Thursday, September 10, 2009

CBN analysis says AY would take 20 years; Ratner deflects the question (though his cousin was once more candid)

The New York Times, in its print coverage of the new AY arena designs, has an exclusive, a document that questions the official ten-year project timetable, and an unconvincing response--though the Times doesn't dissect it--from Forest City Ratner CEO Bruce Ratner.

The Times reports:
Also on Wednesday, the Council of Brooklyn Neighborhoods, an opponent of the project, released a 47-page risk analysis by a real estate consultant, Kahr Real Estate Group, suggesting that it would take 20 years to finish Atlantic Yards because of a glut of new, higher-end apartments in Brooklyn and the lack of financing for real estate projects.

Mr. Ratner’s renegotiated purchase agreement with the Metropolitan Transportation Authority, which owns an eight-acre railyard on the site, also allows the developer to drop the second phase of the development, which involves the bulk of the residential construction, with few penalties, said Joshua Kahr, the owner of Kahr Real Estate.

“The New York City real estate market is remarkably weak,” Mr. Kahr said. “It’s a substantial challenge for Ratner to finish this project within the time frame he’s proposing. I don’t see how he can get the funding. It’s hard enough to get the funding for a little project, let alone one of this scale.”


This is hardly an unreasonable prediction, given that Marisa Lago, then CEO of the Empire State Development Corporation (ESDC), acknowledged in April that the project was scheduled to take "decades."

Ratner's response

The Times reports:
Mr. [Bruce] Ratner dismissed the criticisms, saying that his company already had “hundreds of millions of dollars” invested in land purchases, designs and letters of credit. The only way to make a profit, he said, is by building. He said he planned to begin the first residential tower six to nine months after starting the arena.

The only way to make a profit is by building? Sure, but eventually. Remember, parent Forest City Enterprises (FCE) last November said that "we control the pace." Remember that FCE CEO Chuck Ratner once called it a "15-year buildout," and then backpedaled unconvincingly.

Chuck Ratner told investment analysts in March 2007:
I’m confident that [colleague] Bob [O'Brien] is right, we will start within that time frame. I’m not at all confident of how long it will take us to finish... We’re very good at estimating markets, we’re very good at estimating rents, at estimating lease-ups, and estimating costs. We are terrible, and we’ve been a developer for 50 years, on these big multi-use, public private urban developments, to be able to predict when it will go from idea to reality. All we know is that if we pick the right place and we’re in with the right people, that over time we’re going to create tremendous value.

Keep in mind that the Metropolitan Transportation Authority has given Forest City Ratner a generous 6.5% interest rate to pay for the railyards, over 22 years.

The developer's priority is the arena, and that's where most of the investment has gone. Bruce Ratner's announced residential tower is unsurprising; the ESDC in June acknowledged that “prolonged adverse economic conditions” could slow everything but the arena and just one tower.

There's no proof there's enough tax-exempt bonds for the subsidized housing, and the ESDC documents don't require affordable housing.

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