Wednesday, August 12, 2009

When it comes to the curious assessments in Atlantic Yards arena block, the Department of Finance is mum

One of the most crucial steps on Forest City Ratner's path to arena financing has gotten almost no attention, even though it deserves far more scrutiny: the curious elevated reassessments of properties in the Atlantic Yards arena block.

Remember, the only way Forest City Ratner can have the state sell crucial tax-exempt bonds--$650 million, saving the developer more than $100 million--is to make sure that the PILOTs (payments in lieu of taxes) do not exceed the value of the foregone taxes on the arena block.

Otherwise, if the PILOTs are larger than the phantom taxes, the Internal Revenue Service might look askance at the deal. This financing mechanism, when used for Yankee Stadium, was quite dubious, given the reliance on a location in far-away Alphabet City for a comp.

It generated much criticism from Assemblyman Richard Brodsky, who chairs the Committee on Corporation, Authorities, and Commissions, who, testified last October before Congress: "Using the normal methods of assessment, the Department [of Finance] came up with value of the land under the stadium of about $26 million. That got reversed by the use of extraordinary and I believe illegal methodologies, which include use of land on the Lower East Side to measure the value of land in the South Bronx."

Red flags

Brodsky, who has been mostly agnostic about Atlantic Yards, hasn't turned his attention to the assessment issue, but there are some red flags.

As I reported June 8, for some properties on the block, land assessments--which are a percentage of market value, and rise with the latter--have leaped 17 or 20 or 34 times in one year.

DOF explanation

The only journalist to follow up was a Bond Buyer reporter, in a June 24 article headlined Empire State Development Corp. Approves Modified Atlantic Yards Plan (subscribers only):
The full market value of the land, as assessed by the city, will jump to $43.9 million in fiscal 2010, which begins July 1, from $14.6 million in fiscal 2009, according to information provided by the New York City Independent Budget Office.

Owen Stone, a spokesman for the city Finance Department, said that commercial vacant land all over the city has increased in assessed value by 260% over the past three years because property values have gone up.


DOF avoidance

But the IBO and Stone were treating the property in the aggregate. Certain properties in the arena block aren't commercial vacant land and didn't go up much. Meanwhile, as noted above, the assessments for several properties leaped at multiples far greater than three.

Is there an explanation? I queried Stone several times by phone and email. I never got a response.

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