For the first time, however, officials acknowledged that $1 billion in tax-exempt bonds would be issued to support the housing component. They also said that Memoranda of Understanding with developer Forest City Ratner regarding the housing were still being negotiated, but that the fiscal aspects of the project were ready to go before the Public Authorities Control Board (PACB) today.
Also, Empire State Development Corporation’s (ESDC) Chairman Charles Gargano said that developer Forest City Ratner would earn a “reasonable” rate of return, even as the potential return to the public had just plummeted by about a third.
As reported, Brodsky found the ESDC unwilling to provide full disclosure about the project, notably a project financial analysis commissioned by the firm KPMG.
(The ESDC had cited confidentiality issues, but yesterday, according to the New York Observer, the authority provided the document to Assembly Speaker Sheldon Silver, who was considering the project from his perch as a controlling member of the PACB. Silver’s posture on Atlantic Yards remained unclear yesterday, despite reports that he was ready to kick it over to the term of incoming Governor Eliot Spitzer.)
$1B for bonds
“How much tax-free financing is going to be issued?” Brodsky asked.
Ann Hulka, a senior VP for real estate at the ESDC, responded that there would be $100 million in bonds on behalf of New York State.
However, “with regards to housing bonds, we’re anticipating… almost a billion dollars” through the city housing program, she said.
The actual cost of such bonds to the public is unclear. However, there is a finite pool of bonding available, and it’s possible that Atlantic Yards could represent a disproportionate amount, thus squeezing out other potential projects.
On Monday, Michelle de la Uz of the Fifth Avenue Committee, a housing group in Brooklyn that has called for a delay in the PACB vote, suggested that the city’s Housing Development Corporation (HDC) is contemplating the issue of $1.9 billion in bonds, basing her estimate on preliminary documents released by HDC.
To put it in perspective, she said, this year HDC issued $1.8 billion in bonds. Much more information is needed on the affordable housing finances, she said.
(It’s not clear whether the bonds for Atlantic Yards would be issued in one year or over several years.)
Value of Vanderbilt Yard?
Has an appraisal, including the air rights, been done on the state property included in the project, Brodsky asked. He was referring to the Metropolitan Transportation Authority’s (MTA) Vanderbilt Yard, which would occupy nearly nine acres of the 22-acre Atlantic Yards site.
ESDC counsel Steve Matlin responded that the MTA had done an appraisal, which he’d seen. He didn’t mention that the appraisal was $214.5 million, and that the MTA had awarded the rights to Forest City Ratner for $100 million, while another developer, Extell, bid $150 million.
(Forest City contends that the value of railyard improvements ups the value of its bid. Develop Don't Destroy Brookyn disagrees.)
“Is the price to be paid to the MTA the measure of the value that appears in the appraisal?” Brodsky asked.
“That was a determination made by the MTA,” Matlin responded.
“What’s the total cost of what’s called ‘extraordinary infrastructure costs’?” Brodsky asked, a reference to a line in the 2/18/05 Memorandum of Understanding that said (p. 5) that “the Public Parties will consider making additional contributions for extraordinary infrastructure costs related to the mixed-use development on the Project Site (excluding the Arena Building Site).”
Gargano said, “We are providing $100 million… for work over the railyards.” (Develop Don’t Destroy Brooklyn points to $163 million in such ‘extraordinary infrastructure costs’ in FCR’s bid (p. 47 of PDF) to the MTA.)
“Is it essentially the MTA portion?” Brodsky asked.
The answer was yes. The question apparently had not been fully answered.
Enforceability, Part 1
“How do you enforce the affordable housing component?” Brodsky asked. He referred to the plan for 2250 affordable rentals, 2250 market-rate rentals, and some 1930 market-rate condos.
“We have MOUs,” Gargano responded, saying that language in the MOUs and funding agreements would provide the enforceability.
“And if by some reason, the housing is not developed, what’s the remedy?” Brodsky asked.
Gargano replied that the developer would not get the funding. It wasn’t clear what funding he was referring to—the $100 million from the state, or city housing bonds and subsidies.
ESDC Chief Operating Officer Eileen Mildenberger followed up by saying that the fiscal cost to the city and state would be about $450 million. (That calculation includes $200 million in direct funding plus sales tax and mortgage recording tax breaks, but not affordable housing costs nor public costs for schools, sanitation, and public safety.)
Enforceability, Part 2
After the hearing, reporters followed up with Gargano. “In our agreement with the developer, we have an MOU that gives us the ability to enforce what we require them to do in terms of affordable housing," he said.
Is the MOU public?
Gargano said he’d have to check.
Would it typically be made public?
“It depends on where we are in the process,” Gargano replied.
“We’re still negotiating final terms,” Mildenberger said.
“We’re still negotiating,” Gargano chimed in. “But obviously when the negotiations are complete, all of those will be public documents.”
How could they be negotiating, Gargano was asked, given that the project was going to be put before the PACB on Wednesday.
“No, we’re not negotiating. We have an MOU,” Gargano said.
Mildenberger explained further why the MOU wasn’t public. “The final terms of the agreement” have not been reached, she said, adding that there would be MOUs between the developer and the city and the developer and the state.
So why is this going to the PACB?
“I think the fiscal terms of the project are already negotiated, and that’s what PACB would be most concerned about,” she responded.
A reasonable return
Gargano was asked about the developer’s return. “I have been told by my financial people that—I don’t have the numbers—but it’s a reasonable return on their investment,” he said. (In an August article in New York Magazine, a real estate expert estimated about a 25 percent return.)
So why did the ESDC let Forest City, in the 8% cut in project size, eliminate a disproportionate amount of commercial space, which, if filled, would generate more spinoff jobs and public revenue than would housing? (The ESDC attributed the nearly one-third cut in projected revenues to the 8% reduction.)
“The developer is the sponsor of this project,” Gargano replied. “The city is the one that has looked at the project in terms of the makeup of the project, the size of the project and they have approved, the office of--”
“City Planning,” his interlocutor offered.
“They’re the ones that approved it,” Gargano continued.
But didn't City Planning simply address scale rather than the housing/office mix? The ESDC, Gargano declared, is not the project sponsor, and a developer has to “look at the market.”
Hint of changes
As for the project before the PACB for a possible vote today, Gargano said that it was was “basically the project that we put out for bid, with the possibility of doing some review for the Phase 2.”
Well, there was no bid, but his comment about Phase 2 raised some questions. What issues might be up for discussion? The mix of housing? The interim surface parking? The design of open space? We should know soon.