Wednesday, December 24, 2008

Who's in control? Forest City and the indirect subsidy value of its "entitlements"

Even though the Atlantic Yards project may be in question, the toughest month for developer Forest City Ratner had to have been December 2006, when the project received two crucial approval votes.

First, the board of the Empire State Development Corporation (ESDC), controlled by AY supporter Gov. George Pataki, approved the project; that was expected, though the need to revise the Final Environmental Impact Statement meant that consultant AKRF--paid for by FCR, actually--had to work through Thanksgiving to get it all done before Pataki's administration left office.

Then the Public Authorities Control Board (PACB)--the "three men in a room"--had to approve the project, and there was some (unfounded) suspense over whether Assembly Speaker Sheldon Silver, who scotched the West Side Stadium, might vote no.

Carrying costs & "entitlement"

After that, Forest City Ratner gained its "entitlement," a word favored by Forest City Enterprises CEO Chuck Ratner, a word that indicates that the developer controls the pace, a phrase used last month at a real estate industry conference (right).

Chuck Ratner, speaking to investment analysts on December 10, said, "Despite the slow-down, we retain our core development capacity, as well as a reservoir of entitled opportunities where we can re-start additional vertical development, largely on our schedule, with modest carrying costs. When conditions improve, we will be able to take advantage of these opportunities."
(Emphasis added)

The size of the Atlantic Yards carrying costs is another question. In April 2007, then-executive Jim Stuckey estimated $4.15 million a month, while in January 2008, his successor MaryAnne Gilmartin claimed $6 million a month, both attempting to impress on a court the pain of delay.

It's unclear why the numbers jumped and, thus, whether the figures were accurate.

Maintaining entitlement

Ratner continued, "I need to emphasize here again that we remain committed to our projects under construction and we will meet our obligations and maintain our entitlements, including at our large multi-phase, mixed-use projects, such as Stapleton in Denver, Mesa del Sol in Albuquerque, Central Station in Chicago, the Yards and Waterfront Station in Washington, and of course, to Atlantic Yards in Brooklyn, where we continue make progress and remain committed to the project, despite hurdles that we still need to overcome."

As I wrote, the obligations, as so far expressed in the City and State Funding Agreements, give Forest City Ratner a long leash. The developer has 6 years after the delivery of property via eminent domain to build the arena and 12 years to build Phase 1--and can get away with building 44% less square footage than approved.

The penalties for a delayed arena for Phase 1 are quite modest. There's no timetable for Phase 2.

So the City and State Funding Agreements might be considered another form of indirect subsidy--a benefit to the developer without an actual outlay of government funds.

Presumably, public officials could, in revising and updating funding agreements and other contracts, strike a tougher deal. When the project was approved, it gained public and political backing because of promises regarding the content and timetable.

Were those promises supposed to be meaningful? Does Atlantic Yards "exist"? Is there any oversight?

More subsidies

Lets not forget that, in March 2007, Chuck Ratner told investment analysts, "We also have a public entitlement in this process. There’s a public subsidy, it’s been announced, $200 million. There’s an affordable housing requirement in this, a moderate housing requirement in this, and we’re still negotiating with the public authorities as to how that will come out."

That $200 million has risen more than 50%, to $305 million, and we don't know anything about those affordable housing subsidies yet.

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