Monday, July 16, 2007

Brennan: many questions remain, fresh look needed

Assemblyman Jim Brennan, whose lawsuit (with State Senator Velmanette Montgomery) unearthed numerous Atlantic Yards financial documents, has more questions than answers for now about the viability and future of the Atlantic Yards project.

His main conclusion, expressed two weeks ago, is that a reliance on a steadily rising market for rentals could threaten the completion and timing of the project, notably the affordable housing component. The New York Times, probing further, suggested that developer Forest City Ratner’s price expectation for condos was unrealistic and could also stall the project.

Meanwhile, Brennan thinks that the state should revise the 421-a tax break to reopen discussions about the contours of the project, as I reported on Saturday.

He also pointed to a fundamental contradiction that deserves further study--on the one hand, the condos would be much more expensive to build than the rentals; on the other, most of the condos are expected to be much more profitable.

Making it smaller

Is there an argument for making the project smaller, I asked?

“Miss Brooklyn loses money on condos,” he pointed out in an interview on Friday; the office space in the flagship tower would be far more profitable, suggests the Atlantic Yards Financial Projections document (3+ MB PDF) prepared by developer Forest City Ratner. (Click to enlarge.)

True, but it's a confusing conclusion, because the developer had swapped office space for condos, which were presumed to be more profitable. And the other condo buildings--the project would have 1930 condos in all--are expected to be much more profitable than the 4500 rentals, half of which would be affordable.

Lower cost?

Brennan suggested, “If you eliminated some of the condo buildings, you would have a much lower cost for the whole project, because the rental construction is about one-third the cost of the condos… I’m no real estate expert or construction expert… but if you take out the most expensive parts of the project, it will cost a lot less money.”

Or so it seems, and Brennan allowed that it deserves further study.

A look at the document suggests some but hardly all of the difference depends on how Forest City Ratner allocates costs: for Tower 2, a rental, site acquisition costs about $62 a square foot (p. 12 of this PDF); for Tower 3, a condo building, the cost would be about $183 a square foot (p. 17 of the PDF). Both buildings would be part of the arena block, and the reason for the divergent estimate is unclear.

Back on the table

What should be done?

“I would love to see the project get put back on the table. The thing needs to be reconfigured,” Brennan said. “I’m not someone who repudiates the project. I’m interested in rationalizing the scale and preserving the affordable housing. The scale is a community environmental issue. It’s very interesting to me that the rental housing is coming in at a cost of one-third the condos. So if you have 2 million square feet of luxury condos—if a fourth of the project eats up nearly 50% of the costs--then something in there says a downsizing could make sense.”

Isn’t this an odd way to build affordable housing?

“There are clearly some irrationalities in the project,” he responded. “I’ve always had the feeling that we have the nucleus of something good, and it is surrounding by irrationality. I think the documents reveal some of the irrationalities... The project is extremely expensive. The affordable housing comes at the end, not at the beginning. And the scale of the whole development project, which is too big--these numbers show that a reconfiguration might be dramatically less expensive and still get you the affordable housing. There are just major questions unanswered.”

Brennan suggested an independent team of real estate professionals might advise the Empire State Development Corporation on reconfiguring the project.

More subsidy in the end?

Brennan had previously sponsored a bill that would have added state subsidies in exchange for shrinking the project. He’s not yet talking about new subsidies, but he wouldn't rule it out.

“These figures show high condo profits, low rental profits," he said. "If you take out the high condo profits, if the profits don’t materialize, you might not get the affordable housing, and you are left with a too low return to support the investment. So it’s a complicated situation.”

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