Sunday, September 27, 2009

The orchestrated timing of the Prokhorov deal: just after the main opportunity for public agencies to ask questions

The timing of the deal with Mikhail Prokhorov seems clearly orchestrated, in the works but not announced until after the Atlantic Yards plan received its second approval, on September 17, from the Empire State Development Corporation.

In July

DDDB reminds us that, as I wrote on July 24, Forest City Ratner Executive VP MaryAnne Gilmartin was asked about reports that principal owner Bruce Ratner was selling the Nets to minority owner (and Brooklynite) Vinny Viola.

"That's not true," Gilmartin said.

Maybe so, I wrote, but it was a narrow answer to a narrow question. Indeed, the team was on the block and Dave D'Alessandro of the Star-Ledger was even mentioning the possibility of a billionaire industrialist from Russia.

The AP this week reported that Bruce Ratner flew to Moscow in July to meet with Prokhorov.

In September

In an AP story published the day after the AY project was approved, Nets President Brett Yormark would not confirm that Prokhorov is a potential investor.

As noted in the Utah press, Russian-born hoopster Andrei Kirilenko "learned the news about a week before reports surfaced that Prokhorov was set to buy the struggling Nets."

The project was approved September 17. The deal was announced September 23.

Effect on approval?

Michael D.D. White, in his Noticing New York blog, wonders whether the Empire State Development Corporation could disapprove the Prokhorov transaction and suggests it might.

I'm not so sure, given that the ESDC's agreement would still be with the majority owner of the Atlantic Yards project and arena.

Housing bonds for Prokhorov?

Going forward, however, White suggests another tension:
But even if ESDC and the MTA manage to somehow sidestep the question of such approval or even if they do approve Prokhorov, the next question is the review that Prokhorov will need to be subjected to if he is to be a major participant in owning the rest of the project. After all, everyone knows that the arena is projected to be at least a $220 million net loss for the city. The ostensible reason for proceeding with this mega-project anyway was that affordable housing might speculatively be provided someday. Well, if Prokhorov has to be involved, the awkwardness in redirecting housing subsidy away from other housing developers to the Prokhorov tainted team becomes pronounced. The housing, per se, becomes less likely. For ESDC and the MTA to approve the new Prokhorov deal now makes for exceedingly awkward nonapprovals in the future.


Prokhorov has an option on 20% of the project as a whole, so Forest City Ratner would still be the majority owner.

Other billionaires get tax-exempt financing--hey, that helps them stay billionaires--so that's not the argument. There are some clouds over Prokhorov's reputation--a prostitution investigation in France, alleged Mafia ties--but nothing solid.

Still, there's something to it. Forest City Ratner, for all the criticism it has engendered, has a track record in New York City and Brooklyn. Elected officials were happy to work with it.

Do the profits stay in New York? Not necessarily--they go to Cleveland. But the idea of scarce housing bonds going to help a Russian oligarch surely would give some local officials reason for pause.

And maybe that's why Borough President Marty Markowitz has been so quiet--though I fully expect an effusive statement explaining that he's happy that, in such tough times, the announced benefits of Atlantic Yards are on their way. Even if many of them are not.

From the MTA bid

As a reminder, the page at right comes from Forest City Ratner's May 2005 bid to the MTA:
Forest City Ratner is the leading developer of commercial and retail properties in the New York City metropolitan area and has developed more commercial projects in New York City over the last 16 years than any other development firm.

Had the text mentioned the Onexim Group a few eyebrows would've been raised.

(Click on graphic to enlarge)

2 comments:

  1. Comment Part I

    Regarding what is referred to as our Noticing New York wondering about whether the Empire State Development Corporation COULD disapprove the Prokhorov transaction-

    The question of whether ESDC MIGHT disapprove the Prokhorov transaction is an interesting one worth coming back to.

    Certainly, ESDC SHOULD be able to approve the transaction as in it OUGHT to be able to approve transfers. The extreme hypothetical example is that Ratner should not be able to transfer his project to well-known members of the Mafia. Information about Prokhorov is not yet fully unearthed, known or examined but the mention of possible ties to Russian organized crime certainly takes us part way down the road to dealing with this sort of awkward question.

    Then there is the question as to whether ESDC COULD disapprove the Prokhorov transaction as in whether ESDC is ABLE to disapprove it. The scandal is that Ratner negotiated a provision in the documents that would seemingly permit FCR to transfer the project to anyone, well-know members of the Mafia, or to Prokhorov. This is typical of the extensive panoply of one-sided giveaways of which the Atlantic Yards transaction is comprised.

    But we pointed out that that document provision is likely inoperative and academic in that there is probably no executed deal by which it would be enforceable. The MTA and ESDC boards have been so busy authorizing new freebies to Ratner worth hundreds of millions of dollars that it is doubtful that those deals have been fully written up and signed. Ergo, ESDC (and through it the City of New York) is not bound to go forward with the transaction. That gives ESDC the de facto right to approve the entrance of Prokhorov. It also give ESDC the opportunity to fix its documents to include proper approval of transfer provisions. The same is probably true with respect to the MTA.

    Given ESDC’s (and the MTA’s) probable de facto ability to disapprove or approve Prohorov, the next question is whether ESDC, the MTA and the city will actually make sure to conduct a responsible review so as to exercise this right.

    That gets us back to the question of whether ESDC MIGHT disapprove the Prokhorov transaction. Given ESDC’s perpetual habit of deferring to Ratner initiatives (that by definition is the construct AY is anyway) we can predict that ESDC, the MTA and the city would have an impulse to try to sidestep review and approval of Prokhorov. That, we submit, would be a sidestepping of normal public agency responsibilities that OUGHT NOT to happen. It is also fraught with the danger that if future news surfacing about Prokhorov turns out to be a lot worse than currently envisioned, the agencies will look like they were negligent and foolishly submissive to Ratner (and Prokhorov). . . not that this has ever troubled them before. Monday-morning quarterbacking pundits will criticize the agencies for a lot: not foreseeing the advent of Prokhorov, not having transfer provisions in place to kick start normal review routines and not acting to fix the situation when Prokhorov showed up to make those deficiencies pretty obvious. Better that the agencies conduct a review now and put in their files the reasons why they are approving or disapproving Prokhorov. Better that they do this even if they subsequently turn out to be wrong about approving him.

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  2. Comment Part II

    If ESDC, the MTA and the city do not follow their impulse to defer to the developer and instead conduct a review of Prokhorov and subject him to an approval process, we can predict what the agency approval process will probably be like: The agencies will almost certainly bend over backwards to approve Prokhorov. If the agencies discover incriminating things about Prokorov (and there probably will be things they discover that raise hard questions), they will probably go out of their way to find reasons why significant concerns should theoretically be dismissed. So, COULD ESDC disapprove the Prokhorov transaction as in MIGHT ESDC disapprove the Prokhorov transaction? It is highly unlikely that ESDC WILL “disapprove the Prokhorov transaction.” AYR is right to be dubious about that possibility.

    Finally this: If it ultimately comes out, based on future disclosures, that approval of Prokhorov was ill-advised, don’t misconstrue anything in ESDC’s, the MTA’s or the city’s files about why the approval was given as documenting an honest defense. You can presume that, irrespective of what is in those files, the agencies were straining to read whatever telltale signs presented themselves just one way, that the agencies were looking to make sure that another request from the developer would be fully acquiesced to, completely unimpeded.

    Michael D. D. White
    Noticing New York
    http://noticingnewyork.blogspot.com/

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