Thursday, August 21, 2008

The reality behind FCR's 80 DeKalb deal (and the implication for AY)

Forest City Ratner's press release about getting a final $30 million (not that much) in financing for its residential project at 80 DeKalb Avenue is getting a lot of coverage (here and here), with one story line, according to the Brooklyn Paper, that "critics pointed out that the state subsidy means that the public will be spending $1.5 million for each affordable unit."

No actual critics were quoted in the article, though a couple appear in the comments section. While the state Housing Finance Agency's 80/20 financing plan is surely vulnerable to criticism, the 80 DeKalb project, as I wrote in April, may be a relative bargain for taxpayers.

$1.5 million per unit is low

The FCR project, along with three others, was selected among 14 projects for the state agency's bonds, because "we view [the 80 DeKalb project] as an efficient use of a scarce resource," said Priscilla Almodovar, President and Chief Executive Officer of HFA. "[T]he developer agreed to limit its allocation to $1.5 million per low-income unit--lower than our $1.7 million ceiling--and agreed to permanent affordability for its low-income units rather than for just 30 years.

(The subsidy does not mean $1.5 million per unit; rather, $1.5 million is the amount of tax-exempt bonds allowed. A fraction of that figure--a 25% difference in interest rate between taxable and tax-exempt bonds--represents the subsidy, with most of that absorbed by federal taxpayers. Hence the federal limit, aka "volume cap," on the capacity of states and cities to authorize tax-exempt bonds.)

The three other projects moving ahead, all in Manhattan, requested $1.65 million, $1.7 million, and $1.9 million per unit, though two will be permanently affordable to low-income tenants, while the Brooklyn project will offer a different version of permanent affordability, to somewhat higher-income tenants.

The real questions

As I wrote, Forest City Ratner, part of a publicly-traded company based in Cleveland, is likely not sacrificing profits on 80 DeKalb. Rather, its relatively low bonding request per unit likely reflects a smart decision acquiring the property inexpensively in 1989 and seeing (likely, helping) it get rezoned a dozen years later to accommodate residential development, thus boosting the value of the land.

So the first unanswered question is how the land was rezoned. [Update: While this was previous to the Downtown Brooklyn rezoning, it was part of a Special Downtown District in 2001 and thus a fairly thorough rezoning.]

The larger question is whether a similar fate awaits Atlantic Yards. Though the financing of Atlantic Yards remains murky, it's reasonable to speculate that, given the significant amount of subsidies and tax breaks for Atlantic Yards, plus the advantage of eminent domain, Forest City Ratner may be able to successfully compete for the scarce pool of tax exempt bonds offered by the city Housing Development Corporation by asking for somewhat less per unit than other 50/30/20 projects that include 50% market-rate units, 30% middle-income units, and 20% low-income units.

And that's an argument for a full accounting of subsidies and public costs for AY, before such a decision is made.

6 comments:

  1. Allocation of federal tax-exempt bonds should not be handed out as a reward for eminent domain abuse. That should be made clear at any and all hearings required for tax-exempt bonds to be issued and there should be provisions included in federal law, the same kind of provisions Forest City Ratner is spending heavily to lobby against, making it illegal to use federal tax-exempt bonds to be so used to incentivize eminent domain abuse.

    Michael D. D. White
    Noticing New York
    http://noticingnewyork.blogspot.com/

    ReplyDelete
  2. The $1.5m per affordable unit is a tad misleading - the public subsidy is only the tax forgone on the interest paid on the bonds, a much lower figure than the headline financing amount. But a subsidy's a subsidy, and the ratio of affordable to market strikes me as rather thin.

    Note also the use of credit enhancement from Wachovia and Helaba, both of which have a fairly strong presence in the NY real estate finance market. I'm not sure whether FCR would persuade these banks to do something similar for the Arena project.

    I probably should have blogged this meself, but I'm on ho-ho-holiday, and you've teased out most of the interesting angles.

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  3. Allocation of federal tax-exempt bonds should not be squandered on projects that are not awarded to developers through legitimate competitive bids. That si something else that should be made clear at any and all hearings required for tax-exempt bonds to be issued and there should be provisions included in federal law making it illegal to award federal volume cap for tax exempt bonds for states that squander the volume cap on projects that were not competitively bid.

    Michael D. D. White
    Noticing New York
    http://noticingnewyork.blogspot.com

    ReplyDelete
  4. Bottom Line, which people want to avoid: Ratner and FCE have been able to get huge amounts of credit for residential housing in New York City when others cannot.

    DeKalb and Beekman are huge projects that are RISING.

    The propaganda that the credit crunch will cripple Atlantic Yards is starting to fall apart...sort of like the lawsuits.

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  5. Bobbo, how much tax exempt financing did ratner get for Beekman and 80 DeKalb combined?

    Good. now compare that to the 2.2 billion, minimum, he'll be seeking for AY, 800 million of that for an arena, which , as you know, is not residential.

    big differences.

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  6. Bobbo should sign his name Bob Windrem.

    ReplyDelete