Wednesday, June 17, 2009

The amazing shrinking railyard deal: partial payment, partial benefits, and (possibly) no platform and a much-shrunken AY project

[F]or the land, the public land, the MTA land, is that, what we have agreed to is that we will lease or buy that land at the fair market value... by whatever independent process that they normally use.
--Forest City Ratner executive Jim Stuckey, New York City Council hearing, 5/4/04 (transcript)

It's not just that Forest City Ratner (FCR) was awarded the right to develop the Metropolitan Transportation Authority's (MTA) Vanderbilt Yard for $100 million in cash, even though another developer bid $150 million and the MTA's own appraiser valued the site at $214.5 million--after deducting the cost to a bidder of constructing a new railyard (albeit a more basic one than FCR promised).

It's not just that the MTA, after initial resistance, has agreed to let FCR build a replacement railyard of seven rather than nine tracks, a successor to a railyard that once had ten shorter tracks but with (apparently) greater capacity.

It's not just that the MTA apparently is being requested to allow Forest City Ratner to make a much lower down payment--a reported $20 million, though that's not confirmed--for the portion of the railyard needed for the arena block, and pay off the rest over some (yet) unspecified time.

It's also that Forest City Ratner's multi-component railyard bid, which the developer variously claimed was worth $492.4 million or $445 million or $329.4 million, would be worth significantly less than promised. (I address the calculation lower down in this article.)

What about the platform?

Most crucially, it's also that one of the most important components of the project--the plan to deck over the central and eastern segments of the railyard (Blocks 1120 and 1121)--has become less likely.

That would put in doubt the six towers scheduled for those two blocks, and the attendant housing and open space.

And that would make the Municipal Art Society's (MAS) Atlantic Lots scenario--a project with a large parking lot, an uncovered railyard, and an arena plus a building or two--more likely.

(Graphic above is from FCR's bid to the MTA, p. 45 of this PDF. Atlantic Lots graphic below is from the MAS; photo by Jonathan Barkey.)

Caveat: My information on the increasingly likely loss of the platform is secondhand, and officially the Empire State Development Corporation says nothing has changed. On June 23, some changes likely will be announced, so let's see whether the platform is guaranteed. My sources have proven accurate so far, but the deal may still be changing.

The platform plan

The ESDC's Modified General Project Plan (GPP) was fairly clear about the coming platform, which would go over the railyard in the blocks delineated in the oval below.

It stated:
The portion of the Project Site east of 6th Avenue (the "Phase II Site") would include the platform building pad to be constructed in the Air Space at the Platform Elevation. Such Platform would also be built above that portion of Lot 1121 which is expected to be added to, and become a part of, the Upgraded Yard.

The platform would have dual purposes:
Above the Upgraded Yard, the Project Sponsors would build a platform which would serve as both a protective roof for LIRR operations and as a base for the new development to be built above. As part of a competitive Request for Proposals, the MTA selected the FCRC Atlantic Yards proposal, which included the renovation, reconfiguration and partial relocation of the Yard and the development of a platform and buildings over the Upgraded Yard in Blocks 1120 and 1121.

Blight compounded?

This raises some questions: Wouldn't some of the benefits promised to the MTA by FCR, such as a railyard protected from the elements and with enhanced security, be diminished?

And if the platform were not built, wouldn't the "scar" of the railyard--the very blight that the project was supposed to remove--remain?

After all, the GPP contains Land Use Improvement Project Findings that emphasize the platform:
This General Project Plan calls for redevelopment of the Project Site, which is currently a blighted area, with uses and density that will best suit the opportunities presented by the large Transportation Hub and activity of Downtown Brooklyn on the western end of the site and the residential character of surrounding neighborhoods. There will be extensive environmental remediation of contaminated materials on the site. The platform to be built over the rebuilt, upgraded and partially relocated Yard will allow for development above the Upgraded Yard, thereby removing a significant blighting influence, while improving Yard operations. The platform also will allow for a significant amount of publicly accessible open space that creates a physical connection between the surrounding neighborhoods.
(Emphasis added)

FCR claims of value

Then-FCR official Jim Stuckey claimed in a 2007 affidavit filed in the suit challenging the Atlantic Yards environmental review that Forest City's 2005 bid was worth far more than the cash value and more than that of rival Extell, the only other bidder to respond after a belated Request for Proposals issued 18 months after city and state officials backed FCR's plans.

Initially, FCR offered $50 million in cash, then upped the cash offer to $100 million after the MTA, under pressure from city and state leaders, chose to negotiate exclusively with FCR.

Stuckey stated:
While petitioners are correct that FCRC's bid contained an offer of $100 million in cash while Extell's bid offered the MTA $150 million in cash, the petition fails to advise the Court that FCRC's bid also offered to (1) build a new Vanderbilt yard for the MTA at an estimated cost to FCRC of $182 million, (2) conduct environmental remediation and clean-up of the MTA's property at an estimated cost to FCRC of $20 million, (3) compensate MTA for increased operating costs that had an estimated present value of $25,400,000, (4) construct additional mass transit improvements relating to the nearby subway station at an estimated cost to FCRC of $29,000,000, and (5) share with the MTA sales tax revenues from the project that had an estimated present value of $23,000,000 (see Ex. H, at p. 2.1). FCRC's bid thus reasonably could be valued at $379.4 million dollars.


(As I pointed out, Stuckey omitted the $163 million in "extraordinary infrastructure costs" the developer initially calculated as part of the additional value of its bid.)

Dubious claims of value

Stuckey's total of $379.4 million was dubious, and it's ever more dubious now.

Let's take a look at the comparison chart produced by Develop Don't Destroy Brooklyn. Start from the bottom up.

New estimated sales tax revenues. I agree with DDDB that this $23 million figure in FCR's bid was purely speculative; after all, that statistic comes from a much-discredited report from FCR consultant Andrew Zimbalist, not any governmental analysis. It also depends on a project assumed to have a ten-year construction timeline, which we've long known is a fantasy.

In his letter to the MTA supporting FCR's bid, Deputy Mayor Dan Doctoroff cited both new tax revenues to the city and to the MTA. The projections regarding city revenues were made by the New York City Economic Development Corporation, but that 6/27/05 analysis did not address MTA revenues. Rather, Doctoroff was apparently relying on Zimbalist's figures.

Construction of mass transit improvements. I disagree with DDDB; this $29 million strikes me as a legitimate value--at least when the bid was made. Extell, as far as I know, had not planned to build a new subway entrance across Atlantic Avenue. But we don't know what the value would be now; is FCR planning to cut back on its mass transit improvements just as it plans to cut back on the railyard?

Environmental remediation and clean-up. This benefit of $20 million seems doubtful. Yes, that figure appeared in FCR's bid but not in Extell's proposal. On the other hand, had the MTA chosen to negotiate with Extell, that issue likely would've been resolved.

Note that FCR's bid says that the developer "reserves the right to apply for and use Brownfield Tax Credits." That suggests that taxpayers would be footing a good portion of the bill--and that such credits would be available to any developer.

Construction of a new Vanderbilt Yard. This $182 million claim is the largest component of the additional value promised by Forest City Ratner. The new yard clearly has value, but the number is dubious on multiple counts. First, the MTA's own appraiser (right) estimated the cost of track relocation and platform reconstruction at some $56.7 to $72.5 million, and factored it into the appraisal, subtracting that cost to reach $214.5 million.

Extell offered to build a new railyard as part of its bid, including a platform, track relocation, and power substation and signal work, though there was no opportunity to flesh out the details.

Extell apparently was hoping to apply public monies to that cost, using the infrastructure funds (at that point $200 million) that the city and state seemed ready to pledge to the arena. Extell said it was "comfortable that this [public] investment [for infrastructure] will not exceed $150 million, and this number might be further reduced after we obtain a better understanding of LIRR's requirements."

Also, by reducing the number of tracks from nine to seven, Forest City Ratner surely is saving money. MTA officials have yet to estimate how much.

Estimated payment of net operating increases. This $25.4 million figure did not appear in the Extell bid, but it's murky. First, it's not clear that Extell's revised Vanderbilt Yard would have generated the same increased costs to the Long Island Rail Road.
Also, had the MTA chosen to negotiate with Extell, it's arguable that the agency would have been able to achieve compensation for increased operating costs.

Saving $100 million on the platform?

Forest City Ratner identified (below right) the cost of the platform over the two railyard blocks at $99 million, part of "extraordinary infrastructure costs" it was to incur. Then again, the developer's 2/18/05 Memorandum of Understanding (above) with the city and state indicated that platform could generate additional subsidies.

There's been no move by the city and state to add new subsidies--Mayor Mike Bloomberg has said there's no more money.

Then again, there will be new mayoral and gubernatorial leadership down the line. So it may be that Forest City wouldn't build the platform until and unless it got additional subsidies.

Was Forest City Ratner lowballing the platform cost? Extell estimated the cost at $108 million, apparently to be paid out of the direct subsidies of $150 million.

Implications of no platform

If no such platform were built, however, not only would Atlantic Yards be missing six buildings, the developer would be saving a significant chunk of change.

It certainly would be cheaper to focus on building on the non-railyard blocks. The State Funding Agreement signed in September 2007 indicated there's no timetable for Phase 2, which would include all the planned open space and most of the affordable housing.

The current version of Atlantic Yards already appears to be significantly different than the plan that was promoted to the public and to elected officials. The configuration of the buildings shifted, but it was supposed to be a 16-tower buildout in ten years.

Both those numbers have become suspect, and the absence of a platform would take Atlantic Yards further down the road toward Atlantic Lots.

2 comments:

  1. Recall that Doctoroff said that NYC could build a unit of housing in the Queens West Project for
    $54,000.00.

    http://atlanticyardsreport.blogspot.com/2006/11/queens-west-less-dense-than-ay-and.html

    What is the cost per unit for Atlantic Yards? Where is the public benefit?

    ReplyDelete
  2. 2,000 affordable housing units x $54,000/unit = $108 million

    that sounds like a MUCH, MUCH, MUCH better deal for new york taxpayers than the $1 billion-plus that atlantic yards is costing them

    thank god that the watchdog press is all over this story and is blowing the whistle on the paterson/bloomberg/ratner version of 'the bridge-to-nowhere' ... NOT!!!!!

    ReplyDelete