the law, new court papers reveal.
Melvin Lowe admitted during confidential meetings with prosecutors that he defrauded the Democratic Senatorial Campaign Committee out of $100,000 – and gave $75,000 of the money to “Senator #1,” the filing says. A source said “Senator #1” is Lowe’s ex-boss, Sampson (D-Brooklyn), who is fighting charges that he, himself, also committed fraud and tax crimes.
Lowe has admitted that he failed to file tax returns for 2010 to 2012, despite earning $923,000. His trial is September 2.

As I wrote in July, 2010, DSCC consultant Lowe, connected to Sampson and Ratner (and Boyland's challenge to Montgomery), racks up the bucks. City Hall News broke the news that "Largely Unknown DSCC Consultant Cleared $300k In Last Year."

Here's brief coverage from 8/31/09 about Lowe's DSCC hiring, his role in Forest City's Ridge Hill project, and a report (which I never corroborated) of consulting work regarding Atlantic Yards.

When the charges surfaced

Last October, I wrote Former Forest City Ratner lobbyist Melvin Lowe, Sampson crony, charged with corruption.

None of the charges involved Forest City or any other developer. But it continued a remarkable string of corruption charges regarding people with ties to Forest City, including Carl Kruger, Sandy Annabi, Richard Lipsky, and William Rapfogel, as well as Sampson.

Lowe was mentioned, though not called as a witness, during the 2012 Yonkers corruption trial. "Are you familiar with a company known as Westchester Invaders?" asked William Aronwald, defense attorney for Annabi, the former Council Member who flipped her vote to benefit Forest City's Ridge Hill project and was later convicted.

"Isn't it true Forest City Ratner made a contribution of $10,000 to Westchester Invaders at Council Member [Patricia] McDow's or [FCR lobbyist] Melvin Lowe's request?"

"I can't recall," replied former Forest City governmental affairs EVP Bruce Bender.

As I wrote, Westchester Invaders is a drum and bugle corps that McDow has saluted, but I couldn't find corroborating evidence of a Forest City Ratner contribution. Then again, it would not be out of line with company practices in Brooklyn.

Saturday, August 23, 2014

Bruce Ratner again gives to AG Schneiderman campaign and Kings County Democrats

From the latest round of campaign finance filings, we learn that Atlantic Yards developer Bruce Ratner contributed $5,000 in July--as did his wife, Dr. Pamela Lipkin--to the re-election campaign for Attorney General Eric Schneiderman,

Those $5,000 sums are larger than most of Schneiderman's many recent contributions, but smaller than dozens of even larger ones.

Ratner also gave $5,000 to the Kings County Democratic Party (aka Kings County Democratic County Committee) in June.


In 2012, Ratner gave $10,000 to Schneiderman and $4,000 to Kings Democrats. In 2010, he gave $12,500 to Schneiderman.

I don't think we can connect Ratner's contributions to Schneiderman's inaction on some Atlantic Yards-related items, such as the debts of BUILD or the Downtown Brooklyn Partnership's reported lobbying. But, as we know, contributors are more likely to get their calls returned and/or attention paid to their issues.