Monday, July 06, 2009

MTA CFO's justification for Forest City Ratner renegotiation: "too speculative" to consider another deal

The central question behind the Metropolitan Transportation Authority's June 24 decision to renegotiate more generous terms for the Vanderbilt Yard with Forest City Ratner--$20 million rather than $100 million down, and a replacement railyard worth $100 million less, was whether another deal was possible.

No one asked that question of the MTA, though board members Jeff Kay and Mark Page at the meeting offered justifications, Kay saying "The market is what the market is" and Page asserting, "I think that this is as good a deal as is going to be available to us for this property in the foreseeable future.”

The rebuttal, of course, comes from the New York Times, which in 1994 editorialized regarding the Coliseum site at Columbus Circle:
The most sensible course now is for the city to find out anew the market value of this property, and that cannot be accomplished through negotiations with one bidder.

As noted below, MTA CFO Gary Dellaverson told the press the opposite, that "I have no idea when it would be more propitious than now to engage in a second transaction on this property."

Was an appraisal needed?

Discussion at the 6/24/09 board meeting referenced the Public Authorities Accountability Act, which states:
Method of disposition. Subject to section twenty-eight hundred ninety-six of this title, any public authority may dispose of property for not less than the fair market value of such property by sale, exchange, or transfer, for cash, credit, or other property, with or without warranty, and upon such other terms andconditions as the contracting officer deems proper, and it may execute such documents for the transfer of title or other interest in property and take such other action as it deems necessary or proper to dispose of such property under the provisions of this section. Provided, however, that no disposition of real property, any interest in real property, or any other property which because of its unique nature is not subject to fair market pricing shall be made unless an appraisal of the value of such property has been made by an independent appraiser and included in the record of the transaction.
(Emphasis added)

The resolution passed by the board stated:
Whereas, the Boards of the MTA, LIRR and NYCT further find that an appraisal of the value of such MTA Property was previously made by an independent appraiser and is included in the record of the transaction.
(Emphasis added)

So, did the MTA board get any advice from its counsel that the 2005 appraisal, which was for $214.5 million--not $100 million, which is what FCR offered only after bidding $50 million and seeing rival Extell bid $150 million--was still legitimate? 

I asked MTA and was told to file a Freedom of Information Law request, which is pending.

(Note that FCR contends that the total value of its bid was greater than that of Extell's bid, though the latter was never given a chance to flesh out its bid.)

"Too speculative"

Two days earlier, after the MTA Finance Committee meeting, Dellaverson met the press and was questioned by Matthew Schuerman of WNYC.

(Audio is here, with the exchange beginning at 3:40. Note that a small part is inaudible.)

MS: Given the fact that you're not getting all this money for another 22 years and, y'know, you're not getting as big a railyard or as good a railyard, why not wait a few years until the economy recovers and until the real estate market in Brooklyn improves...?

GD: Does WNYC know when that's gonna take place?

MS: Well, no, but everyone's saying by the end of the year.

GD: So I think, and I don't mean to be glib, but I think that the point of it is that... is there value associated with warehousing, deciding not to engage the transaction, to warehouse the property, and re-transact at another time? People suggested in public speaking that now would be a good time to put the property back up. I would respectfully disagree; I don't think that MTA would like to do that.

I think that, in terms of trying to anticipate what is the future market... for this kind of developable parcel, given what the fixed expenses are associated with moving the railyard and platforming the space, because you can't use it until you do those things, is really--it's a very speculative exercise, one that I would not want to engage in.

So the simple answer to your question, I have no idea when it would be more propitious than now to engage in a second transaction on this property. I simply cannot guess. I can tell you that it would turn on answers to questions that nobody has, which is: when does the financial market begin to change, when does the credit market change, when does the housing market change... So I think it's too speculative.

1 comment:

  1. what could possibly be more speculative and presumptive than assuming out-of-hand that ratner's latest a.y. offer & plan is "the best deal that we can get"?!!!!

    or that ratner will be able to follow through on this latest deal any more than he followed through on the original deal?!!!!

    the only way to know "the best deal that we can get" is to test the market with a new round of request for proposals from developers ... and to do a more serious & thorough analysis of the developers' ability to follow through on his contractural agreements

    this is business 101, not rocket science

    ReplyDelete