Skip to main content

The AY endgame? The deadline for tax-free bonds, the impact of lawsuits, and Atlantic Lots

(This is one in an irregular series of articles about issues that a State Senate committee might address when it holds a hearing on Atlantic Yards.)

Two articles published yesterday give some hints of the Atlantic Yards endgame, including an effort by developer and Forest City Ratner (FCR) and the Empire State Development Corporation (ESDC) to gain additional subsidies (and to delay developer obligations), and plans by opponent Develop Don't Destroy Brooklyn (DDDB) to file more lawsuits, none of which may block the issuance of tax-free bonds by the December 31 deadline.

Also hinted is a plan by the ESDC to issue a revision of the Modified General Project Plan (GPP), which would describe a new timetable and offer new financing numbers and could--I believe--trigger an additional public hearing in the summer or fall.

Also, Forest City Ratner now plans only the arena and one tower, and NoLandGrab points out that GlobeSt "presciently"--I'd call it an error that revealed truth--ran an image commissioned by the Municipal Art Society, from a photo by Jonathan Barkey, for its Atlantic Lots scenario.

Clash with the MTA

The New York Observer's article, headlined Atlantic Yards, Finance Footrace, mentions what I think may be a key sticking point:
The developer is negotiating with the M.T.A. to close on a deal for the development rights on much of the site, for which Forest City agreed to pay $100 million and invest more than $300 million into a rail yard and other improvements. Forest City has asked to change that agreement, though the M.T.A. has resisted thus far, according to multiple people familiar with the discussions.

Thus the forced resignation of MTA Executive Director Elliot (Lee) Sander looms large; as I wrote, his successor may be more willing to compromise with Forest City Ratner's requests.

So, the oversight hearing should get to these questions: how little does Forest City Ratner want to pay the MTA, and what's the value of the cheaper rail yard it proposes?

The December deadline

There's a December 31 deadline to get tax-exempt bonds for the arena, under a provision in which AY was grandfathered in by the Internal Revenue Service, and Forest City Ratner has expressed confidence in doing so even while lawsuits are pending.

Indeed, the one lawsuit that could definitely stop the project--rather than require the ESDC to revise some of its documents--is the appeal of the eminent domain case, which was decided unanimously. That appeal could be dismissed by the fall; if it is accepted, and goes to the Court of Appeals, the case could take two years.

FCR spokesman Joe DePlasco said that, even if the case is appealed, the developer will seek financing. That's not impossible, but an additional risk premium would have to be factored in. I suspect they don't want to issue bonds until the eminent domain case is dismissed.

That question should be answered not by DePlasco, whose record is not exactly credible and who doesn't answer to taxpayers, but by the ESDC.

The Observer points out that the market for tax-free bonds "is far more robust than the broader credit market." (Update: See Gringcorp's comment below for some skepticism.)

Other cases

Another case involves an appeal of the decision dismissing the challenge to the environmental impact statement. While a successful appeal might not formally stop the process of eminent domain and thus issuance of bonds, it could raise sufficient questions about the use of blight to pause or even kill the process.

Also, I learned yesterday, there's a hearing June 8 in state Supreme Court on a motion filed on behalf of residents in two buildings in the AY footprint, who ask that a decision against them be vacated and that a new ESDC hearing be held, given questions about project benefits and timetable.

A motion filed by attorney George Locker pointed to ESDC CEO Marisa Lago's acknowledgement that the project could take "decades":
As of April 8, 2009, the evidence is clear that ESDC believes that Atlantic Yards is a project that will take decades. This is an enormous change from the 10-year project that was approved in 2006. ESDC should be directed to hold a public hearing on all of the changes.

Should there be a new Modified GPP, as noted above, those plaintiffs may get their wish.

FCR's doggedness

The Observer offers some context regarding the developer:
The tough financial realities of this recession have scared off even some of the most quixotic developers in the city, forcing them to tuck their grand plans for new projects away, eating whatever costs they put into the early stages of development. By contrast, Mr. Ratner has refused to give up on Atlantic Yards, continuing to pour cash in. In the past year, Forest City has successfully extended a key loan, worked to redesign its arena, pushed various governmental agencies for revisions to agreements and all the while kept on contract an army of consultants and lobbyists.

This is an extraordinarily expensive task. Between the lawyers, the Nets, property purchases, lobbyists, architects, demolitions, and early infrastructure work, Forest City and its partners have spent hundreds of millions of dollars on this project in the past five years. That tremendous investment has been spent on a physically complicated project for which the developer hasn’t yet begun building or even clinched a deal to buy much of the land from the M.T.A.

Well, yes, and no. As of October 2007, for example, the developer committed $250 million, not counting the Nets losses, but the city and state have pledged $305 million. And FCR, as the New York Times first reported, would get a 5% development fee, or $200 million, should the project come in at the previously announced $4 billion.

That's a question for the oversight hearing: what's Forest City Ratner's projected development fee?

But Atlantic Yards has always been the developer's priority, in part because continued losses by the Nets and the team's loss in value mean that a move is crucial to reverse the tide. And the developer has been lobbying hard to gain subsidies, so FCR's efforts might be seen less as sacrifice and more like strategy.

New subsidies from Bloomberg?

Beyond the wrangling with the MTA, the Observer reports:
Forest City is negotiating with the Bloomberg administration, too, to change a deal that involves a total of $200 million in subsidies, according to those sources.

I'm assuming that's a reference to the current deal of $205 million, in which $105 million was quietly added, rather than an additional $200 million. Again, that's a question for the oversight hearing.

More litigation

While DDDB plans more lawsuits, the Observer notes that "[i]njunctions are not frequently granted to challenges on public approvals."

An article in the Brooklyn Daily Eagle suggests that DDDB may file a second lawsuit regarding environmental review, given that the project has changed. Again, if a Modified GPP is issued, there could be a hearing before bonds are issued, thus responding to that potential lawsuit.

DDDB Legal Director Candace Carponter told the Eagle that they could file a taxpayer lawsuit in federal court claiming the IRS made an illegitimate exception specifically for Ratner’s development; or perhaps a lawsuit that challenges the financing of the project.

In both those cases, a stay would be necessary before eminent domain is pursued.

[Update 7 pm May 20: Carponter tells me that the lawsuits she discussed with the Eagle were potential, rather than definite.]

A political battle

Lawsuits may raise serious questions about the project, but, outside of the eminent domain case, it may be that political entities--notably the Senate committee holding a hearing, the MTA board, and the ESDC board--may have more impact on the project over the next months.

Can the ESDC's evolving plans for AY pass the smell test? Will there be a real cost-benefit analysis?

So it would be interesting to learn what exactly Gov. David Paterson thinks.


  1. One sentence jumped out at me from the Observer article. "The arena would be financed by tax-free bonds, the market for which is far more robust than the broader credit market." I think Mr. Brown has not made a distinction between tax-free bonds issued by governments and other essential service providers, and tax-free private activity bonds, which are issued for the benefit of private developers for projects that are deemed to have a public use, such as private power plants, privately-run toll roads and, yes, unnecessary arena projects.

    The distinction is important because the credit work is much easier for public activity bonds. You look at a government's tax base, budget, and a rating, hope they don't default, and off you go (though there's an emerging school that says that it's not so simple).

    For private activity bonds you have to spend much more time analysing cashflows and looking at how the project will perform. This is subject to a much larger number of uncertainties, including the economy, the health of the customer(s), construction, and so forth. It's MUCH more complex, and there have not been a massive number of private tax-exempt deals done recently. I need hardly rehearse just how speculative a venture moving the Nets to Brooklyn will be.

    Kudos to Mr. Brown for looking at the uncertainty about the financing (it is rarely a rewarding task to predict whether deals will happen or not). I think he does have to look at how difficult a financing prospect a Nets arena is.


Post a Comment

Popular posts from this blog

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…