Monday, February 04, 2008

Does AY delay cost $6M a month? $12M? Forest City Ratner's fuzzy math

How much money is Forest City Ratner losing each month because of delays in the Atlantic Yards Project. In an effort to convince an appellate court to expedite the appeal in the suit challenging the AY environmental impact, a top executive and top lawyer both offer some very fuzzy math.

While last April executive Jim Stuckey estimated $4.15 million a month--a little more than .1% of the projected cost of the project--in an affidavit filed 1/17/08, his successor MaryAnne Gilmartin now claims $6 million a month.

However, the text of the affidavit offers no explanation of why that cost has escalated, and in fact cautions in more than one place that the developer can't predict cost escalations.

Compounding that, FCR attorney Jeffrey Braun, in his legal affirmation unaccountably doubles down, claiming that Gilmartin's affidavit indicates that The expenses that FCRC would continue to incur while a stay was in effect and that are relatively easy to calculate would exceed $12 million per month, and that does not include the operating losses that the New Jersey Nets basketball team incurs while it continues to use an antiquated arena as its home venue.
(Click to enlarge)

Gilmartin's affidavit

Let's look at the relevant section of Gilmartin's affidavit, reproduced in full, with some interpolation.

C. The Financial Impact of Delay
11. Delay in the progress of construction work for the Project not only would defer the Project's important public benefits, but it would expose FCRC to severe irreparable harm, resulting from, among other things, (a) the prolongation of the time in which FCRC must carry the real property and the Project's overhead without generating income, (b) costs incurred in connection with equity invested in the Project, and (c) the prolongation of the Nets basketball team's operating losses arising from its use of the current inadequate arena in New Jersey.

12. At this time, it costs FCRC about $2,400,000 per month to carry the real property that it has acquired for the Project and the overhead that is in place to work on the Project — a figure that does not include FCRC's legal fees and also does not take into account the operating losses that the Nets basketball team, which has been owned by an FCRC affiliate since 2004, continues to incur while it is based at its current venue in New Jersey.

13. Delay on a construction project such as this one probably would subject FCRC to significant escalations in its eventual construction costs. FCRC cannot accurately predict the amount of these cost escalations. However, given that the costs of materials historically have increased over time and also given the magnitude of the Project, it is reasonable to assume that a delay would cause a significant adverse financial impact. A delay also would subject FCRC to penalties and claims from construction contractors that would be forced to stop work, demobilize and subsequently start up again. FCRC cannot accurately quantify these penalties, but they would be significant.

(Emphases added)

Last April, Stuckey claimed that construction costs escalated $1.75 million per month.

14. In addition, during the construction of the temporary rail yard described in Mr. Sanna's accompanying affidavit, the Long Island Railroad ("LIRR") must modify its operations to allow trains displaced from the MTA's Vanderbilt Yard facility to be serviced elsewhere. As a result, FCRC is now paying approximately $300,000 per month to cover the increase in the LIRR's operating costs. A stay pending appeal would increase the period of time during which FCRC must make these payments.

The total of known costs would thus be $2.7 million a month, plus a significant chunk for cost escalations. Yet Gilmartin then picks some numbers seemingly out of thin air.

15. Therefore, if construction work on the Project was stayed temporarily for even one month, the damages to which FCRC would be subjected would be about $6,000,000 per month, not including the escalation of construction costs. A delay of two months would thus expose FCRC to damages of at least $12,000,000.

It just doesn't add up.

No comments:

Post a Comment