Monday, June 22, 2009

MTA deal revealed: $20M down, 21 years to pay the rest; smaller yard may save FCR $100 million; some skeptical about rush

Updated and corrected: Forest City has 21 years, not 22, as 15 years of payments start in 2016.

In this morning's Metropolitan Transportation Authority (MTA) Finance Committee meeting, a deal (staff summary in PDF) under last-minute negotiation was finally revealed.

The committee did not vote; it was a purely informational session. One board member called it "outrageous" that there was only 48 hours to review the deal before the full board meets Wednesday.

(Here's coverage in the Times's CityRoom blog, the Brooklyn Paper, and the New York Observer. Here's a roundup, including print coverage.)

Speaking before the contours of the deal were released--, several Brooklyn residents, including a representative of state Senator Velmanette Montgomery and leaders of Develop Don't Destroy Brooklyn and the Council of Brooklyn Neighborhoods, denounced the proposal, making reference to the rumored--and accurate--information that Forest City Ratner would have to pay only $20 million down.

In support, praising the project without knowing the details of the deal, were Kathryn Wylde of the Partnership for New York City, Joseph Chan of the Downtown Brooklyn Partnership, several leaders in the Carpenters Union, and James Caldwell of Brooklyn United for Innovative Local Development (BUILD).

Payments equivalent, stretched over time

Forest City Ratner would pay $20 million down, then the equivalent of $80 million--thus totaling the once-promised $100 million--by June 2030.

(The total payments would be much larger, given the discount over time, but FCR would be paying the equivalent of only 6.5 % interest, which is a pretty comfortable interest rate, given that, for example, the New York Times Company has borrowed money from Mexican billionaire Carlos Slim Helu at 14%.)

Less railyard capacity, savings of $100M?

The permanent railyard, instead of having nine tracks with capacity for 76 cars, would have seven tracks with capacity for 56 cars. While there would be several improvements, including a western portal--allowing a more direct entrance to the LIRR hub than the current convoluted route--it still would be less capacity than the previous iteration of 72 cars.

The new railyard would be valued at $147 million, while MTA Chief Financial Officer Gary Dellaverson said the previous iteration was worth $240-$250 million.

(That issue's murky, since FCR valued the railyard at $182 million and the package of improvements at over $300 million. MTA spokesman Jeremy Soffin explained afterward that the MTA never independently costed out the original yard construction, but said he believed FCR increased its estimate as construction and oil costs went up. That's plausible, given that the cost of the project itself rose from $2.5 billion to $4 billion.)

The initial 2005 RFP noted that the Vanderbilt Yard could store up to 72 cars and that the yard "is contemplated to provide additional storage to accommodate the 40% system-wide fleet expansion in 2009 through 2012, which would cause it to be used 24 hours a day."

Previously, a nonbinding letter of agreement between the MTA and the developer stated that FCR would produce a yard with nine tracks or an alternative configuration "that does not reduce yard/station capacity or functionality."

Could a bigger railyard be built? There would be space in the parcel, but not after a deck was constructed, since pillars and other features would interfere with expansion.

Temporary railyard lingers

The temporary railyard, which was once supposed to last 32 months after construction, could now last six years and eight months, or 80 months. It would have capacity for only 42 cars.

Rest of AY not guaranteed; more profit for FCR?

After building on the arena block, Forest City Ratner could get out of the deal by paying the MTA $86 million, which could pay for a less elaborate permanent railyard with the same capacity.

Presumably then the MTA could sell the development rights to the rest of the railyard--or, perhaps, FCR could sell the rights to someone else.

MTA officials said they were focusing on getting railyard improvements and transportation improvements--notably a new entrance to the Atlantic Avenue/Pacific Street subway stations. They would not guarantee that a platform over the central and eastern segments of the railyard site would be built.

"Our interests are transportation first, financial second," Dellaverson said, implying that development over the railyard--and the removal of the blight the open railyard has been said to cause--comes third on the list.

Forest City Ratner later issued a statement (below) stating that the project was the same--though no platform was guaranteed. The developer complained that the renderings of the arena linked to the media were not accurate.

Six development parcels

Dellaverson said the MTA divides the rest of the railyard into six development parcels, as six buildings have been projected to be built. A parcel purchase price would be assigned based on the total payment for the "Air Rights Parcel" and the proportional density assigned to each of the six segements.

Regular payments of the total purchase price would be allotted proportionally to each development parcel, with that parcel conveyed to ESDC or FCR only when the proportional price was met.

Some skepticism

With an MTA board meeting set for Wednesday, and a widespread belief that the board will approve the proposal, some board members wondered why they had only 48 hours to digest such a complicated deal.

The answer: the deal must go forward so Forest City Ratner can meet end-of-the-year deadlines to have tax-exempt arena bonds issued.

While some wondered whether a new deal with another developer could be struck, Dellaverson said this is "not a great market" to be in transactions for large parcels that require so much site preparation work. (Then again, that's a testament to the political juice behind the deal.)

Later, speaking to the press, he was asked why not wait until the economy recovers.

He responded with a question, asking WNYC reporter Matthew Schuerman if WNYC knew when that would happen.

Schuerman riposted that everyone's saying it would happen at the end of the year.

Deadlines

Forest City Ratner must execute the Construction Agreement governing design and construction of the Upgraded Yard prior to closing on the purchase of the Arena Block Parcel, and must substantially complete the Upgraded Yard prior to closing on the purchase of any of the Development Parcels.

The temporary yard is expected to be completed by the end of the year. Construction of an upgraded permanent yard would have to begin by June 30, 2012, with that yard fully operational by September 1, 2016.

Payment schedule

The payment schedule for the rest of the railyard: downpayment of $8 million, payable in four equal annual installments of $2 million each on June 1 of 2012, 2013, 2014, and 2015; remainder of purchase price payable in 15 equal isntallments of approximately $11 million each beginning on June 1, 2016.

The Barclays Center station

Also, in what represents the first MTA naming rights deal for a subway station, FCR would pay $200,000 a year over 20 years to have the name Barclays Center added to the various stations that make up the Atlantic Avenue/Pacific Street complex.

There were no comparables for that deal in New York, but Dellaverson said MTA staff did look at naming-rights arrangements in other cities.

Questions about the deal: railyard

Dellaverson, pointing to the nine-page staff summary distributed to committee members, said the deal had been completed only on Monday. The vote Wednesday, he said, presupposed ESDC approval Tuesday of a revision of the Modified General Project Plan.

Board member Andrew Albert pointed out, "When this came up, a month or whatever it was ago, we asked [Acting MTA Acting Executive Director] Helena [Williams] about what kind of yard she needed for the Brooklyn shuttle service that would commence once East Side Access opened. It seemed to me she was pretty clear about needing the nine-track yard. That has now changed to where she can accept a seven-track yard?"

Dellaverson didn't provide details but said Williams was "100 percent comfortable that the Rail Road's acquiescence in this value-engineering exercise... allows her to run the service she needs." He added, "I don't know whether my memory on this is faulty, or yours, but she is comfortable on that issue." (Williams wasn't present.)

Questions about the deal: timing

Board member Doreen Frasca said, "This is just an observation, and I know staff has worked very long and hard on this, including into this weekend, but I note that it's one month shy of four years since the board accepted the Forest City Ratner proposal, and this committee and this board is being given less than 48 hours to understand the complexities and vote intelligently... I think that's pretty outrageous. Why do we have to vote on Wednesday?"

"Well, of course, you don't," Dellaverson responded. "It's entirely at the board's discretion to accept or reject or send back to the negotiating table... I think that, in terms of why must it be now in the summer versus in the fall, I think it really relates to Forest City's desire to market their bonds as a tax-exempt issuance [by a December 31 deadline]. If the structure... is not such that allows for the marketability of the bonds, then the financial aspect of the transaction, as it relates to arena construction expenses that Forest City Ratner would incur, become less viable and perhaps not viable. That's not something that I'm prepared to say from my own knowledge... but I would be remiss if I suggested anything other--that's the principal driver of the timing."

"The arena?" Frasca followed up.

"Sure," Dellaverson responded.

Questions about the deal: value

Well, the construction of the arena through the issuance of bonds, Frasca said. How was the $20 million value of the parcel arrived at, she asked.

"Like everything else in the package, it was part of the ultimate negotiations," Dellaverson responded. "We had, I would say, several, sort of firm points that we were not really going to move on. Those had to do with ensuring the viability of  the transportation project's timing and the rest, as well as the net present value couldn't be less than what this board had already approved... I would say to you that, from my vantage point of conducting the negotiations, there were some things we were more flexible on than others, and some of the timing of cash was one of them. Obviously, from every vantage point, it would be better to have a hundred million dollars at closing, the way this transaction was originally described to the board... I also wish that economy was true today, because we'd be in better shape in lots of ways... What was the quid for that quo?"

"I just wondered if the $20 million had anything to do with an appraisal of that particular part of the parcel, versus the other parts," Frasca asked.

Dellaverson noted that the original appraisal covered all of the MTA's interest in the railyard. "We did allocate zoning square footage against the arena parcel," he said, because of various complexities in calculation as well as the Empire State Development Corporation's override. "Is this square footage one-fifth of the total square footage? Y'know, I don't actually know the answer."

(I've suggested that, on a square footage basis, it should be worth $26.7 million, but comps suggest a much higher value.)

Reliability of FCE

Frasca followed up: "Forest City Enterprises, the parent, do they have a public [credit] rating?

"They do," Dellaverson responded,  but couldn't immediately provide an answer.

"I'll look it up," Frasca said.

(In December, Moody's identified the rating as B1, which is considered speculative grade rather than investment grade.)

"Gary, railyards are incredibly valuable in urban environments, not just for present operation but also for expansion of service, which is something we hope to see in the future," asked board member Susan Metzger. "I'd like more information on how the value engineering resulted in the decision of seven versus nine and 20 less car storage spots."

"Sure," Dellaverson responded, saying one way to provide information would be through a conference call.

"I think there are others who have similar concerns," Metzger said.

Alternative bidder?

Albert asked, "Just out of curiosity, if one of the losing bidders in the initial deal in 2005 said, 'Hey, our deal was better than that one and we're willing to give you more at closing'... notwithstanding the benefit of having the Nets in Brooklyn, are we contractually obligated to Forest City Ratner at this point?"

"Of course not," Dellaverson said, noting that it's up to the board. He pointed out that there was only one other bidder. (Extell offered $150 million in cash, versus Forest City's $100 million.) 

"If Extell Development were to make an unsolicited proposal at this point, it would be interesting," he said, without visible enthusiasm. "I don't--we would obviously disclose that to the board. I don't know what we would do. I would say that, y'know, this is not, as you know, a great market to be out there transacting large-scale development parcels that require literally hundreds of millions of dollars of pre-development expense."

What about the platform?

"Has Forest City committed to a platform?" Albert asked.

"Their obligation is to perform pursuant to calendar obligations," Dellaverson said, citing a schedule for payments. "Our financial interests and our transportation interests are paramount. The construction of the platform and the vertical improvements that would take place on top of the platform are very valuable to our neighbors and to the General Project Plan that the ESDC is concerned about, but our interests--if we were to prioritize them--are transportation first and financial second."

From the testimony

Before Dellaverson's presentation, the 18 or so speakers were about evenly divided into supporters and opponents. Wylde called the project "an important step, particularly now, in a faltering economy." She said the "changes in terms are reflective of the reality of today's economy." 

She said the project would further diversify the city's economy and create a new source of jobs that goes well beyond Wall Street--testimony that seemingly was more apt regarding the 2003 iteration of the plan, supposed to hold 10,000 office jobs, than the arena-cum-housing plan that currently exists. (Michael D.D. White of Noticing New York points out that Wylde's group couldn't have "always" supported the project that currently exists.)

Anthony Pugliese from the Carpenters Union said the arena would increase transit revenues.

The critics speak

 White reprised his post criticizing the project. Now, he said, is the time to get better deals with developers, not to bail them out, especially since it would be a project of far less value to the public.

"One thing about this project has not changed," he said. "It still needs to be voted for because this is a wired deal." He said the board members have a fiduciary duty to get the best price. 

Jim Vogel, representing Montgomery, urged the committee to reject the "ludicrous proposal" and warned of FCR's "next reduced proposal." (See Montgomery's full statement below.)

Terry Urban, co-chair of Council of Brooklyn Neighborhoods, noted that the MTA had no plan to renovate the railyard until FCR "came to them with a deal," and that

"Anxious to please wealthy contributors, our self-serving politicians and their puppet appointees agreed to everything Forest City Ratner wanted, under the guise of public benefits," she said. She pointed to the lower bid by FCR and the belated RFP, issued 18 months after FCR was anointed the Vanderbilt Yard.

She cited the description of the site by Chuck Ratner, CEO of parent company Forest City Enterprises, as a "great piece of real estate." She suggested that, if FCR can't live up to the current deal, the MTA should declare the deal busted and put the railyard out to bid.

DDDB's Daniel Goldstein wielded a copy of FCR's response to the MTA's RFP for the Vanderbilt Yard and said it "appears to be a piece of fiction now." If FCR has defaulted on this proposal, "why is he being rewarded with major concessions?"

Now they're crying poverty at the expense of straphangers and the public, he said. He noted that nearly all of the "alleged public benefits" would be gone, saying plans for affordable housing were not firm, that the office tower wouldn't be built..

He told the committee that their duty is to get the best deal possible for the railyards, not to make "the best deal possible for an individual developer who has defaulted on his commitments." He contended that the UNITY plan for the railyard could be built far more quickly than FCR's deal.

Support from Chan

By contrast, Chan cited the "historic growth" in Downtown Brooklyn, spurred by Forest City Ratner's MetroTech. 

"We are at a critical moment in Downtown Brooklyn's history," he continued. "The Downtown Brooklyn Partnership cannot underscore how important the Atlantic Yards project is going to be to the future of Downtown Brooklyn. It will provide a much-needed infusion of jobs and economic opportunity at a time when the need is great. It will transfer a... gaping hole... into a diversity of uses... Nothing could be more important for spurring economic activity in Downtown Brooklyn."

Given the developer's track record in supporting complex projects in multiple economic cycles, the MTA should support the project, he said. (White argues that such cycles mean the deal should be negotiated in favor of the public.)

Wrong script

Joe DiNapoli, a Carpenters Union rep, was apparently reading off a script destined for Tuesday's Empire State Development Corporation (ESDC) board meeting since he urged the MTA to approve the General Project Plan, which is an ESDC document.

BUILD's Caldwell pointed to the federal government's stimulus plan and said that Ratner also deserved a break.

Serving straphangers

The final speaker, Scott Turner of Fans for Fair Play, said "you have a choice to do something that truly serves straphangers and taxpayers by not giving Bruce Ratner a sweetheart deal. This is a Finance Committee. It's not a hopes and dreams committee." He said issues of sports and civic pride can't be quantified, and the finances "are very, very bad."

He also warned that "the unions will get renegotiated" as well. As for straphangers, he said, "No matter how angry we get, we don't come to you asking to renegotiate our two-dollar fare when the trains don't get there."

Forest City Ratner statement

Forest City Ratner issued a statement:
Forest City Ratner Companies, the developer of the Atlantic Yards project in Brooklyn, reiterated today the benefits the project will bring to Brooklyn and the City, explaining that delays due to litigation and challenges brought on by the ailing economy will not result in significant changes to the overall development.

“While the world has changed significantly since Atlantic Yards won public approval in December 2006, and we are trying to adapt to those changes, the project and the project benefits, including the arena, the jobs and the affordable housing will remain the same,” said Bruce Ratner, Chairman and Chief Executive Officer of Forest City Ratner Companies.

The arena will still be an 18,000 seat state-of-the-art civic facility that will be home to the NBA Nets basketball team. There will still be over 225 diverse events throughout the calendar year. The renderings that were leaked to the media do not represent the arena design. Details on the arena's exterior design will be developed through the summer and will be made available as that process evolves.

There will still be a mixed use project of 7.1 million square feet in 16 other buildings across the 22 acre site containing 6,340 housing units, 2,250 of which will be affordable; office space; neighborhood retail spaces; essential community facilities, including a 100,000 square foot elementary and intermediate school, a health care center, and an intergenerational center; eight acres of open space; and a new LIRR storage yard and a new transit entrance at Atlantic and Flatbush Avenues. In addition the project will create over 17,000 construction and 8,000 permanent jobs.

Mr. Ratner explained as well that FCRC has worked very hard with the MTA to develop a plan that will allow the company to meet its commitment to the Authority while also providing for adjustments in light of current economic conditions.


Mr. Ratner acknowledged, as previously announced, that the arena is being redesigned to be more efficient and to fit more easily on the site. The Frank Gehry designed Master Plan for Atlantic Yards will continue to serve as the basis for the Design Guidelines for the entire project, including every building and the arena.

Montgomery's testimony

The MTA Board is proposing to alter its agreement with Forest City Ratner Companies regarding the air rights and construction of a new rail yard for the Vanderbilt Rail Yards in Brooklyn. I urge this Committee and the MTA board to reject these changes. To approve these changes would be to continue the entirely questionable series of decision regarding this rail yard and cast further doubt on the MTA’s ability and commitment to provide proper stewardship of this vital public authority. I urge you to reject these changes, cancel all contracts with FCRC, and issue a new RFP.

When the Atlantic Yards proposal first surfaced, the MTA hadn’t done an assessment or even prepared an RFP until goaded into action by the Community. The Board approved entering into contract with FCRC despite it’s inferior bid (compared to the Extell Corporation’s proposal) at a price far below the rushed assessment, trumpeting the inclusion of a “state of the art” rail yard as the decisive factor, this despite the fact that all bidders had been informed they would have to provide such a replacement rail yard and platforming.

I have been informed the proposal being considered is for an even lower payment than negotiated, or some undetermined schedule of deferred payments, and a “temporary” rail yard until such time as FCRC feels able or willing to construct a certainly less than state of the art rail yard; less money, less rail yard, no schedule, no commitment. No responsible board should entertain such a ludicrous proposal. When will the next reduced proposal arrive from FCRC after this one is approved? This is not a reliable partner for the disposition and management of this valuable and vital property.

Last week, along with 7 other legislators, I sent a letter to acting MTA Executive Director and Chief Operating Officer Helena Williams requesting this hearing be delayed and that we be provided with details of the proposed changes. My colleague, Senator Bill Perkins, also sent Ms. Williams a series of questions regarding this proposal; we all still await a response.

I urge this committee and the MTA Board of Directors to not only reject these changes but to cancel all contracts with Forest City Ratner for non-compliance, and reissue an RFP. Having just endured the negotiations on the so-called “Doomsday Budget,” to do any less would further undermine the MTA’s management reputation.


(This will be updated.)

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