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The Xanadu story: a reminder about "public authorities largely operating out of public view" and some sobering AY parallels

The saga of New Jersey's ill-fated Meadowlands Xanadu project--newly delayed or worse--suggests some sobering parallels with the Atlantic Yards project, including overly optimistic projections, decisions involving political connections, and opaque oversight of a public-private enterprise.

Xanadu--the construction of which, along with the new Meadowlands Stadium, has made going to New Jersey Nets games at the Izod Center that much more complicated--has been in the news a lot this week.

WNYC radio and the nonprofit public interest news organization Pro Publica have been looking into federal stimulus spending, in a project called ShovelWatch; a piece March 17, headlined NJ's Xanadu: Lessons for Stimulus Spending?, began with a shot at the New Jersey Sports and Exposition Authority (NJSEA) and especially the Port Authority of New York and New Jersey:
Billions of dollars in federal stimulus aid is on the way to our region. But while local politicians are applauding the aid, many of the decisions about how the money will be spent will be made by public authorities largely operating out of public view.

(Images, including construction above and rendering below, from official Xanadu site. More from the WNYC news blog.)

Why be concerned about the Port Authority?
[It] was founded in the 1920's as a way to reform patronage-driven public works projects. It's first major project, the George Washington Bridge, came in under budget and ahead of schedule. But in modern times, appointments to the board have been dominated by campaign contributors and developers like Port Authority Chairman Anthony Coscia and Commissioner David Mack.

How different is that from the Empire State Development Corporation (ESDC) in New York, the unelected authority whose board (many of whom didn't show up for the Atlantic Yards vote) I described 12/7/06 as "team players and big donors."

A shot at Ratner: "all hat and no cattle"

On the very same day, 12/10/03, that Atlantic Yards was announced, so too was the rail spur to the Meadowlands, to enhance a then-2.2 million square foot "entertainment and retail megaplex" called Xanadu--y'know, the one with an interior ski slope. (Now it's up to 4.8 million sf.)

The WNYC piece includes this flashback:
On this day in 2003, George Zoffinger, the CEO of the New Jersey Sports and Exposition Authority was facing a triple threat of losing three of the Sports Authority's teams -- the Jets, the Devils and the Nets. Zoffinger used this press opportunity to take a shot at rival Bruce Ratner, who wants to move the Nets to Brooklyn.

ZOFFINGER: Economics are going to drive the process and frankly we took a look at what Mr. Ratner had to say this morning. My contention is that it's all hat and no cattle.

Well, that rail spur was also supposed to help rival bidders compete with Ratner to buy the Nets and, as we know, Ratner succeeded, with the sale announced just six weeks later.

(Flashback to some lousy reporting: the New York Times reported on the sale 1/24/04: Ratner plans to build an 800,000-square-foot sports arena with 19,000 seats in an unused railroad yard that lies between Flatbush and Atlantic Avenues. No, the arena couldn't be sited solely over the railyard, and no, the railyard is not "unused." Here's the crib sheet.)

Now, more than five years later, Ratner certainly has pursued his Atlantic Yards plan, and parent company Forest City Enterprises and partners have invested $250 million.

But Ratner's predictions--an arena by 2006! by 2009!--were laughably overoptimistic, and the current pledge, delivered by ever-confident New Jersey Nets CEO Brett Yormark, of a 2011 arena opening date remains quite dubious.

What about Newark?

Prospect Heights and the edge of Downtown Brooklyn, however, differ from the Meadowlands, and Sierra Club of New Jersey executive director Jeff Tittel told WNYC that type of development should be in an urban center like Newark.

Newark, in contrast to Brooklyn, has a lot of empty land. But it's a reminder that most Brooklynites critical of or opposing AY aren't against density, just the level of density planned for Atlantic Yards.

Too much optimism

James W. Hughes, dean of Rutgers University's Edward J. Bloustein School of Planning and Public Policy, pointed to a lack of foresight when Xanadu was approved:
HUGHES: In 2003, we were in the early stages of perhaps the greatest spending spree in the history of the planet. We lost the distinction between needs and necessities versus discretionary items and indulgences. Right now indulgences are in real trouble. If we look at a Xanadu will that be an indulgence or will it be a necessity?

Similarly, Charles Bagli of the New York Times has called Atlantic Yards "sort of a good-times project," one born in a time of economic optimism. 

True, though I've pointed out many a time that the claim of 10,000 office jobs was overblown from the start, given the oversupply of office space in Downtown Brooklyn nearby.

Need for skepticism

The WNYC piece pointed to Hughes's wariness about using federal stimulus funds to support public private partnerships like Xanadu:
HUGHES: On the public sector side there was desperation in order to generate jobs, and at the same time the private sector wants that public sector support in order to lessen its risks in a commercial venture. So we have a fundamental different set of psychology by the two sectors and that’s dangerous.

Indeed, the ESDC has the potentially contradictory roles of evaluating AY and promoting economic development. And stimulus funds, as more than a few Brooklynites and elected officials have pointed out, shouldn't be used to bail out a private developer.

Dispute over public costs

A separate Pro Publica article presents dueling views over the extent of public support for the project:
The New Jersey Sierra Club estimates the public contribution exceeds $900 million when property tax breaks, financing and other types of subsidies are counted. But John Samerjan, a spokesman for the New Jersey Sports and Exposition Authority, disputes that. He said the developers have so far spent $260 million for lease payments to the state and for transportation and environmental cleanup costs.

The authority seems to be counting only direct dollars, but, as we know with Atlantic Yards, the $305 million in direct subsidies are the base for hundreds of millions of dollars--some say well more than $1 billion--in public benefit. No governmental entity has produced a full calculation.

Xanadu in trouble, like FCR

WNYC pointed out that Colony Capital -- the current private sponsor of Xanadu -- failed to make its November payments on a $360 million loan to creditors.

And the Star-Ledger reported yesterday that workers at the Xanadu site "said they were told they were being let go, but a spokesman for the developer, Meadowlands Xanadu, said the project is not being halted," just delayed.

That echoes the mysterious close of work at the Vanderbilt Yard in Brooklyn, which Forest City Ratner blamed on lawsuits but which workers said (I've been told secondhand) was due to cash flow problems. Remember, FCR made virtually no explanation even to the ESDC.

And parent Forest City Enterprises, apparently trying to avoid the fate of a Colony Capital, is selling prime properties to raise cash and is reevaluating the Beekman Tower in Manhattan and may leave it at 50% of its planned height.

Moving the goalposts

The WNYC piece notes that Business Week reported that some prospective tenants Xanadu proudly promoted have not actually signed leases--which Xanadu confirmed but claimed the site is 70 percent leased and ready to open in August.


Yesterday, the Star-Ledger reported that August 2009 was no longer the goal, a reminder that, in Brooklyn, all dates are speculative. 

What's gone wrong with Xanadu? One partner in an 18-screen movie theater is in financial default. Real estate industry people told the newspaper they were skeptical of the 70 percent figure. (Similar skepticism should be applied to Yormark's claim that 20% of suites in the yet-unbuilt Barclays Center have been sold.)

Money quotes

The Star-Ledger quotes Hughes's skepticism about the market for the new complex:
"Labor markets keep getting worse, home equity is declining, and 401(k) nest eggs have big cracks in them, so people are zipping up their wallets," he said. "There is not a lot of slack purchasing power out there that will flow to Xanadu. It will go to Wal-Mart."

Indeed, a good-times project.

And the Sierra Club's Tittel gets the final word:
"We've given millions in incentives, tax breaks and transportation on a project that was pushed through because of political connections -- not because we needed it," he said. "Xanadu is a monument to hubris and excess. It's ugly. It's toxic. And now it's empty."

The Atlantic Yards arena, in the regional context, might be part of an ugly zero-sum game. As I wrote March 10, why build a new arena when another new one is hardly full--especially when the ever-declining rationale for federal subsidy is to poach tax revenues from an adjoining state?


  1. BOB HENNELLY,WNYC's terrific Investigative Reporter, deserves to be named(not just the station) by Atlantic Yards Report: this time, for his excellent explication of the NJ Sports & Exposition Authority's Xanadu Waterloo -- a cautionary template for the FCR/ESDC Ratlantic Yards debacle.
    -- Patti Hagan


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