Friday, June 27, 2008

No-property-tax status was supposed to raise the price of the Vanderbilt Yard

There's another obscured benefit for Forest City Ratner in the bid for the Metropolitan Transportation Authority's Vanderbilt Yard. In its September 2005 report on Atlantic Yards, the city's Independent Budget Office (IBO) stated:
IBO’s estimate of new property tax revenue lost to the arena PILOT does not include a loss of property taxes for the MTA land that would be part of the arena building foot print. The city currently receives no tax payment from the MTA for the rail yard because the MTA, like other state entities, is exempt from local property tax. Under the MTA’s Request for Proposals, any developer acquiring the development rights to the site would probably enter into a long-term lease, leaving the MTA in place as the owner. Therefore, the property would likely remain off the city’s tax roll, resulting in no impact on the city budget. Indeed, the MTA has an incentive to make a deal that maintains the tax exemption in order to maximize the price it receives for the development rights.

(Emphasis added)

That hardly happened. Forest City Ratner paid $100 million in cash for property appraised at $214.5 million, and values its total bid at $379.4 million, though that's questionable. Meanwhile, the developer expects tax breaks worth [corrected] $165 million, as $800 million in tax-exempt bonds are repaid by PILOTs (payments in lieu of taxes).

It doesn't sound like the MTA maximized much.

2 comments:

  1. Using the 2004 apprisal, the MTA write-down on the land not being collected by the MTA would be $114 million. Adjusting that for inflation and other factors we might figure that the overall write-down that the MTA is forgoing is in the $150-300 million neighborhood. We are stuck with estimations because of the property was never actually put out for a real bid.

    But, by getting the Vanderbilt Yards, Ratner is also getting the right to the eminent domain windfall and upzoning windfall associated with the 60% of the non-yards property constituting the rest of the project’s wrench-shaped site.

    Remember, there has never been a bid (Extel’s $150 million offer included) that encompassed receiving these rights associated with those additional 13.5 acres.

    Had a there been a properly packaged bid, then anyone bidding would have been explicitly bidding not only for the MTA’s Vanderbilt Yards but also for the rights to an associated 4.7 million square of zoning feet. If, say we value it at $295.00 per buildable square feet we get a total for an envelope number reflecting that value of $1.380 billion. From this must be subtracted some other not necessarily very big numbers to come up with the value of the combined eminent domain windfall and upzoning windfall. One thing that will keep the value up is that, unlike the Vanderbilt Yards, there are no platform construction costs that need to be subtracted. Yes, Ratner already owned some of the property within the 60% area but he is using eminent domain to wipe out leases by way of getting to the benefit of the upzoning.

    Based on this it is possible to envision that a properly constructed bid would have netted the MTA not only its estimated $150-300 million write-down mentioned above, but in addition thereto another very substantial figure that could be in the neighborhood of . . . $1 billion?

    To be continued . . .

    Michael D. D. White
    Noticing New York

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  2. Here is a comment on my comment above.

    My comment above dealt with the additional ($1 billion?) amount that the MTA might have collected with a bid process that was structured properly so that any bidders on Vanderbilt Yards understood they should factor in that they were getting the rights to the eminent domain and upzoning windfall associated with the 60% of the non-yards property constituting the rest of the project’s wrench-shaped site.

    My comment probably made it seem as if it would be right for the MTA to collect that extra `billion’ in value rather than having it be taken by Ratner.

    In fact, it would not be right for the MTA to take the `billion’ in value.

    The extra `billion’ in the form of eminent domain and upzoning windfalls is value being improperly seized and which should not be taken away from the original owners of the property to whom it belongs.

    Ergo, there are three possible directions in which the `billion’ in value could go. Setting them forth in the order in which it most appropriate for the `billion’ to go they are as follows:

    1.) The `billion’ belongs to and should actually stay with the original owners of the property adjacent to Vanderbilt Yards.- Eminent domain windfall is reaped by forcing a lower-than-market prices from owners and making them absorb the costs of unnecessary, unplanned dislocations and business interruptions.- Nor should the original owners be deprived of the opportunity to benefit from the materialization of the upzoning of their property which was something they paid for when they bought their property.

    2.) The `billion’ could be taken by the MTA to benefit the taxpayers if a bid for the Atlantic Yards wrench-shape property were properly structured to do so. (Per my comment above.)

    3.) Lastly, the `billion’ can simply go to Ratner. This would be under the theory that Ratner is Ratner and shouldn’t have to bid for or pay for the value of what he might get. This tautologically limited theory is actually the theory that was subscribed to by the Doctoroff/Bloomberg/Pataki contingent that put together the Ratner deal. It is the theory now available to anyone who wants to buy it from businessman-Mayor Michael Bloomberg.

    *******

    Hold it for one minute more- - -

    The above is not right either- The `billion’ should not necessarily go to the original owners.

    To say that the `billion’ should go to the original owners is to presuppose that it is proper and desirable to heap on their property all of the huge amount extreme density that is being heaped on the property being given to Ratner.- If, as is most certainly the case, that density should actually be spread more broadly and evenly across a number of parcels in the extended neighborhood then only some of that density and value should accrue to the original owners.

    Spread around, the value of the increased density from an upzoning would then be shared in a more general manner amongst surrounding owners. Spreading that density will not be possible under the Atlantic Yards plan when density increases elsewhere are precluded by the density that will be concentrated on the 22 acres of Atlantic Yards. Dispersing the density more broadly and fairly means that owners immediately neighboring Atlantic Yards will not be burdened by the blight of inappropriate adjacent density crammed onto a single owner’s site. By receiving only those density increases that are appropriate there will be the general benefit to everyone, including increased property values, of having a more livable desirable neighborhood.

    Michael D. D. White
    Noticing New York

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