Sunday, July 01, 2007

On the future of Atlantic Yards, the issue is: who decides on profit v. affordability?

So what's the bottom line regarding Atlantic Yards, based on today's New York Times article? The issue, to David A. Smith, an affordable housing analyst in Boston who's previously reviewed Atlantic Yards documents (but not the new ones), is the future balance between developer profit and affordable housing, and who gets to decide.

As of now, we don't know, since the Empire State Development Corporation has yet to release contract documents apparently still under negotiation. The city's housing program, which provides loans for 50/30/20 mixed-income rental buildings, would seem to require that each rental building have the promised mix. On the other hand, we don't know whether the city and state will require those buildings to be constructed by a certain date.

Lots of volatility

Smith emailed me: Even a cursory review of the financing plan materials released so far reveals that this is an extraordinarily complex undertaking, with many moving parts. The moving parts -- the financing plan, with multiple phases, multiple property uses, and multiple potential sources including subsidy and concessionary government capital -- mean volatility.

It could be a great financial and economic result, or a terrible one. With this much volatility, sequencing is key: what happens in what order, and who decides what changes are made to the development plan? If the developer has all the optionality -- that is, control over the responsive actions taken after unexpected favorable or unfavorable outside events -- and the city has none of the optionality, then it's very likely that the developer can navigate through all the complexity to a successful deal, and achieve this result by adjusting the affordable housing to be fewer apartments, to happen later in the development sequence, and to be redefined upwards. (Anyone who does business with any government agency as a counterparty knows that managing expectations over time is a critical developer skill.)

The question isn't, "Could the developer make a lot of money?" nor even "What is the public getting and what is the public paying?" but rather, "As things change in the future, who decides how the gains and losses are shared between developer profit and housing affordability?"

No comments:

Post a Comment