Skip to main content

Revolving door: consultants AKRF and Habib worked for Ratner, then ESDC

Columnist Michael Kinsley once observed trenchantly about politics in Washington, "The scandal isn't what's illegal; the scandal is what's legal."

The same might be said about development in New York State--though a judge has recently raised some questions about the process, as I'll discuss below.

Here it is apparently OK for:

1) a developer (in this case Forest City Ratner) to hire consultants (in this case AKRF and Philip Habib and Associates) to advise on a development plan

2) those consultants to later evaluate the environmental impact of that development plan on behalf of a state agency, the Empire State Development Corporation (ESDC)

3) that agency to pursue the potentially conflicting goals of fostering economic development and evaluating the environmental impact of such development, and

4) the consultants' work for that agency to be reimbursed by the developer.

(Above right, the cover of the Final Environmental Impact Statement. Click to enlarge.)

Small circle

In a critique issued in May of the city's similar environmental review process, Hope Cohen of the Manhattan Institute wrote:
The revolving door between powerful government and highly paid private-sector CEQR jobs means that no one wants to go on record blowing the whistle. As one developer explained, “Ninety percent of EASs are done by a small circle of firms where you’re buying the ability to influence the bureaucrats—whom they hire. A guy works for the city, then goes to work for AKRF [a leading consulting firm for environmental review], and you can’t get out of the circle.”


"Excited about the project"

In this case, AKRF worked for Forest City Ratner, then the state. AKRF, hired by the developer to analyze the economic and fiscal benefits of the project, said in its 9/26/03 letter (above right), "We remain excited about the project and what it can mean to Brooklyn, New York City, and the New York State."

The letter appears on p. 71 (marked 549) of this PDF a 9/29/03
Forest City Ratner presentation (3.2 MB PDF) to the ESDC, unearthed via Assemblyman Jim Brennan's lawsuit. It also appears on p. 75 of a 10/22/03 presentation.

A map from Philip Habib and Associaties appears in a 6/17/03 Forest City Ratner presentation (2 MB PDF) to the ESDC. Habib was working for Forest City Ratner when the developer in 2005 made its bid (right) to the Metropolitan Transportation Authority for the Vanderbilt Yard. (See p. 95 of this PDF).

It's unclear when the consultants stopped working for Forest City and started working for the state--I asked ESDC for information and have not yet received a response--but the developer eventually hired transportation consultant Sam Schwartz to advise on the project.

Schwartz, who said at a 12/5/05 Brooklyn Borough Board Atlantic Yards Committee meeting that he had been contacted by Forest City, likely began in early 2006.

Two judicial views

Two recent court cases, not completely on point, indirectly speak to the role of consultants working for the developer and then the state; one would seem to endorse the Atlantic Yards arrangement, while the other seems to raise questions about it.

Lawyer's work OK'd

Last year, a coalition of Atlantic Yards opponents sued to block the ESDC's decision to allow "emergency" demolitions of five properties in the Atlantic Yards footprint. State Supreme Court Justice Carol Edmead denied the motion, but did disqualify David Paget, an environmental attorney working for ESDC who had formerly advised Forest City Ratner. (Case files here.)

A state appellate court overturned Edmead's ruling on Paget in a 2/15/06 decision, noting that Edmead erred in describing simultaneous rather than consecutive representation; that meant there was no prima facie showing of a conflict and no apparent likelihood that counsel's exercise of independent professional judgment on behalf of ESDC would be adversely affected or that counsel would be involved in representing differing interests.

The court also noted evidence that "ESDC and/or the developer had duly waived their rights as to potential conflicts of interest" and that the "appearance of impropriety" was not sufficient to warrant disqualification because it did not violate another ethical or disciplinary rule, among other reasons.

The Columbia case

A judge's 6/27/07 ruling in a case involving Columbia University's West Harlem expansion, however, takes a different tack. As explained in a 6/30/07 New York Times article, headlined Neutrality in Expansion at Columbia Is Questioned, AKRF was working for Columbia, and then was hired simultaneously by the ESDC. Project opponents sued to get some documents, which the judge said were not covered by an agency exemption that would have protected them from disclosure.

Norman Siegel, attorney for the opponents, was quoted in the Times:
“The government has the power to condemn my clients’ property. But the process should be neutral and objective, and when you find out the government has retained Columbia’s consultant, it can’t be neutral anymore. It’s biased.”

Columbia said it didn't have any role in ESDC's choice of AKRF. ESDC said it disagreed with the ruling. So an appeal is likely.

AY implications

What does this mean for Atlantic Yards? The most obvious distinction is that AKRF was (likely) no longer working for Forest City Ratner when hired by the ESDC.

But what are the guidelines and policy? What rules does ESDC have about hiring consultants who formerly worked on the projects that they will review? I asked ESDC several times for a comment and was told one was forthcoming, but have not yet received it.

Note that it was hardly surprising for the ESDC to hire AKRF. The latter has been hired numerous times over the decades by the agency, as it is the leading firm to conduct such environmental reviews.

The Columbia decision

In her decision, West Harlem Business Group v. Empire State Development Corporation, State Supreme Court Justice Shirley Werner Kornreich wrote:

Petitioner and respondent agree that AKRF was also a consultant for Columbia University on the Manhattanville redevelopment, the project which is the target of this FOIL request. Respondent asserts, however, that it hired AKRF with the understanding that there would be a 'Chinese wall' separating the consultant's work for Columbia and respondent.

The exemption for consultants hired by an agency to assist it in its deliberative governmental functions is a judge-made extension of the text of the agency exemption. Department of the Interior & Bureau of Indian Affairs v. Klamath... The consultant exception recognizes that where a government agency hires a consultant to seek an objective opinion from an outside expert, the consultant's report plays 'essentially the same part in an agency’s policy of deliberation' as 'documents prepared by agency personnel might have done.' However, in order for a consultant to fall under the agency exception, the consultant must 'not represent an interest of its own, or the interest of any other client, when it advises the agency...' For the consultant's documents to fall under the agency exemption, its only obligations must be 'to truth and its sense of what good judgment calls for, and in those respects the consultant functions just as en employee would be expected to do.' The rationale for the consultant exception falls apart where the consultant acts 'in their own interest on or behalf of any person or group whose interests might be affected by the Government action addressed by the consultant.'

In this case, as AKRF is a consultant for Columbia and is acting in the interest of an entity whose action might be affected by respondent. Moreover, while acting for Columbia, AKRF has an interest of its own in the outcome of respondent’s action, as AKRF, presumably, seeks to succeed in securing an outcome that its client, Columbia, would favor. The position of AKRF, thus, lacks sufficient neutrality for the court to find that AKRF does not represent ‘an interest of its own, or the interest of any other client, when it advises’ respondent.

..The ‘Chinese wall’ exception that respondent would like the court to recognize is not sanctioned by any judicial precedent, and it does not eliminate AKRF’s representation of potentially rival interests. Respondent’s reliance upon AKRF may influence a decision that affects members of the public, such as petitioner, whose interest in respondent’s action are adverse to those of Columbia.

(Emphases added)

Bottom line


Note that, despite the judge's ruling that AKRF "lacks sufficient neutrality," the consultant was not kicked off the case; rather, the ESDC was required to turn over certain documents.

Consultant Sam Schwartz also told the Brooklyn Borough Board Atlantic Yards Committee, according to the meeting notes:
From a consultant’s perspective, you must satisfy your client, but you must maintain your objectivity.

The question remains: how does the ESDC make sure that AKRF was not serving its former client, Forest City Ratner? Or does it make a difference?

In court 2/14/06, as I reported, lawyers for the ESDC and Forest City Ratner said the process was not adversarial, but collaborative, since both the developer and agency are interested in having the project move forward. Jeffrey Baker, an attorney for petitioner Develop Don't Destroy Brooklyn, instead characterized it as "an arm's length transaction."

Justice Edmead agreed. She wrote in her decision:
Potentially, the interests of Ratner Companies, as an applicant or project sponsor, are adverse to the interests of the ESDC, which is charged with the responsibility to protect the environment and regulate the activities of individuals and corporations so that 'due consideration is given to preventing environmental damage.' The oft bottom-line, profit-making pursuits of real estate development corporations may not necessarily align with the stated, valid environmental interests of the ESDC.

Though the appellate court disagreed with numerous aspects of Edmead's decision, the judges did not address whether the interests of the developer and the ESDC are potentially adversarial or not. For now, they don't appear so, but the question lingers.

Comments

  1. This comment has been removed by the author.

    ReplyDelete

Post a Comment

Popular posts from this blog

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…