Monday, June 22, 2009

How Forest City Ratner deceived the MTA and the public by not acknowledging the need for affordable housing bonds

I wrote in June 2007 how the Empire State Development Corporation, while that Atlantic Yards project approached approval in December 2006, never revealed that some one-third of the project funding sources would $1.4 billion in scarce housing bonds issued (most likely) by the New York City Housing Development Corporation.

The figure was revealed to the Public Authorities Control Board (PACB), however, and later revealed, after the project was approved, in litigation over the AY environmental review. (Click on graphic at right to enlarge.)

Before the MTA, lies of omission

A look back at Forest City Ratner's 2005 bid to the MTA (see p. 45 of this PDF) shows that the developer was deceptive too.
Take, for instance, the assertion that construction loans would be used for each individual building but tax-exempt financing would be used for the arena.

Hold on. Tax-exempt financing also would be needed for the affordable housing. And most of the 16 towers would contain affordable housing.

Any ESDC due diligence?

There's no evidence that, before the project was approved, the ESDC considered the availability of sufficient housing bonds to construct the affordable housing. 

Last December, I filed a Freedom of Information Law (FOIL) request with the ESDC to see if any documents indicated such deliberations. Each month, I get the same response: they're still looking for responsive documents.

What the banks said

Nor did the banks that wished to become part of the transaction address the issue either. As shown at right, four banks "expressed confidence" that the cash flows from each building could support the construction loans and credit enhancements needed.

What they didn't address, however, is whether there'd be enough scarce housing bonds.

Sources and uses

As shown at right, the Sources and Uses chart in the MTA bid seems very simple: 
  • $200 million in direct public subsidies; 
  • $555.3 million in arena financing;
  • $819.7 million in equity from FCR, its investors, and cash flow from the project; 
  • and nearly $2 billion in construction loans. 
The crucial term "housing bonds" doesn't appear. It did finally appear in the graphic at top.

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