Monday, April 10, 2006

FCR buyouts, a one-time waiver on the gag order, and the (missing) pressure on renters

There are three important points to consider when reading today's New York Times article, headlined Forced to Move, Some Find Greener Grass explains that Forest City Ratner has bought out most of the people who lived in the footprint for the Atlantic Yards project, and "at least a few former residents say the negotiations... provided an opportunity to leave spaces that had grown too small or run-down — and to make a profit in the process."

1) Despite FCR's agreement to waive a gag order for this article, the developer has effectively silenced many possible critics
2) FCR's not ungenerous prices to buy out potential critics--among the owners--is a business strategy that should be considered along with the developer's business projections, which remain secret
3) FCR's terms to renters, not fully explained in the article, are far less generous financially and also include a gag order

Those quoted include:
--Erin Coffer, who said her condo at 636 Pacific Street had burst pipes and faulty wiring, and she and her husband more than doubled their money.
--Salvatore Perry, who with his wife sold two co-op apartments at 475 Dean Street for a "very good price."
--Mark Drury, who got a $5000 settlement after leaving a one-bedroom rental on Dean Street, and called the process "insidious," even though he can move into the Atlantic Yards project
--Mark Klein, the former president of 636 Pacific board, who said, "We got a premium on this lemon of a building that turned into a great investment for us." (In a 2/27/05 Times story, he spoke similarly, but his name is Matt Klein)
--Marc Wancer, who lived at 24 Sixth Avenue and called it "unpleasant" to choose between a buyout and living near a construction site
--Ngozi Odita, who would've wanted more time to plan the relocation of her boutique, but got some help for moving and rent from FCR, but said the new space was larger and the location better: "Things are blessings in disguise."

As the Times noted, Forest City Ratner said last month "that it owned or controlled nearly all the owner-occupied residential units on the project site, more than three-quarters of rentals and about two-thirds of the commercial properties there."

On the photos

There are two people pictured in the article. A large color photo, dominating the front of the Metro section, portrays Odita at her boutique. A not-quite-as-large black and white photo (at least in the print edition) of Drury (in a Develop Don't Destroy Brooklyn t-shirt) appeares on the jump, on page B5. (Photos from the New York Times.)

Why do they appear and not others? I'm not privy to the decisionmaking, but I speculate that most of those quoted in the story--and obviously others contacted but not quoted--just want to move on with their lives. Odita runs a business, so a photo of her at her store spreads the word about her business. Drury remains opposed to the project, so the photo of him allows him to make a political point.

By the way, Odita is not exactly representative of the people for whom, as a pull quote in the article states, "For some in the path of Atlantic Yards, a blessing in disguise." The article gives greater attention to the homeowners (mostly white, I assume) who profited on their condos; Odita is a black businessperson who rented space in the project footprint.

Also, the caption for Drury's photo states: "Mark Drury, 25, a social worker, had to move out of his rental apartment on Dean Street because of the project, which he opposed." That's incorrect--the article quotes him as saying he's been opposed to the project from the start. The caption should have said: "which he opposes."

What's the cost?

The Times reported: "Forest City officials said that the deals made good long-term business sense, though they added to the cost of the project."

Even though most of those interviewed had mixed feelings about the project and the process of losing their homes, the Times reported, "but even many of those who would rather have stayed said the developer had worked diligently to ensure smooth transitions."

So FCR tries hard to compensate displaced homeowners and relocate renters. That's hardly a bad thing, but such it's also part of a business strategy (and one that hardly began here; it was also the pattern for the MetroTech development). Consider: FCR added 2800 market-rate condos last year, but recently cut 440 of them.

We don't know their calculations--they were supposed to supply a pro forma to the Metropolitan Transportation Authority when bidding for the Vanderbilt Yard, but according to DDDB, supplied an indecipherable document.

However, FCR likely has calculated how many condos it must build to ensure a desired profit. Maybe that number is 500, or 1000, or 1500. The developer could then reduce the project further, and still look like it was responding to the community. Because this is a state project, the Empire State Development Corporation would override the zoning that ordinarily would regulate the size of the project.

Waiving the gag order

Also, FCR's business strategy includes gag orders that have prevented those signing contracts from any participation in criticism of the Atlantic Yards project, required them to praise the developer, and prevented them from funding opposition groups. (I'm told there are different versions of these clauses.)

The Times pointed out that, "[f]or this article, the company agreed to waive contractual restrictions limiting what those who accepted buyouts could say." (Did they get one day to help support opposition groups? Not likely. Will FCR waive the gag order for other journalists?) While the Times reported that "Several took the chance to air criticisms of the project and Forest City Ratner," I counted one person quoted as criticizing the project (Drury) and three saying that the process of relocating was difficult. Others praised the company.

The Times didn't point out, as the New York Post reported (Tout of Bounds — Ratner Forces Apt. Sellers To Hype Nets Arena, 6/16/04) that one version of the contract also required sellers to “Testify in favor of the project at hearings ...with statements to the effect that everyone has been treated fairly, honorably and decently."

How much profit for owners?

The Times wrote: [I]nterviews with former owners and an analysis of city tax records indicate that some sold their properties for more than twice what they paid for them after owning them for only a couple of years.
According to a report released in February by the Real Estate Board of New York, a real estate trade group, the median apartment price in the neighborhood, Prospect Heights, increased by about 36 percent last year.


But that 36 percent figure is insufficient; we need the figure covering two years, not one. (The Real Estate board called this a first-ever survey; note that prices in neighborhing Fort Greene went up 82 percent in a year.) Let's say the two-year price rise in Prospect Heights is 80 percent. If so, then Forest City Ratner paid only a modest premium to not merely acquire property but to buy silence.

The holdout

Daniel Goldstein, spokesman for Develop Don't Destroy Brooklyn, is the last owner holding out at 636 Pacific Street. He faces condemnation under eminent domain, a Forest City Ratner attorney told him.

Goldstein's been written about before, so the Times didn't get into it, but why doesn't he take the money? Because, as he's said in the Times, he thinks the project is a bad idea--and is not so desirous of a profit to sacrifice his principles. (That's his apartment with the Develop Don't Destroy Brooklyn sign hanging from the window.)

Unmentioned pressure on renters

The Times's coverage of the provisions for renters didn't mention some unattractive aspects of the contracts offered:
As the company purchased buildings, it also became a landlord to many renters. Mr. Stuckey said that they were offered the chance to move back into units of comparable rent and size in the completed Atlantic Yards project, if it is approved. The company also paid moving costs and broker's fees for those tenants and covered any increase in rent for transitional housing. For those who declined the offer to move to Atlantic Yards, Mr. Stuckey said, the company paid a lump sum, "representing some value of what they would have gained coming back."
Tenant laws generally require similar recompense when a landlord wants to demolish a building. Jennifer Levy, a lawyer with South Brooklyn Legal Services, said that the company was providing "at best what the law already requires."
Those protections, however, would be erased if the properties were handed over to the Empire State Development Corporation, the state agency sponsoring the project. In such cases, the agency is bound by a different, less stringent set of obligations. Mr. Stuckey said that the promise to place tenants in the new complex was beyond what the development corporation would be required by law to do.


But the deal isn't quite that nice. The article doesn't mention two important provisions in the contract being offered to renters (I saw a copy, and also heard Levy discuss it on a tape of a community meeting):

1) The "increase in rent for transitional housing" currently being offered only lasts for three years. Renters leaving subsidized apartments, who are generally have low incomes, would be put in a tough spot if the project isn't built in three years--and such a timetable is hardly likely. That's an argument for them to stay rather than leave. (Note that the Community Benefits Agreement, on p. 25, says the difference in rent would be paid until a unit is made available in the project, with no three-year limit.)

2) By signing the contract to relocate, they must also withdraw permanently from any opposition (statements, positions, signs, organizational membership) to the project. Otherwise, no deal. It's another gag order.

Why does Forest City Ratner treat owners better than renters? Maybe because the former have more clout and more money--and it's important to spend what it takes to neutralize them.

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