The main objection is that the IBO counted the direct subsidies against the arena only, concluding that the other subsidies and tax breaks were as-of-right. That's a legitimate question for debate, but it's worth a closer look. All $100 million of the city's initial subsidy went to buy land on the arena block for example.
Can city, FCR be trusted?
Keep in mind that, in 2005, Forest City Ratner had no problem with the IBO's methodology, praising it for concluding that the arena was a "win-win" situation for the city and the state.
And the citations about benefits from the larger project would be more convincing if the city, state, and Forest City Ratner had produced reports more credible than that of the IBO. The New York City Economic Development Corporation (NYC EDC), for example, produced a report that considered only benefits, not costs--in other words, an inversion of Bloomberg's formulation.
NYC EDC spokesman David Lombino claimed that Atlantic Yards was "a site that is now an open railyard without any public benefit," though he surely knows the railyard is less than 30% of the site and it's a working railyard.
And Forest City Ratner commissioned and promoted the $6 billion lie.
All the promised benefits, in fact, are premised on a ten-year buildout of the project. But the Council of Brooklyn Neighborhoods (CBN) yesterday released a sober assessment, by an independent real estate analyst, which concluded that "the project cannot be completed anywhere near 2019" and likely would take at least 20 years.
That's not exactly a radical conclusion. The then-CEO of the Empire State Development Corporation, Marisa Lago, admitted in April that the project would take "decades." Executives from parent Forest City Enterprises (FCE) have similarly acknowledged they're bad at estimating how long a project might take.
And Forest City Ratner's AY point person, Maryanne Gilmartin, acknowledged in July, "Nobody has a crystal ball about the real estate market."
CBN submitted the report, “A Decades Long Project: Atlantic Yards Financial Feasibility Study,” as part of its comments to the Empire State Development Corporation (ESDC) on the 2009 Modified General Project Plan.
The projected residential market rate rental and condominium prices that the developer relied on when they originally underwrote the deal are substantially above the current market. They created their projection in 2006, a time that in retrospect is considered to be the top of the last real estate cycle.
The demand for housing units is most likely not sufficient to support a project of this scale over the next ten years.
The developer recently restructured its original agreement with the MTA to enable it to exit the purchase of the Phase II properties for a minimal or no breakup fee depending on timing. Based on the timing of the payments, we believe that this indicates that the developer is concerned about its ability to complete the project within the stated 10 year time frame.
Kahr Real Estate summarized the findings of the Feasibility Study by stating,
“It is extremely unlikely that the full project can be financed and completed within 10 years at a profit by a private sector developer without substantial subsidies in excess of what has already been currently proposed. Based on the state of the market, the current plan, and the collective experiences of other large scale projects, it is much more likely that the development will take at least 20 years to complete. Most important of all, the likelihood of this time frame has been essentially acknowledged by the developer... In addition, the timing of the payments [to the MTA] has now been stretched out to 2030 – the new timing of the payments clearly indicates that the developer expects the timeframe of the development to stretch beyond ten years.”
Kahr suggests that the projected internal rate of return (IRR) of the mixed-use component of the development was 9.86% in 2006. A delay in the project could be significant.
"Unfortunately, without access to FCRC's financial model, it is impossible to fully replicate what a delay in the timing of the project would result in," he writes. "Nonetheless, the key point is that even a minor delay in the project's timing will make it very difficult to complete."
While the Modified General Project Plan (MGPP) reports that buildings are expected to be constructed in a tight schedule, he writes, "The problem with this plan is that it envisions a stunning level of new ground-up residential and/or office development to start essentially in 2010 or 2011.
Also, Kahr thinks the ESDC did not come clean in the MGPP: "We find it telling that the ESDC did not show how the project would be potentially financed; in today's unusually erratic credit markets, this is probably the most important issue for any developer."