Monday, July 23, 2007

With missing building (322 condos), AY financial projections have huge hole

What's missing from this 10/10/06 Forest City Ratner document (below) that purports to cover the phasing of the Atlantic Yards project?

One of the 16 towers, the substantial Site 5, 250 feet tall (once planned at 350 feet, as in the renderings, apparently) and 439,200 square feet, which would occupy well more than 5% of the project's square footage.

Rising on the site now occupied by P.C. Richard/Modell’s between Flatbush, Fourth, and Atlantic avenues, and Pacific Street, it would apparently contain 322 condos, far more lucrative for developer Forest City Ratner than the rental housing.

The omission is important. We know that the Atlantic Yards financial projections unearthed by the lawsuit filed by Assemblyman Jim Brennan and State Senator Velmanette Montgomery, in which the phasing document was included, were snapshots and not definitive.

Missing numbers

Still, the numbers have been used in the projections made by Forest City Ratner and in the KPMG report (large PDF) commissioned by the Empire State Development Corporation (ESDC) last year regarding project finances.

So the estimation regarding a internal rate of return--in this case, 9.6% for the non-arena portion of the project--omits a building. It doesn't wash.

The document above lists 4500 rentals and 1608 condos in the other 15 towers. Thus 322 condos are needed for the planned complement of 1930 condos.

When the KPMG report surfaced last December, I wrote that the project apparently included 1608 condos and that the cuts had been in the cards since October. Apparently Forest City Ratner, and KPMG, simply omitted Site 5. So state officials who examined Atlantic Yards, including the Public Authorities Control board, missed a building.

Murky explanation

A 7/1/07 New York Times article, based on Brennan's documents, described Atlantic Yards as 8 million square feet but noted, “The business plans from last October do not include information about one of the project’s buildings that was approved separately.”

Not so. For example, Site 5 is in the Atlantic Yards map that’s part of the General Project Plan approved by the Empire State Development Corporation (ESDC).

(Renderings adapted from May 2006 renderings by architect Frank Gehry.)

Yes, Site 5 was not part of Atlantic Yards when the project was announced in 2003; rather, it was added in mid-2005. So it’s a possible that the building was omitted from the developer’s original economic projections, and Forest City never revised the projections--and neither KPMG nor the ESDC took notice.

Second MOU

Site 5, named for a designation within the Atlantic Terminal Urban Renewal Area (ATURA), was the subject of a second Memorandum of Understanding (MOU), which came to light only after a lawsuit from Develop Don’t Destroy Brooklyn.

At the 10/24/05 meeting of the Brooklyn Borough Board Atlantic Yards Committee, it was explained, according to the notes, that there were once two investment groups, but “ESDC is now treating them as one project.”

Why did the Times err? The reporters may have relied on Brennan, who also told me it was approved separately. However, as I pointed out to him, ESDC documents certainly include Site 5.

This is not a trivial omission. Any responsible analysis of Atlantic Yards finances would require a look at the entire project.

No comments:

Post a Comment