Wednesday, April 16, 2008

Reading between the lines: Ratner may seek $163M (or more) in subsidies for the railyard

What did Chuck Ratner, president of Forest City Enterprises (FCE), mean when he told investment analysts two weeks ago that "we still need more" subsidies for Atlantic Yards?

I can't be sure, but documents submitted by FCE's subsidiary Forest City Ratner (FCR) hint that the developer might seek reimbursement for $163 million (likely more) spent on "extraordinary infrastructure costs"--mainly the platform, but also including planned open space--at the Metropolitan Transportation Authority's Vanderbilt Yard.

Why do I draw that conclusion? Because FCR once claimed that it was absorbing those extraordinary infrastructure costs, part of its investment in the project.

In a court document, FCR dropped that claim. Thus it's reasonable to speculate that the developer will seek reimbursement from the public.

The MTA bid

Let's look at the developer's 2005 bid for the Vanderbilt Yard, a document included last year as part of the litigation over the Atlantic Yards environmental review.

In the document submitted to the Metropolitan Transportation Authority, FCR estimated the total value of the bid at $492.4 million. (Click to enlarge.)

That included $182 million for a new railyard, $20 million for environmental remediation, $25.4 million in compensation for increased operating costs, $29 million in mass transit improvements, and $23 million in sales tax revenue. That's $279.4 million. With $50 million in cash (the original proposal), the total reaches $329.4 million.

Then FCR added $163 million in "extraordinary infrastructure costs incurred by the developer to build on the MTA parcels," including a new platform and public open space. The total: $492.4 million.

Given that FCR eventually upped its cash bid to $100 million, the total value might be adjusted to $542.4 million.

What they told the court

However, that $542.4 million figure was not to be found in former FCR executive Jim Stuckey's affidavit filed on 4/27/07 in the same lawsuit.

The affidavit omits the $163 million.

Stuckey stated: While petitioners are correct that FCRC's bid contained an offer of $100 million in cash while Extell's bid offered the MTA $150 million in cash, the petition fails to advise the Court that FCRC's bid also offered to (1) build a new Vanderbilt yard for the MTA at an estimated cost to FCRC of $182 million, (2) conduct environmental remediation and clean-up of the MTA's property at an estimated cost to FCRC of $20 million, (3) compensate MTA for increased operating costs that had an estimated present value of $25,400,000, (4) construct additional mass transit improvements relating to the nearby subway station at an estimated cost to FCRC of $29,000,000, and (5) share with the MTA sales tax revenues from the project that had an estimated present value of $23,000,000 (see Ex. H, at p. 2.1). FCRC's bid thus reasonably could be valued at $379.4 million dollars.

(Was Extell's bid a better deal, as Develop Don't Destroy Brooklyn contends, or was Stuckey correct? Stay tuned for another look.)

Doing the math

Given that the $379.4 million claim is $163 million short of the total that assumed "extraordinary infrastructure costs," it's reasonable to conclude that FCR no longer considers itself contributing that $163 million total.

Indeed, given the huge increase in construction costs--the cost of the arena has more than doubled, from $435 million to $950 million since 2005--it's likely that $163 million figure has grown significantly.

"Blank check"

Why did FCR give up the claim? (Could it simply have been an oversight? Not impossible, but I doubt it.)

I don't know, but it could be because Develop Don't Destroy Brooklyn (DDDB) in 2005 blew the whistle on the "extraordinary infrastructure costs," pointing out that the term appears in the Atlantic Yards Memorandum of Understanding (MOU) signed by the city and state, leaving room for further reimbursement by public parties.

Both the city and state, according to the MOU (right), agreed to “consider making additional contributions for extraordinary infrastructure costs relating to the mixed-use development on the Project Site (excluding the Arena Building Site)."

DDDB calls this a “blank check.” Indeed, given the use of the term "extraordinary infrastructure costs" in both the MTA bid and the MOU, it's not hard to connect the dots.

More hints in the GPP

Some different language that also hints at a "blank check" appears on p. 27 of the Modified General Project Plan approved in December 2006 by the Empire State Development Corporation.

It defines advances of pledged State and City funds ($200 million at the time) under the Funding Agreements as "Additional Fundings" that would go to a variety of uses until the announced contributions are exhausted.

Then, the document continues:
In addition, Additional Fundings shall be made taking into account monies expended by FCRC, provided that (1) at no time will (i) the costs reimbursed to FCRC by the City and State, in the aggregate, exceed fifty percent (50%) of the total costs incurred and paid by FCRC, and (ii) the amounts funded by the State exceed the amounts funded by the City, and (2) such Additional Fundings shall be made upon other terms and conditions to be agreed upon by the parties.

In other words, the term "Additional Fundings" is first used as a definition for pledged contributions, then used as a definition for further new contributions.

If those contributions shall be made, as the document states, "taking into account monies expended by FCRC," then money spent on "extraordinary infrastructure" for the railyard seems the most obvious candidate.

1 comment:

  1. What did he mean by "we still need more" subsidies for Atlantic Yards?"

    1. He meant that the project is a loser and he wants someone to play back-stop.

    2. He sense that the politicos really want this project and he can make it more profitable for himself.

    3. He senses that the politicos want out and this is a graceful way for all to kill it.

    ReplyDelete