Monday, March 24, 2008

Read the fine print: ESDC gives Ratner 6+ years to build arena, 12+ years for Phase One

How long might Atlantic Yards be stalled? In the New York Times's coverage Friday of the Atlantic Yards stall, developer Bruce Ratner would "not specify the kinds of delays possible, but suggested that construction could be put off for years."

The Times apparently didn't check with the Empire State Development Corporation (ESDC), but the state agency has been talking out of both sides of its mouth.

The General Project Plan, approved in December 2006 by the ESDC, stated (right) that Phase 1 of the project was "anticipated to be completed by 2010" and Phase II was "anticipated to be completed by 2016." However, nine months later, in September 2007, the ESDC signed a funding agreement that gives developer Forest City Ratner much more time and also posits a scenario in which much less housing and open space would be built.

The details:
  • Ratner would have six years to build the arena after the close of litigation and the ESDC's exercise of eminent domain to acquire needed properties.

  • Ratner would have 12 years to build the five towers of Phase I after the close of litigation and the ESDC's exercise of eminent domain to acquire needed properties.

  • Ratner would have an unspecified amount of time to build the eleven towers of Phase II, with an option for the ESDC to buy back the land from the developer.

  • Should the project be abandoned, the city might pursue a plan that would bring 1845 units of housing 646 of them affordable, and 2 acres of open space, as opposed to 6430 units, 2250 of them affordable, and 8 acres of open space.
The State Funding Agreement

I first spotted the State Funding Agreement on the ESDC's Atlantic Yards site on Saturday; I'm told it was uploaded on Friday, after the news broke.

It's chopped up into 37 parts. "This large document is divided into subsections for easier downloading," the ESDC states, but it's not that easy to read: the subsections lack headings and the document is a scanned PDF, which means you can't search the text.

[Note that the document (see Part 6) is signed by an ESDC representative but not a Forest City Ratner one. I assume that it was ultimately signed by FCR; otherwise, why was it posted?]

The document makes reference to a "City Funding Agreement," which I assume covers the $205 million so far pledged by the city. That document has yet to surface publicly, though City Council Member David Yassky has requested it. Given the presence of the state document, the city counterpart should be available. [Update: see April 30 post.]

The Effective Date

Key to the document is a term known as the Effective Date, the date on which all litigation... shall have been sufficiently concluded so as to permit such financing and construction to proceed.... [and] ESDC has acquired and delivered vacant possession of the Project Site.

In other words, the Effective Date is several months, if not longer, down the road, given that an appeal in the state case challenging the environmental review won't be heard until September and plaintiffs are making a long-shot appeal to the U.S. Supreme Court of the dismissal of the eminent domain case.

Presumably, if the Supreme Court does not accept the appeal, and other cases regarding tenants in the footprint are resolved, the ESDC could proceed with condemnation. But financing might not be available until all the lawsuits are cleared.

Arena construction: 6+ years

The key timeline issues are in Part 33. How long does Forest City Ratner have to build the arena? The document states:
Developer or its Affiliates shall commence construction on the Arena within one year after the Effective Date Subject to up to four years of delay resulting from Force Majeure events or material adverse changes affecting the financing of the Arena... Developer or its Affiliates shall complete construction of the Arena within six years of the Effective Date, subject to Force Majeure.

And what are the remedies? To pay back [updated] an unspecified portion of the $100 million in state funding and to pay Liquidated Damages to the city as set forth in the City Funding Agreement, a document that has yet to be made public.

Phase I timetable: 12+ years

How long would Forest City Ratner have for the rest of Phase I, the four buildings on the arena block and the tower on Site 5, between Atlantic, Fourth, and Flatbush avenues and Pacific Street?

The document states:
Developer or its Affiliates shall complete the construction of Buildings 1-4 and Site 5, and related affordable housing and infrastructure, (collectively, "Phase 1") within twelve years of the Effective Date, subject to Force Majeure.

Again, a failure to complete the construction means the developer would have to pay back [updated] an unspecified portion ofthe money advanced as well as pay those not-yet-public Liquidated Damages.

Phase II timetable: unspecified


How long would the developer have to build the additional eleven towers? The document states:
Developer or its Affiliates shall complete the construction of Buildings 5-15 on the blocks east of 6th Avenue, and related affordable housing and infrastructure, (collectively, "Phase 2"), subject to Force Majeure, by a date to be established in the Project Documentation, which date will take into account the need for satisfaction of Governmental Authorities' obligations to the Project, (the "Final Deadline").

If Developer or its Affiliates fails to complete the balance of Phase 2 by the Final Deadline, subject to Force Majeure and subject to Governmental Authorities making available to the Project affordable housing subsidies then customarily available to developers of such housing, ESDC shall have an option to purchase Developer's or its Affiliates' interest in the parcels not yet developed pursuant to the GPP, as it may be amended. Such option to purchase shall be pursuant to terms negotiated in the Project Documentation and shall provide for a purchase price equal to the Developer's or its Affiliates' cost and land carrying cost, adjusted for inflation.

Final Deadline

Note that the Final Deadline will be established in project documentation that has not yet been completed. The Times reported:
[Ratner] has been working with Avi Schick, chief executive of the Empire State Development Corporation, to complete all the documents for the project this summer, so that the state can start and finish condemnation by the end of the year.

A smaller alternative

The document (see Part 25) makes reference to a "City Purpose Covenant" that would govern not just Forest City Ratner but any future owners of the premises. It offers the possibility of a significantly smaller project.

It sets out a hierarchy of uses for the "Premises," with the Project, "as set forth in the GPP [General Project Plan]" as the priority.

However, if the GPP is abandoned, the site would be used for not less than 1845 units of housing, of which 35 percent shall be Affordable Housing... and not less than 1.98 acres of environmentally sustainable publicly accessible open space.

Note that 35 percent of 1845 would be 646 affordable housing units. Why such a smaller project and so much less open space? That's unclear, but it seems likely that it would not involve demapping Pacific Street to create a superblock in Phase II.

If the stall continues

What if lawsuits continue to stall the project and the ESDC does not complete condemnations? If the Effective Date does not occur prior to December 19, 2009 and Forest City Ratner fails to pursue the site litigation or take "reasonable steps" in furtherance of the project, it "will be deemed abandoned," and the ESDC will get its money back.

Is that a good deal for Forest City Ratner? It's worthy of discussion.

Remedies for Abandonment

What are the remedies if Forest City Ratner wants to walk away? The document states that if FCR abandons the project before the Effective Date--before litigation is closed--the developer would have to pay back the ESDC the "Required Amount."

The Required Amount

What's the "Required Amount"? The state payments, plus interest, plus Liquidated Damages.

Again, we don't know what those Liquidated Damages are. It's time to see the City Funding Agreement. [Updated: Here it is.]

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