Friday, March 21, 2008

Ratner admits major AY delays, rising arena cost; NY Times gives him and government some slack

Are major delays in Atlantic Yards caused by the recent economic downturn and legal challenges, as a major story [Update: the lead story] in the New York Times today suggests? Sure, those are factors, and it’s good to get developer Bruce Ratner on the record, but the article fails to explore how Ratner has consistently overpromised regarding the project's progress and the government failed to do due diligence, in December 2006 approving a project whose timeline was already out of date.

Also the cost of the arena is revealed to be $950 million, though the article doesn’t explain that the number is nearly 50% higher than the cost as approved and more than double the figure announced nearly three years ago--when it was already the most expensive arena ever.

Given that $312.8 million increase in the arena alone, no one should be calling Atlantic Yards a $4 billion project anymore; rather, a more realistic number should be established.

Also, given that the arena would be built well before the affordable housing, a key generator of public and political support, what do project backers like ACORN and Brooklyn Borough President Marty Markowitz have to say? The Times didn’t interview them, but they should explain their current posture.

[Update: ACORN tells the Brooklyn Paper it would “push the developer to make good on his promises,” and the Paper points out that other public benefits, like the elimination of blight and open space, would also be way off.]

Despite the statement in the New York Times graphic that the arena is planned to open in 2010, I think 2011 is a more likely best-case scenario.

Delays “may” happen?


The article, headlined (online) Slow Economy Likely to Delay $4 Billion Project in Brooklyn, begins:
The slowing economy, weighed down by a widening credit crisis, is likely to delay the signature office tower and three residential buildings at the heart of the $4 billion Atlantic Yards project in Brooklyn, the developer said.

(In print, the headline says "Slow Economy Likely To Stall Atlantic Yards," followed by "Nets Arena Is On Track" and "Timeline Now Uncertain for Bulk of $4 Million Brooklyn Project.")

“It may hold up the office building,” the developer, Bruce C. Ratner, said in a recent interview. “And the bond market may slow the pace of the residential buildings.”


First, the entire project, not just the first phase, would be delayed. And Ratner’s use of the conditional “may” is laughable--the office building and the residential buildings have already been delayed.

(The article is accompanied by a tough piece from architecture critic Nicolai Ouroussoff, encouraging architect Frank Gehry to walk away.)

First public indication?


The article states:
Mr. Ratner, chief executive of Forest City Ratner, did not specify the kinds of delays possible, but suggested that construction could be put off for years. His comments are his first public indication that the darkening economy has slowed the ambitious project, spanning 22 acres at the intersection of Flatbush and Atlantic Avenues.

First, Ouroussoff six months ago predicted a redesign that never emerged. Project landscape architect Laurie Olin candidly told the New York Observer in February 2007 that he didn't see a market for the towers around the arena.

Also, the article leaves out the long history of lies and fibs regarding progress of the project. In March of last year, executive Chuck Ratner of parent Forest City Enterprises indicated that the project would take some 15 years, and that the arena would open in 2010, not 2009.

He backpedaled with a hardly credible clarification: “When I referred to the project taking 15 years to build I was referring to the total time, from the idea or conception of the development to completion of the final building.”

Last September, Nets CEO Brett Yormark confidently predicted groundbreaking later in the fall and a 2009 arena opening. In November, Forest City Ratner and Nets officials finally began acknowledging the arena would be delayed to 2010, in what Lumi Rolley of No Land Grab called a “soft release.”

$950 million arena; another vote?

The article states:
The developer did say he was confident about starting construction on a $950 million basketball arena for the Nets by the end of the year. The arena was to be surrounded by the office tower, known as Miss Brooklyn, and three residential buildings in the first phase of the project.

But Mr. Ratner has yet to secure an anchor tenant for the Miss Brooklyn building, and now plans to phase in the residential buildings slowly.


The Times just slips in the new figure, which is likely attributable to steadily increasing construction costs. But we should remember that the arena, projected in mid-2005 at $435 million, went up later that year to $555.3 million, and was approved at the end of 2006 at $637.2 million.

This raises some questions: were the Empire State Development Corporation (ESDC) and Public Authorities Control Board (PACB) looking at realistic numbers for the cost of the project? Does the project deserve another review by the PACB, as Atlantic Yards opponents have suggested?

The Times article points out that other large projects have been delayed, even killed, by economic downturns.

Miss Brooklyn needs a tenant

There has long been a severe disconnect between Forest City Ratner’s plans for office space at Atlantic Yards and the reality on the ground. Office jobs at AY were overpromised from the start, given that the Downtown Brooklyn rezoning acknowledged that there wouldn’t be enough demand for potential commercial space just down the road from AY. (Still, sports economist Andrew Zimbalist dutifully predicted a steady demand for the project’s 2 million square feet of office space.)

Then the office market got worse. Forest City Ratner, which swapped office space for condos, claimed that it was responding to the requests of citizens for more housing. It wound up with just 336,000 square feet and space for 1340 jobs, perhaps 375 of them new. That number apparently has gone up about 50%, with flagship tower Miss Brooklyn all office space.

Now, the Times breaks the news that the developer is flailing about for a tenant:
In another indication of the problems facing the project, Forest City recently sent a letter signed by the project’s celebrity architect, Frank Gehry, to chief executives of many of the city’s biggest corporations, inviting them to become a tenant in the “centerpiece of the project,” Miss Brooklyn. It was originally scheduled to be completed in July 2009.

Brokers said that developers usually home in on companies actively looking for new headquarters, rather than cast such a wide net. Forest City’s approach was more akin to cold-calling to solicit interest, a possible sign, they said, that the developer was struggling to find tenants.

Mr. Ratner insisted that the Brooklyn office market remained healthy, but he conceded that “until we get a tenant, we won’t start Miss Brooklyn.”


Whole and complete?

Remember, the initial p.r. sheet, distributed in December 2003, claimed that "The project is planned to look whole and complete during each phase of construction."

Bear Stearns effect

How can he insist the office market is healthy when, for example, the debacle facing Bear Stearns cascades through the city, leaving much office space open--and this on top of the challenges already facing Downtown Brooklyn?

In an article published Thursday under the headline Bank Cautions on Commercial Real Estate, the New York Sun reported that Deutsche Bank is predicting a drop in occupancy rates of as much as 6% this year and next, as well as 0% rent growth.

..."We believe the sale of Bear Stearns, as well as potential layoffs and shrinkage from other financial services firms, may weaken New York office demand and increase the risk of higher office vacancy rates," a Deutsche Bank analyst, Louis Taylor, wrote in a note to investors.


Ratner’s prediction


The Times lets Ratner tamp down anticipation:

“It’s not going to happen in a nanosecond,” Mr. Ratner said during an interview across Atlantic Avenue from the railyard where he plans to build the arena. “I hope it’s not going to be drawn out. I’d hope that the first residential building will be done within six months of the opening of the arena, and a second one a year after that.”


He can hope all he wants, but given the company’s track record in deceptive prognostication, a bit more skepticism would have been in order. How about Chuck Ratner’s statement last year, “We are terrible, and we’ve been a developer for 50 years, on these big multi-use, public private urban developments, to be able to predict when it will go from idea to reality."

Also, the railyard isn’t “where” he plans to build the arena. It's where he plans to build part of the arena, since it also would require part of Pacific Street and the block behind it. If he could build the arena on the railyard, there’d be no need for eminent domain and the project would’ve proceeded much more quickly.

Given previous errors, I thought the Times could get this right by now; however, the beat reporter assigned to Atlantic Yards for 15 months in 2005 and 2006 is long gone.

Protests and lawsuits


The Times cites opposition to the project’s scale and traffic impact, as well as the use of eminent domain:
The courts have ruled in Mr. Ratner’s favor 18 times, but two cases are on appeal, or are expected to be shortly. Mr. Ratner said his project had been held up for nearly two years by lawsuits brought by one group, Develop Don’t Destroy Brooklyn, and its supporters.


The lawsuits are hardly the only cause of delays. In March 2007, after one lawsuit had been filed but another had yet to be submitted, a Forest City Enterprises executive acknowledged, “We’re actually 18-24 months behind what our original estimates were.”

Last year, then-FCR executive Jim Stuckey claimed that they weren't really delayed:
The current work is proceeding in accordance with an intricate schedule that is intended to allow the new arena to be completed in time for the Nets to relocate there for the 2009-10 National Basketball Association season.


As for 18 victories, I’d like to see that list, because it almost certainly includes decisions on legal motions--some of which also have been won by Forest City Ratner’s opponents. And last year, in a dispute over a building in the AY footprint owned by landlord Henry Weinstein, a judge ruled that developer Shaya Boymelgreen’s lease assignment to Forest City Ratner violated the terms of the original leases with Weinstein--a loss of sorts for FCR.

Deeper subsidies?

The Times raises an important point:
Given the current environment, some critics worry that Mr. Ratner will negotiate for deeper subsidies, reduce the amount of low- and moderate-income housing included or eventually sell off portions of the site to other developers who could use their own, less expensive designs.


Well, state officials should explain why the developer can start building the arena without locking in the promised affordable housing and whether the project should’ve been approved without a look at whether subsidies were available.

The only Brooklynite quoted in the article is a leading opponent:
“We need leadership in the city and the state to face the music,” said Daniel Goldstein, the sole resident remaining in a building on the Atlantic Yards site and a leader of Develop Don’t Destroy Brooklyn. “The project needs to be reconfigured, rethought and renegotiated. The promise was affordable housing. It’s clearly been put on the back burner, while the arena has been moved to the front burner.”

While Goldstein’s right that affordable housing has been put on the back burner, that issue shouldn’t be raised by someone who wants to stop the project but rather an affordable housing supporter like the Borough President.

Note that an early edition of the article incorrectly described Goldstein as a “tenant;” he owns a condo.

Misreading the AY arc

The Times reports:
Atlantic Yards began with Mr. Ratner’s purchase of the Nets in 2004 and the idea of moving the team, which currently plays in New Jersey and loses about $30 million a year, to the railroad yard.


No, Atlantic Yards began when Forest City Ratner tried to figure out a way to acquire some very valuable land, as veteran Brooklyn journalist Dennis Holt observed.

Deputy Mayor Dan Doctoroff told New York magazine, “Clearly, he was going to use it as a centerpiece for a significant development over the yards.”

Again, the project wouldn’t be “over the yards,” since the Metropolitan Transportation Authority’s Vanderbilt Yard would be only 8.5 of 22 acres.

Same site error redux

The Times describes the arena site:
It was near the spot that the Brooklyn Dodgers once considered for a new stadium before the team fled to Los Angeles after the 1957 season.

In the early edition of the newspaper, before I called in a correction, the article said “the very spot,” an error that has been made more than once. Last December, I tried to get the Times to publicly correct previous “same site” errors, I was told that a note would be put in the archive--an insufficient solution.

Project swelled?

The Times suggests that the project grew significantly:
The project swelled into 8 million square feet of apartments, office space, stores in 16 towers, an arena and eight acres of open space, stretching from Flatbush to Vanderbilt Avenues.

Not quite. The project was quite large to begin with, 16 or 17 towers, though I don’t think an initial square footage was announced. It actually swelled to 9.132 million square feet before a series of strategic cutbacks.

An early edition of the article stated that the “arena sits at the east end of the site,” though it’s the west end. If the Times can’t get basic information right, how much of the reportage on Atlantic Yards should we trust?

FCR’s spending

The Times reports:
The undertaking will require Forest City to spend more than $550 million in the early stages to buy land and build new sewers, water mains and a railyard for the Long Island Rail Road. The city and the state agreed to provide $300 million in subsidies, and tens of millions in tax breaks.


If Forest City is building sewers and water mains, that’s news to me; I thought that was government action. And the developer is getting reimbursed for some of the land.

As for the fiscal benefits, that’s a short list; add low-cost financing, payments in lieu of taxes to repay arena bonds, the assistance of eminent domain, and the acquisition of city property, among others. Beyond that, there are other enormous upsides: 130 luxury suites, a $400 million naming rights deal with Barclays, numerous other sponsorships, and tremendous television revenue.

And, if construction costs have gone up significantly, so has the value of the land for which Forest City Ratner got the inside track, anointed as the developer 18 months before an RFP was issued.

Bonding loss anticipated?

The Times reports:
Mr. Ratner faces the same stiff challenges that are suddenly hobbling other developers after a 10-year boom: an economy teetering at the edge of recession, a credit market that has all but closed for large-scale real estate projects and a lack of tax-exempt financing for housing.


Well, the lack of tax-exempt financing wasn’t a sudden as the collapse of the credit market; last June, a city official testified about a “crisis” and in March 2007 the New York Observer’s Matthew Schuerman pointed to the financing crunch.

More complications

The Times points to Governor David Paterson’s previous opposition to eminent domain--”his office said it is reviewing the matter” and an Internal Revenue Service proposal that might “swell the cost of the arena beyond the current $950 million estimate.”

Project moving forward?

Ratner said he “remained optimistic and committed to building the affordable housing.” Well, how is that commitment manifested?

The Times noted that “[s]ome work has started,” but doesn’t point out that the demolition of buildings and construction of temporary railyard don’t mean the arena can go up.

The conclusion:
Mr. Ratner has had plenty of experience with long-term projects. The 4-million-square-foot MetroTech office complex nearby, for instance, took nearly two decades to complete.
“This is a good project,” he said of Atlantic Yards. “Good things sometimes take a long time.”

Good for whom? After all, if Forest City Ratner is spending large sums on lobbying and donating to a Democratic Assembly “slush fund,” that doesn't inspire confidence that it’s a good project for the public.

More clearly, as Chuck Ratner said last year, "It’s a great piece of real estate."

Given the skepticism that the project merits, why does the Times let the developer get the last word?

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