Saturday, February 28, 2009

"Little guy" Gehry says Atlantic Yards is "stopped"; what are the implications?

As architect Frank Gehry turns 80, a valedictory interview in his home newspaper, the Los Angeles Times, is headlined Frank Gehry considers an accomplished past and uncertain future. Notably, when it comes to Atlantic Yards, Gehry considers himself "the little guy."

Christopher Hawthorne writes:
Most distressing of all for Gehry, two projects that he saw as capstones to his career, gigantic mixed-use developments on L.A.'s Grand Avenue and at Brooklyn's Atlantic Yards, have both been put on hold.

"I've had a disappointing year, couple of years, with Grand Avenue and Brooklyn," he said in a wide-ranging conversation in his office last week in which he was by turns ruminative, weary and hopeful. "All my life I've wanted to do projects like that, and they never came to me. And then all of a sudden I had two of them. I invested the last five years in them, and they're both stopped. So it leaves a very hollow feeling in your bones."

In response to the global slowdown, Gehry, like many of his peers, has been forced to radically cut his staff, which he said is now half the size it was just a year ago.

What does "stopped" mean?

Unexplained is the meaning of "stopped." Developer Forest City Ratner, of course, is chomping at the bit to break ground on the arena. The major legal cases may be cleared this spring, though appeals are possible, but financing remains uncertain.

Gehry could have easily have said the project is "on hold." So either he was infelicitous in his language or he knows more about the developer's plans than the rest of us.

Alternatively, he could have meant that the project is, for him, "stopped," given that his designs for an arena are undergoing major changes.

Gehry's statements back up (if not completely confirm) the reportage in the Wall Street Journal and New York Daily News that he's laid off his staff working on Atlantic Yards. It's too bad he wasn't asked a specific question.

Who's the little guy?

Hawthorne writes:
And Gehry is clearly stung by the charge that his most mammoth projects -- the Brooklyn development, in particular, which was originally planned to include as many as 16 towers -- have been vehicles for self-aggrandizement forced on unwilling communities. After all, he has long painted himself as a lonely talent pushed to the periphery of the profession in the early decades of his career by myopic developers and less principled colleagues.

In his mind, he doesn't run roughshod over the little guy, as he has been accused of doing by neighborhood activists in Brooklyn. He is the little guy.

Well, that's Gehry's mind. Remember that Gehry said he'd meet with local residents but was never given permission to do so. And that he disparaged local critics by cracking that they'd be "picketing Henry Ford."

DDDB points to Gehry calling the Miss Brooklyn tower "my ego trip" and his relish at the opportunity to "build a whole neighborhood practically from scratch and fit it into an existing fabric and make something special out of it."

ESPN's Simmons on NBA contraction: "Welcome to the No Benjamins Association"

In a piece cleverly headlined Welcome to the No Benjamins Association, ESPN columnist Bill Simmons points to the parlous economic future faced by the National Basketball Association (NBA).

He notes that, at previous All-Star Games, the topics were various:
This season? We talked about money. Constantly. We didn't even know about the line of credit on the horizon; that didn't leak until the Monday after the All-Star Game. (On Thursday, we learned that 12 teams will accept the league's offer to borrow $200 million from JPMorgan Chase and Bank of America, with between $13 million and $20 million available to each team...) We knew about layoffs of employees within the league and various franchises. We knew various local and national sponsors were bailing, most notably car companies and major banks (two staples for the NBA). We knew certain franchises were losing significant wads of money and reacting accordingly.

Attendance down

Simmons points to the common dodge in which attendance means tickets distributed, not gate count, and the fewer attendees, the lower the ancillary income:
How did we get here? The economy turned in August, well after deposits had been sent in for season tickets, courtside seats and luxury suites. The league would love for you to believe that attendance hasn't been affected, but the NBA's official tally counts only total "customers," counted as paid tickets, comps (seats given to celebrities, sponsors, friends of the team or whomever, a number that can be fudged any way you want), discounted tickets and no-shows. The numbers don't reflect any falloffs with parking money, concessions, merchandise and restaurant/bar revenue around arenas... They definitely don't reflect aggressive giveaways like Chicago's recent buy-one-get-one-free promotion or Memphis' Pepsi Family Plan Pack (four tickets, four Pepsis and four hot dogs for $48)... So, yeah, attendance is "up" 1.9 percent, as this recent Sports Business Daily story would lead you to believe. But not really. Especially when you include Seattle's move to a sold-out arena in Hijack City and how it skewed the overall numbers.

Hijack City? That's Oklahoma City, a location Simmons cannot bear to pronounce.

Suites lost?

The financial upside in the Nets' move from East Rutherford to Brooklyn would come significantly via naming rights/sponsorships and luxury suites, but Simmons has a warning about the latter:
Here's a little game to play during your next NBA outing: Look around for how many suites are dark. (You'll notice them specifically in the corners or behind the baskets.) A dark suite means either that nobody bought it or that somebody did buy it for the season, then made the decision, "Screw it, let's save the $1,200 [or whatever the number is] on food and drink and not give tonight's suite tickets to anyone." (Note: Only a handful of NBA teams control the concessions in their arenas.) That makes the less desirable suites somewhat of a sunk cost -- those companies can't get the money back for the season, but at the very least, they won't lose more money on that purchase. What will happen next season? They just won't buy the suite.

Home court disadvantage

Simmons cites a phenemonon I noticed in December when I saw New York Knicks fans dominate the crowd in the Izod Center:
That has been a recurring theme in general: Fans of popular visiting teams (Boston, New York, Cleveland, the Lakers) overpowering home arenas of unpopular teams. Flick around on any busy NBA night, and you'll see a staggering number of empty seats between the baskets in the first 15 rows in Miami, Memphis, New Jersey, Charlotte, Indiana. … I mean, we're a few weeks away from the NBA adopting Vegas' current policy of closing off as much of the blackjack area as possible so the open tables seem crowded.

Which teams will move?

Simmons counts the Nets among the teams most likely to move:
Franchise Hot Potato hinges on five factors in all, although only three need to be in play. You need a team with a dwindling fan base and/or bailing sponsors and suite/courtside customers. (I count 11: Indiana, Memphis, Milwaukee, Sacramento, New Jersey, New Orleans, Miami, Orlando, Minnesota, Charlotte and Philly.) You need a team trapped in an aging stadium that can't drum up local money for a new one. (I count three: Sacramento, Jersey and Milwaukee.) You need an owner who purchased his team because he was worth a ton of money ON PAPER … only now, he's worth significantly less and might even be worth $10 for all we know. (Consensus candidates for this list: Phoenix, Hijack City, Jersey, Memphis, Indiana, Atlanta, Milwaukee, Charlotte … and, surprisingly, Sacramento and Cleveland.) You need cities with NBA-ready, modern arenas either finished or about to be finished that would love nothing more than stealing a team. (Definitely Kansas City, Anaheim, San Jose, Louisville, Tulsa and Pittsburgh; possibly Columbus, St. Louis; and just for fun, let's throw in Montreal and London.) And you need a struggling team that can actually extricate itself from its lease.

Note that Brooklyn's not on the list, because the arena doesn't exist yet. Simmons predicts that several NBA franchises (guesses ranged from three to eight) will move cities, get sold or be taken over by the league.

He reflects on the Oklahoma City move:
The other 29 NBA cities learned an ominous lesson from SonicsGate: If you don't heed every arena-related wish of your team, no matter how insane or unrealistic those wishes are, then it might move and the commissioner's office will not protect you. As long as we have cities like K.C. and Anaheim waiting with open arms, teams will keep moving. And they will.

NHL troubles, and Newark

Other sports have it much worse, Simmons suggested, including baseball and hockey; in fact, one executive predicted "fifteen NHL teams would go under within the next two years (and was dead serious)."

What if the New Jersey Devils are in trouble? Surely the city of Newark, which wants those rent payments at the Prudential Center, would want to ensure that the Devils thrive, and that another team joins them to fill open dates.

Attendance promotions

Simmons takes a lighthearted view toward ticket promotions, with his top example from the Yormark twins:
When I write that NBA teams are unleashing aggressive promotions on their fans to boost attendance numbers, I'm not exaggerating. My favorites from this season: Snowbird Ticket Exchange (Nets): New Jersey season-ticket holders can swap their tickets for a pair of tickets for the NHL's Panthers if they're ever in Florida, and vice versa. No, really.

Will Nets be sold?

On NetsDaily, NetIncome (aka Bobbo) observes that the players will lose out if they resist owners' attempts to control costs, and teams will move.

He suggests that the Brooklyn arena has a decent chance, but if developer Bruce Ratner can't get financing, he'll sell the team.

Yormark claims (incorrectly) that Bloomberg saluted AY affordable housing

Yesterday, commenting on the most recent court ruling regarding the Atlantic Yards case, New Jersey Nets CEO Brett Yormark said, in a Fox Business Network (FBN) interview (at 3:45 of video):
"I'd love to echo the mayor's sentiments when he said we've got to get this project started, the affordable housing, the jobs, it's much-needed."

Well, Atlantic Yards backers may have memorized the affordable housing mantra, but that doesn't mean everyone else has done so. Why does Yormark have to make things up?

Here's the statement Mayor Mike Bloomberg issued:
“The Atlantic Yards project will create thousands of jobs and generate badly-needed tax revenue. The court’s unanimous affirmation today that the review and approvals processes were comprehensive and properly completed is a big step towards the start of construction.”

DDDB noted that affordable housing is on the back-burner.

Lack of skepticism

Unskeptical FBN host Alexis Glick enthused over the "Snowbird Ticket Exchange" in which New Jersey Nets (basketball) ticketholders and Florida Panthers (hockey) ticketholders can attend games in two leagues. She didn't ask her guests, twin CEOs Brett and Michael Yormark, how many tickets have actually been used. (ESPN's Bill Simmons is more skeptical.)

And she accepted the Forest City Ratner hype that Thursday's decision constituted the 22nd victory in court. The developer must be asked to back that number up.

Friday, February 27, 2009

Lawsuit coverage round-up: missing the story and, in most cases, the big picture

The most surprising thing about the coverage of yesterday's big appellate court decision rejecting the case challenging the AY environmental review is how little there is.

Missing the story in the first place

[Updated] Of the three big newspapers in New York City, only one covered it in print.

The New York Times's CityRoom blog headlined its brief post Legal Victory for Atlantic Yards Developer and, in what may be a first (in a Times story, as opposed to a Blogtalk roundup), actually linked to my coverage.

While the Times didn't think the story fit for print, it did cover two other legal disputes: a union hearing involving actor Jeremy Piven's exit from a play and a trial involving a Saks saleswoman charged with theft.

The Daily News story isn't online, but it's a three-sentence round-up, under the headline "Yards scores in court," in the NYMinute column. While the article mentions that "opponents... vowed to appeal," it says nothing about the misgivings expressed by the court and the fiery concurrence by one judge.

I don't know why the New York Post passed on the story, given that it has put far less important AY stories into print, especially when it has exclusives. Was it too complicated? Given that both Forest City Ratner and Develop Don't Destroy Brooklyn issued press releases, some story would've been easy to slap together.

Missing the overall point

Most of the other coverage either simply indicated that the case was dismissed or called it a big win for developer Forest City Ratner or even--as the developer's press release suggested--a big win for the project.

While the dismissal does help the project move forward and the developer was a secondary defendant, the big winner was the Empire State Development Corporation (ESDC), the state agency that was the main defendant and whose decisions, by law, must receive extreme deference from the court system.

In Newsday: Court tosses Atlantic Yards environmental lawsuit

On NY 1: Court Greenlights Atlantic Yards Review

In AM New York: Atlantic Yards wins legal victory

In Crain's: Atlantic Yards developer wins key legal victory

In the Brooklyn Paper: Breaking news! Ratner wins a big Yards case

In the Record of New Jersey: Nets' Brooklyn move clears hurdle

On WNYC: Court Tosses Atlantic Yards Environmental Lawsuit

Getting closer to the point

Three articles, I'd suggest, get closer to the complexity.

The New York Law Journal: Concerns 'Legitimate' But Project Proceeds

The New York Observer: Ratner Wins Another Round in Legal Fight Over Atlantic Yards

AYR: Appellate court, despite some misgivings, dismisses EIS case; one judge concurs but slams blight study, says his hands were tied

Something's wrong

While it is important to point out how the decision helps the project proceed, the court ruling and surprisingly bitter concurrence indicate that something's wrong.

Concurring Justice James Catterson believes that the Empire State Development Corporation's blight study was in many ways bogus, calling one argument "ludicrous."

And the main opinion, upholding the blight study, made no attempt to assess whether it was arbitrary for the state to call a lot built to 60% of its allowable development rights as underutilized.

Nor did those justices acknowledge, as Catterson did, that the original contract for a Blight Study required consultant AKRF to study market trends in and around the project site, but AKRF did not do so.

So, when Bruce Ratner says, “This project has been reviewed as thoroughly as any in the city and now it is time to put these cases behind us and get to work,” not only should it be pointed out--as NLG did--that nobody's getting to work just yet, but also that a formal and apparently extensive review by the unelected ESDC does not mean a truly thorough review.

Thursday, February 26, 2009

Appellate court, despite some misgivings, dismisses EIS case; one judge concurs but slams blight study, says his hands were tied

In a decision that constitutes a crucial advance for the Atlantic Yards project (even if only an arena is planned as of now), an appeals court has rejected an appeal in which 26 community groups challenged a trial judge's dismissal of a wide-ranging challenge to the project's environmental review.

In the opinion (Develop Don't Destroy Brooklyn, et al., v. Urban Development Corporation dba Empire State Development Corporation, et al.), the judges in the Appellate Division, First Department, took pains to express some skepticism about the project, calling it “purportedly transformational” and noting that the ESDC, rather than being a neutral agency, had “promoted” Atlantic Yards.

And one judge, in a concurrence that had the tone of a dissent, slammed the ESDC for a "ludicrous" claim regarding the blight study.

However, the main opinion ignored a contract signed by the ESDC that gives the developer vastly more time than established in project approval documents.

Ultimately, the judges acknowledged that “our power to review the substantive adequacy of an EIS [Environmental Impact Statement] is extremely limited,” thus dismissing challenges regarding issues of terrorism, the project’s build timeline, and the findings of blight.

An appeal is planned, though the Court of Appeals, the state's highest court, is not obligated to hear the case. One more case, on eminent domain, is pending, after oral arguments Monday; it is even more of a long shot, given constraints on courts interfering with agency decisions.

A political issue

The court concluded:
While we do not agree with petitioners' legal arguments, we understand those arguments to be made largely as proxies for very legitimate concerns as to the effect of a project of such scale upon the face and social fabric of the area in which it is to be put. Those concerns, however, have relatively little to do with the project's legality and nearly everything to do with its socio-economic and aesthetic desirability, matters upon which we may not pass. To the extent that the fate of this multi-billion dollar project remains, in an increasingly forbidding economy, a matter of social and political volition, the controlling judgments as to its merits are the province of the policy-making branches of government, not the courts.

Of course the policy-making branches of government gave no Brooklyn residents or elected officials any voice in the project approval.

A fiery concurrence

Justice James Catterson, who was most skeptical during the oral arguments last September, slammed the ESDC in his concurrence “for being used as a tool of the developer to displace and destroy neighborhoods that are ‘underutilized,’” agreeing that consultant AKRF had failed to fulfill its Blight Study contract by ignoring market conditions, and criticizing the Blight Study for looking at contemporaneous conditions rather than those that existed when the project was announced in 2003.

While Catterson rejected the main opinion's core reasoning about the “perfunctory ‘blight study,” he wrote that his hands were tied: “Reluctantly, therefore I am compelled to accept the majority's conclusion that there is sufficient evidence of "blight" in the record under this standard of review.

Reaction from petitioners

"We are going to request that the Court of Appeals review this case because it is the only court that is able to require a harder look at the facts, rather than blind obeisance given by the Empire State Development Corporation to the dictates of Forest City Ratner," said lead attorney Jeffrey S. Baker, who represents the 26 petitioners, including Develop Don't Destroy Brooklyn, which organized and funded the case.

"Judge Catterson’s concurrence that the ESDC 'is ultimately being used as a tool of the developer' is the reason why extreme deference is not warranted in this case," he said in a statement issued by DDDB. "The Court of Appeals is the only court that can break the chain of previous cases, and we eagerly await our opportunity to argue before it."

Baker added, "The appellate court is constrained by previous decisions regarding the issue of blight, decisions which have shown a high level of deference to government agency decisions. While we recognize the limitations this court is under, we do not think this is a similar type of case, particularly with the severe condemnation of the ESDC’s actions and decisions as put forth in Judge Catterson’s concurrence. This case will provide the Court of Appeals an opportunity to make it clear that judicial review is not a meaningless exercise and require agencies making blight determinations to do so for legitimate reasons and not simply to facilitate the goals of a developer with political connections."

To do so, however, the Court of Appeals would have to agree to hear the appeal; it is not obligated to do so, given that two judges did not dissent. (One member of the original five-person panel, Jonathan Lippman, did not participate in the decision; he's now Chief Judge of the Court of Appeals.)

The petitioners have 30 days to file the appeal. Besides DDDB, they include, among others, the Council of Brooklyn Neighborhoods, NY Public Interest Research Group/Straphangers, the Sierra Club, and the Fort Greene Association.

Reaction from FCR

In a press release headlined (and misspelled) “APPELATE DIVISION RULES IN FAVOR OF ATLANTIC YARDS,” Bruce Ratner, CEO and Chairman of Forest City Ratner Companies, stated, “Once again the courts have decided in favor of Atlantic Yards.” (Full statement here.)

(Actually, the courts ruled in favor of the defendant agencies--ESDC, PACB, MTA--along with the developer.)

“This project has been reviewed as thoroughly as any in the City and now it is time to put these cases behind us and get to work,” he continued. “Today’s decision speaks comprehensively about the review and approval steps followed for this project and unanimously validates the process.”

“The courts have consistently ruled in favor of this project because it is good for the City, the State and the borough,” Ratner said, alleging that this was “the 22nd consecutive ruling in favor of Atlantic Yards.” (Um, no.)

Skepticism at the start

The main opinion begins with some skeptical language:
Respondent Forest City Ratner Companies (FCRC) has proposed to construct a vast and purportedly transformational mixed-use development on a 22-acre swath of real estate in Brooklyn…

...The project has been shepherded through its preconstruction phases and otherwise promoted by respondent New York State Urban Development Corporation, doing business as the Empire State Development Corporation (ESDC).

Areas of dispute

The judges stated:
While the principal focus of this appeal would appear to be upon the propriety of the ESDC's UDCA findings that the non-ATURA project blocks are blighted and that the proposed arena qualifies as a "civic project," petitioners in this hybrid article 78/declaratory judgment action have also raised numerous challenges to the adequacy of respondents' compliance with the State Environmental Quality Review Act (SEQRA), several of which survive for our review.

Again, the court has limited scope:
However, our power to review the substantive adequacy of an EIS is extremely limited. It is by now a familiar refrain that we may not disturb an agency determination as substantively flawed unless it is affected by an error of law, arbitrary and capricious, or constitutes an abuse of discretion…

Irrational timeline?

Were the "build years" used in the EIS irrational and thus skewed the ensuing analysis of the project's environmental effects?

The court made no attempt to distinguish between a construction timeline that addressed the length of time it might take contractors and the likelihood that the timeline would be adhered to, and ignored a contract signed by the ESDC that gives the developer vastly more time to build the arena and Phase 1, and no deadline to build Phase 2.

The court stated:
The record, however, discloses that in selecting the build years to be used in the EIS, the lead agency did not arbitrarily select a build year it found favorable but relied upon the detailed construction schedules of the project's highly experienced general contractor and upon the opinions of its own consultants and an independent contractor. It is, of course, possible that the lengths of the projected build-out periods (4 years for the first phase of the project, including the arena, and 10 years for the remaining elements) were underestimated, but the ultimate accuracy of the estimates is neither within our competence to judge nor dispositive of the issue properly before us, which is simply whether the lead agency's selection of build dates based on its independent review of the extensive construction scheduling data obtained from the project contractor may be deemed irrational or arbitrary and capricious, and it may not. The build dates having been rationally selected, there can be no viable legal claim that the EIS was vitiated simply by their use.

Real estate trends addressed?

Did the ESDC fail to study and give due consideration to real estate market trends in the non-ATURA project area-- the blocks in the footprint on Pacific and Dean streets--and thus not appropriately consider alternatives to the proposed project?

The court concluded:
Petitioners' contention is rather that the lead agency did not take into account in the EIS prevailing real estate trends, particularly as they affected and had become manifest in the non-ATURA project area at the time of the project's announcement, and thus could not have reasonably concluded that the proposed project was to be preferred to its alternatives for its purportedly unique capacity to alleviate blight in the non-ATURA blocks. This argument, however, necessarily supposes that the lead agency's judgment as to the relative desirability of the proposed project must have turned upon the project's purported efficacy as a means of improving the non-ATURA blocks. It is, however, clear from the EIS that the lead agency's rationale for preferring the proposed project was not so singularly grounded. The proposed project, in distinction to the alternatives preferred by petitioners, included an architecturally distinguished arena that would house a major professional sports franchise, an elaborate new subway entrance, a new and improved LIRR rail yard, improved pedestrian and bicycle linkages connecting the project and the surrounding neighborhoods on the north-south axis, an on-site stormwater drainage system, and eight acres of open space landscaped by Laurie Olin. It also made provision for significantly more affordable housing than would have been developed under alternative scenarios, and, by reason of its scale and range of uses, promised economic and fiscal benefits exceeding those expected to be generated under the other plans.

To be sure, as the EIS discloses, there were more adverse impacts associated with the proposed project than with its less ambitious alternatives, but, on balance, there is no tenable argument that the lead agency's preference for the FCRC project, arrived at after an evidently conscientious weighing of alternatives, was not rationally and sufficiently based on the project's distinctive constellation of otherwise unattainable benefits.

Whether the weighing of alternatives was “evidently conscientious” remains in dispute.


Was the ESDC's environmental review deficient due to its failure to address the risk of a terrorist attack?

SEQRA contains no provision expressly requiring an EIS to address the risk of terrorism and, indeed, it would not appear that terrorism may ordinarily be viewed as an "environmental impact of [a] proposed action" within the statute's purview.

The court left open the question of whether consideration of the prospect of terrorism might lie within the scope of the environmental review, but observed “that the project at issue does not pose extraordinary inherent risks,” unlike, for example, the siting of a nuclear storage facility or a biological weapons laboratory.

The creation of an project “dedicated to routine residential, commercial and recreational purposes,” even “in the form of a major urban development situated at a pre-existing transit hub,” does not clearly increase the risk of terrorism, the opinion states, though acknowledging that security must be part of the planning of any public project, particularly one concentrating large numbers of people.

Unmentioned is whether security concerns, as the petitioners contended, could lead to road closures, as at the new arena in Newark.

PACB approval

Was the Public Authorities Control Board’s (PACB) determination approving the ESDC's financial participation in the project improper in the absence of environmental findings?

Under SEQRA, the requirement to make certain environmental findings is premised upon the relevance of the EIS to the agency's decision. However, the court said, the PACB's approval of the ESDC's financial participation in the project was governed by closely drawn statutory criteria specifically relevant to a distinct, statutorily prescribed inquiry—in other words, whether there were funds committed by the state.

Effect of eminent domain case

While the petitioners also challenged the designation of the non-ATURA project area as blighted ("substandard and insanitary") and thus not a legitimate “land use improvement project,” the court noted that federal courts had held that the ESDC's exercise of its eminent domain power, including within the non-ATURA project blocks, was supported by the project's rational relation to "several classic public uses whose objective basis is not in doubt," among them the alleviation of blight.

Only in “the most extraordinary cases - those in which there is no conceivable public purpose to be served” should courts not defer “to the public purpose findings of the legislature and its agencies,” the court said.

The court stated:
The essential purpose of the blight finding in connection with condemnation, i.e., to qualify property for urban renewal, is not different under the ESDC's enabling statute, and, accordingly, the adequacy of blight findings in the two contexts should not be judged by different standards. What is fundamentally at issue in both contexts is the extent of the government's unitary power to define, and act in pursuance of a public purpose. It makes no difference that the agency through which the government has here acted, the ESDC, is organized as a public benefit corporation.

In other words, the fact that the ESDC is unelected has no bearing.

Blight study

The court found no reason to challenge the Blight Study, given the legal standard:
While it is possible to disagree with the agency's conclusion that the area at issue is blighted, and to argue that the blight designation is not warranted by the area's character and potential, on this record, all that is involved is a difference of opinion. In such a case, it does not matter whether we would be inclined to agree with petitioners; we are bound to defer to the agency to which the determination has been legislatively committed.

… The issue posed is not which of the parties has more persuasively characterized the area in question, but whether there was any basis at all for the exercise by the agency of the legislatively conferred power to make a blight finding, and plainly there was.

Unmentioned is the failure to conduct a market study, which was part of the original contract with AKRF.

The court noted that it’s nigh impossible to challenge such blight studies:
In the many years since Kaskel, agency blight findings have been found deficient in this State only where they were utterly unsupported (see e.g. Yonkers Community Dev. Agency, 37 NY2d at 484), and there has been no case in which the condition of an area has been deemed sufficiently at odds with an agency blight finding to raise a factual issue as to whether the agency exceeded its authority in making the finding.

The opinion, in a way, contained a defense of ARKF:
The point to be made is that "blight" has proved over time to be a highly malleable and elastic concept capable of enormously diverse application. This is not in the main attributable to the ingenuity of consultants eager to please the developers who pay their bills, but because the concept, within the field of its likely use, is more facilitative than limiting.

Not a civic project?

Is a professional arena a "civic project" under state law, because it “will be leased on a long-term basis, and provide financial benefit to private parties, the court asked?

In response, the court cited precedent that “a sports arena, even one privately operated for profit, may serve a public purpose.”

Unmentioned is the $1 annual lease and the granting of highly lucrative naming rights to the developer.

A critical concurrence

Catterson’s concurrence began critically:
Because I believe that the New York Urban Development Corporation Act… is ultimately being used as a tool of the developer to displace and destroy neighborhoods that are "underutilized," I write separately. I recognize that long-standing and substantial precedent requires a high level of deference to the Empire State Development Corporation's finding of blight. Reluctantly, therefore I am compelled to accept the majority's conclusion that there is sufficient evidence of "blight" in the record under this standard of review. However, I reject the majority's core reasoning, that a perfunctory "blight study" performed years after the conception of a vast development project should serve as the rational basis for a determination that a neighborhood is indeed blighted.

Unlike the main opinion, Catterson noted that, in February 2005, shortly after a memorandum of Understanding (MOU) was signed by the city, state, and developer, the Metropolitan Transportation Authority agreed to give the developer rights to develop above the Vanderbilt Yard—three months before a belated Request for Proposals was issued.

Who’s responsible for blight?

Catterson wrote:
There is no dispute that the MTA allowed the portion of the Project footprint which it owns, the Vanderbilt Yards, to deteriorate into a substandard, unsanitary, and blighted condition.

Though he didn’t say so, that constitutes an explicit contradiction of the ESDC, which punted on who’s responsible.

Wrong timing re non-ATURA blocks

While Catterson didn’t question blight in ATURA, he stated that the 2006 Blight Study made a crucial error in examining the non-ATURA blocks:
In my view, any determination that these blocks were substandard or insanitary should properly be based on a snapshot of the conditions that prevailed at the time that the Project was announced by FCRC in 2003. Any blight study that does not reflect this temporal limitation would necessarily allow the mere announcement of the massive project to predetermine the outcome of the study. On this point, I believe that the petitioners argue persuasively that any proposed or intended development in these blocks such as the Project would curtail any other private development; and that no new development would occur on property that might be subject to the broad powers of condemnation as wielded by a coalition of the ESDC and FCRC.

Scope of contract and timing

Catterson noted that the contract with AKRF required it to analyze residential and commercial rents on the project site and within the study areas; analyze assessed value trends on the project site, and compare to sample blocks with comparable uses in the study area, such as the Atlantic Center; and describe residential and commercial vacancy trends, among other things.

(That contract was not released by the ESDC but obtained by AYR via a Freedom of Information Law request.)

Catterson wrote blisteringly:
In my view, the petitioners are correct in asserting that the blight study failed to comport with the majority of the specific criteria set out in AKRF's contract. Furthermore, ESDC's contention that "as a matter of law," ESDC could only look at conditions contemporaneous with the study, which was conducted years after the announcment, is ludicrous on several levels.

He continued:
Initially, it should be noted that ESDC offers no legal support for that claim other than the obvious point that ESDC is permitted by statute to revitalize blighted areas. Second, ESDC's contract with AKRF as described above, clearly contemplated that AKRF would analyze both assessed value trends and current economic activity at the site and surrounding area. Finally, the obvious point raised by petitioners and dismissed by ESDC is that if the non-ATURA properties were in the midst of an economic revival, it would be counter to ESDC's mandate to step in, stop all productive development, and, in partnership with a private enterprise, develop the neighborhood according to its own vision of urban utopia, complete with professional basketball for the masses.

He noted in a footnote “that AKRF and the ESDC were recently criticized by this Court for their failure to maintain a relationship separate and distinct from the developer in another gargantuan project,” that involving Columbia University.

Effect of developer’s purchases

Citing several examples of recent condo conversions, he noted that “this rapid, private residential redevelopment of the area was commonly known and publicly reported in newspapers and periodicals.”

However he cited a contradiction:
Were this redevelopment more expansive and pervasive in the non-ATURA area, the petitioners would carry the day. Unfortunately for that position, FCRC's purchase of a significant portion of the non-ATURA area as well as many other dilapidated properties still held in private ownership and set out in the record supports, by the barest minimum, the agency's determination of blight. It is clearly within the agency's expertise to consider the effect of FCRC's conscious decision to allow its properties located within the non-ATURA area to lay fallow.

"Destruction of the neighborhood"

He concluded:
While I deplore the destruction of the neighborhood in this fashion, I cannot say, as a matter of law, that the ESDC did not have sufficient evidence of record to find "blight."

Paterson on stimulus spending: transparent, immediate, and effective

At a Leaders Briefing on Economic Recovery yesterday, Gov. David Paterson laid out (video) the areas in which the state expect to spend federal stimulus funds.

They include transportation, housing (especially weatherization), energy issues, water and sewer treatment programs, and the establishment of broadband service.

"Those are the areas we want to get shovels in the ground and people working as soon as we possibly can," Paterson said. "We want these projects to be transparent, so that there is no waste in the process. We want them to be immediate, so we can get people back to work as soon as we possibly can. And we want them to be effective, meaning that they will put the most people back to work on the projects that will serve the greatest public policy and also public need at the same time. Those are the three principles that we wish to operate from."

During the session, Timothy Gilchrist, who heads the Economic Development Recovery Cabinet, explained that $14 billion in project requests are pending for $4 billion in stimulus funds for infrastructure. Some will be eligible, he said, and some won't. They can be tracked on the web site

"The Governor's required to certify that each project has received the full review and vetting required by law," Gilchrist said.

AY eligible?

Could Atlantic Yards qualify as transparent, immediate, and effective?

It would be tough to put the Atlantic Yards railyard on the list, as I suggested.

And, argues DDDB, the project would not be in compliance with the American Recovery and Reinvestment Act, because it's not shovel-ready, according to the bill's provisions, and it's a no-bid project.

State share, private share

One questioner pointed out that there were approved transportation projects that presumed 80% funding from the federal government and 20% from the state. Could the federal money be used to pick up the state share?

Gilchrist responded, "What I should've said earlier on all of this is, the federal government, for the transportation funding, has a requirement for maintenance of effort... The governor will have to certify that he maintained the same amount of transportation funding as was expected and reflected in the budget before this."

Wouldn't that be even more important regarding expected private funding?

Why Brooklyn arena tax revenues likely would be lower than projected (and why the IBO should take another look)

New York City's Independent Budget Office (IBO) may not be ready to recalculate a cost-benefit analysis for the planned Atlantic Yards arena, but there's surely a reason to do so, because one key statistic has likely changed, and one key assumption was likely wrong from the start.

As I describe below, that could mean a 23.2% decline in expected new spending, and a significant--if not quite as high--decline in sales tax revenues. If so, there'd be even more evidence that the arena would represent a loss to the city rather than, as previously analyzed by the IBO, a "modest fiscal surplus."

And it would be another reason to tilt the balance between public and private benefit from the project--the question at the heart of the AY eminent domain case argued Monday--a bit toward the latter.

My estimates are hardly foolproof. But any future study should offer a range of potential outcomes, rather than rely on past efforts at precision, which are inherently flawed.

And a decline in revenues would raise further questions about whether the project deserves federal stimulus funds, despite the developer's lobbying.

Questionable assumptions

Let me explain. When Smith College sports economist Andrew Zimbalist, Forest City Ratner's paid consultant, calculated expected tax revenues from the planned Atlantic Yards arena, one key element was what Zimbalist called the "recapture of tax revenues presently generated in New Jersey," current home of the Nets basketball team.

That estimate depends on multiple variables.

1) Do the arena attendance figures remain accurate? Likely no.

2) Did Zimbalist used the appropriate formula to calculate how many fans from New Jersey attended games in New Jersey? Again, likely no.

3) Did Zimbalist accurately estimate how many of those New Jersey fans would go to Brooklyn and thus represent new spending in New York? Perhaps yes at the time, but likely no at this point.

Keep in mind that, in terms of economic gain for the city (as opposed to gain for the developer), the key is not whether the Brooklyn arena would fill up, but how many fans would be come from out of state and deliver new revenues. (Spending by New Yorkers would not be a boost, since it mostly would be diverted from spending on other local events.) And if that New Jersey number declines, then estimates for new New York City tax revenues go down, as well.

Based on a dodge

First, an aside. When paid by Forest City Ratner, Zimbalist in his 5/1/04 report (Estimated Fiscal Impact of the Atlantic Yards Project on the New York City and New York State Treasuries) praised Atlantic Yards as different from most sports facility projects because it involved moving a team across state lines, not building a new arena for a team already in place. That means the AY arena would generate new local and state taxes, and New Jersey would lose out.

Unmentioned was that the burden fell on federal taxpayers to subsidize tax-exempt bonds for the new facility. Zimbalist, when not paid by FCR, wrote in a book published a year earlier that "there appears to be no rationale whatsoever for the federal government to subsidize the financial tug-of-war among the cities to host ball clubs."

He conveniently forgot that criticism in his report for FCR, which was not peer-reviewed but was taken seriously by the New York Times, among others.

Attendance numbers game

The IBO and Zimbalist used average attendance figures of 14,765, based on the first 32 home games at the Continental Airlines Arena, now Izod Center, in two seasons, 2002-03 and 2003-04. (The Nets actually drew more, averaging 15,184 in 2002-03 and 14,952 in 2003-04, according to ESPN.)

This year, announced attendance figures, though slightly higher, have been more suspect. For example, when the average was reported at 16,098, Julian Garcia of the Daily News wrote December 11, that "seems suspiciously high to those who regularly attend games at the Meadowlands."

Al Iannazzone of the Record, writing the next day, suggested several reasons for the dropoff, including the economy and the lingering promise that the Nets would move to Brooklyn. (Now the regularly-shifting official Brooklyn opening date is 2011, though many doubt that and I think 2012 is a more likely best-case scenario.)

Real attendance figures

At the halfway point of this season, the number was 15,153. (It's since dipped to 14,739, which is nearly the number Zimbalist used.)

However, if attendance (at the halfway point) is overstated by 10%, or 1515, then the gate count would be 13,638. If the overstatement is 20%, or 3031, then the average gate count would be 12,122.

I suggested a 25% fudge factor, which would turn the 15,153 average into 11,365 attendees. But I'll use the 20% discount in some calculations below.

Sales tax revenues are applied to ticket sales, concessions, and novelties. New revenues diminish if those paying for tickets (or getting them for free) don't attend, since there'd be no spending on concessions or novelties. They also diminish if tickets are given away or significantly discounted.

That suggests that current attendance, even if reported as slightly higher than the average in Zimbalist's report, produces lower tax revenues because so many tickets are essentially distributed free.

Zimbalist's numbers

So, how did Zimbalist calculate new New York tax revenues? He assumed that 30% of current New Jersey fans of the Nets would also attend games in Brooklyn.

There are three flaws in his assumptions:
1) the current total attendance
2) the calculation of current Nets fans from New Jersey
3) the calculation of how many of those fans would go to Brooklyn.

For now, though, let's look only at the second issue--how to estimate the number of current New Jersey fans.

Part of that calculation was simple. Of current season-ticket holders, 67.9% live in New Jersey, with "the large majority of the remaining holders live in New York, with a small proportion living in Connecticut and even smaller share in Pennsylvania," according to his report.

What about the rest of the fans? Zimbalist could have simply extrapolated from the season-ticket numbers to approximate the home states of those attending on a game-by-game basis, then adjusting the New Jersey percentage upward to account for the fact that those making game-day attendance decisions likely live closer to the arena.

Instead, his formula lowered the number of Nets fans from New Jersey. Lacking Nets data on the home state of fans who are not season-ticket holders, he instead used data regarding fans who attend New York Jets games at the Meadowlands: 51% from New Jersey, 44.7% from New York and 4.3% from Connecticut.

So, using those proportions for the balance of Nets fans, his blended average of New Jersey attendance at the Meadowlands arena is 60.5%, down from the 67.9% of season-ticket holders.

Basketball vs. football

In their May 2004 critique of Zimbalist's report, Jung Kim and Gustav Peebles demolished his assumptions regarding attendance:
Any knowledgeable local sports fan knows that the Jets, due to their glory years at Shea Stadium and the historical territorial split between Jets and Giants fans, have a large chunk of their fan base in Queens and Long Island. To boot, we all know that football fans must travel to New Jersey to see the game live, which is hardly true for basketball.

Also, I'd add, the far more infrequent football schedule and weekend game days make it more likely fans would decide to make a relatively long trip.

Kim and Peebles noted that the decrease in New Jersey attendance from 67.9% (season-ticket holders) to 60.5% has significant consequences for Zimbalist’s calculations. They wrote:
If, as we assume, there are more NJ-based fans who have to make the above decision, then this places a greater burden on NY-based fans in terms of fan attendance. In revenue terms, a greater share will be diverted from existing sales taxable expenditure in New York. Following Dr. Zimbalist’s other assumptions, we find that 55.9% of spending at the Atlantic Yards arena would be new to the NY economy, compared to his figure of 59.4%.

Looking at the numbers

I think the attendance percentage would end up even lower, but first, let's look at the calculations under both sets of assumptions, as noted in the chart below.

Even if there were a larger base in New Jersey, leading to slightly more fans coming from New Jersey, under the Kim/Peebles calculations, the smaller number of existing New York fans means there'd have to be a larger number of additional New York-based fans to fill up the Brooklyn arena.

Remember, the new New York fans--the largest segment of attendees--would mostly be re-channeling entertainment dollars, so the larger that number, the lower the new revenues. Only a fraction of the revenue from current New York-based fans would represent new spending.

(Click to enlarge; note that the percentages are very slightly different from the text above.)

20% lower attendance

What happens if we apply the above assumptions to a 20% lower attendance? The need for additional new fans from New York goes up and, consequently, the amount of new spending would go down, to 52.4% under the Zimbalist assumptions and 49.5% under the more credible Kim/Peebles assumptions.

(The chart below and subsequent charts are my adaptations of an original Kim/Peebles spreadsheet.)

If fewer New Jersey fans come to Brooklyn

But we shouldn't stop there.

Why should we assume, as did Zimbalist, that 30% of New Jersey fans of the Nets would also attend games in Brooklyn? Though Kim/Peebles accepted that assumption, at this point, the long goodbye may have soured a larger number of New Jersey fans. That means a smaller percentage of the New Jersey fan base would come to Brooklyn.

Let's adjust that assumption to 20% of current New Jersey fans. If applied to the 2004 attendance figures, the percentage of new spending goes down, from 59.5% to 55.3% under the Zimbalist assumptions, or from 56% to 51.3% under the Kim/Peebles calculations.

But we're not done yet. Let's apply the assumption to a reduction in current attendance of 20%. That means fewer New Jersey-based fans would come to Brooklyn, and to fill the arena the team would have to draw even more New York-based fans--not 8708 under the original Zimbalist calculations but perhaps 11,672--who currently don't go to Nets games.

New spending down 23.2%?

What's the implication of these numbers? It would bring new spending down from 59.5%, under the original Zimbalist calculations, to 45.7%, under my calculations, which assume:
--a lower attendance base
--a larger number of New Jersey-based fans
--a smaller percentage of those fans coming to Brooklyn
--a larger number of new fans who already live in New York.

The reduction from 59.5% to 45.7% represents a decline of 23.2%, a figure that should be applied to expected sales tax revenues.

New revenue calculations

What does that number mean in practice?

Zimbalist started us along the way;
When I alter the assumption that 30 percent of current Nets attendees from New Jersey also attend games at the Atlantic Yards arena, the following results obtain. When the share is lowered to 25 percent, new sales tax revenues fall from $6.43 million in 2008 to $6.26 million, or a decrease of 2.6 percent. When the assumed share is raised to 35, the sales tax revenues grow to $6.62 million in 2008, or an increase of 2.9 percent.

If we assume that only 20 percent of Nets fans from New Jersey come to Brooklyn, the projected 2008 sales tax revenues fall to $6.08 million.

Looking more closely

Now things get a little more complicated. First, remember that Zimbalist's calculation applied to likely inaccurate assumptions regarding the New Jersey fan base, so it should be recalculated, with the projected revenues lowered (which I'll do below).

Under Zimbalist's original calculation, a reduction from $6.43 million to $6.08 million represents a cut of 5.44%. However, the charts above suggest a reduction from 59.5% of new spending to 55.3% of new spending--a 7.05% drop. So the numbers are obviously inexact.

Consider that the final chart shows new spending at 45.7%. That implies a 23.2% decline from the 59.5% figure in Zimbalist's report. However, if we extrapolate from the difference between the numbers in the above paragraph, the reduction in revenue may be slightly less than 23.2%, perhaps 20%,

Bottom line

But the bottom line is that an arena that was producing a modest surplus for the city under Zimbalist's calculations may well--after additional city contributions and more plausible assumptions regarding the home state of new fans--represent a loss.

The IBO, in its September 2005 Fiscal Brief on Atlantic Yards, calculated a net fiscal impact of $28.5 million for the city. That may already be a loss, given that the city's contribution of $100 million (Debt Service) has more than doubled.

More than 60% of the new tax revenues from arena operations would come from sales tax revenues, according to the IBO. That's nearly $70 million. Subtract 20% and that's another $14 million reduction in the net fiscal impact.

The role of the IBO

Am I sure of these calculations? No, but neither was Zimbalist--who at least, in footnotes, offered alternate numbers--nor was the IBO, which accepted Zimbalist's assumptions rather than provide multiple scenarios. The IBO used attendance figures of 14,765.

It also "used Forest City Ratner Companies' assumption that about half of those attending Nets games at the Atlantic Yards arena will be from the ranks of those attending now, based on data on recent attendance levels at Nets games. Assuming that 20 percent of the spending by the other half of the fans attending the Nets games will be new to New York City, IBO estimates that nearly 60 percent of Nets’ games sales revenue will be new to the city’s economy."

That's a rounding off of the 59.4% figure. But what if it were 45.7%, as noted in the above chart?

When the IBO does a recalculation, and it should, it should produce a range of results, given that differing assumptions can result in very different predictions.

New spending beyond current fans

To further explain Zimbalist's calculations--incorporated by Kim/Peebles and the IBO--note that they include an adjustment for new revenues from new fans:
The money they spend at the new Brooklyn arena will be largely recirculated within the New York economy, and for the most part will not represent new revenues.
However, some of these expenditures will be new either to the New York City or the New York State economy or both. The sources of this new money are the following. Some people from out of state (principally from New Jersey and Connecticut) will be new Nets fans. They will be attracted either to the new Frank Gehry-designed arena, to new players on the team or to the team itself. Second, other attendees will attend Nets games as an add-on to their leisure expenditures. Primarily, these individuals will be from upper income brackets who do not need to reduce other leisure-time expenditures in order to be able to afford Nets games. Third, others may attend Nets games and reduce out-of-town leisure spending. Fourth, some corporations may purchase premium seating and catering services as an add-on to their entertainment budgets. Fifth, some of the spending at the Atlantic Yards arena will come from fans in Nassau County, Suffolk County, or Westchester County who did not attend games at CAA. Together these three counties have a population of 3.74 million. When these fans spend money at the new Atlantic Yards arena on tickets, concessions, or novelties, it will bring new sales tax revenue to New York City (though not to New York State.)

Another reason for doubt

Remember, Zimbalist's report had another huge fundamental flaw, especially regarding revenues from non-basketball events in Brooklyn. He wrote:
Many of the numbers used in this report concerning Nets attendance, ticket prices, construction costs and other items come from projections done by or for FCRC. I have discussed these estimates with FCRC and they seem reasonable to me. FCRC projects that the arena will not host an NHL team and that it will host 224 events during the year (assuming the eventual closing of CAA, no new arena in Newark, no NHL and no minor league hockey events at the Atlantic Yards arena.)

While the CAA (Continental Airlines Arena, now Izod Center) may or may not close, a new arena in Newark opened in 2007. As Kim and Peebles pointed out in their report, his assumption was inherently flawed because it gave no place for the New Jersey Devils to play.

The Empire State Development Corporation, in responses to a comment about the closing of the New Jersey arena in the Atlantic Yards Final Environmental Impact Statement, simply punted, claiming that estimates of events at the Brooklyn arena--though the same number as in Zimbalist's report--came from a different source.

But when the IBO does its recalculation, it should factor in the presence of a competing arena in New Jersey.

Wednesday, February 25, 2009

Avoiding AY example, Schick, former ESDC leader, proposes "transparent" investment fund for commercial real estate

Former Empire State Development Corporation (ESDC) president Avi Schick, in a Daily News op-ed headlined How to get N.Y. building again: Create a real estate financing fund, suggested that the city and state Comptrollers should allocate $2 billion of the $200 billion in pension assets they manage to create a fund to finance commercial real estate.

And that would be matched from union pension funds, banks and others, thus financing a $5 billion real estate portfolio, though of course "requiring substantial equity participation from those seeking financing." (The term "substantial" isn't defined.)

Schick's idea has drawn severe criticism for ignoring market issues and for serving to further the interests of Daily News publisher, Mort Zuckerman.

But first let me point out how Schick's guidelines for public investment set out--at least on paper--a severe contrast with the way his former agency has shepherded the Atlantic Yards project.

Contrast with AY: transparency

Schick recommends:
* Investment guidelines, including the expected cost, timing and return, must be publicly articulated before any financing is provided. This transparency will help guarantee that investment decisions will be guided by professionals, not politics.

Only a vague "expected" timeline was provided by the ESDC in its approval of the Atlantic Yards project, and there was no assessment of the expected return--an issue in eminent domain case heard in state appellate court Monday.

In other words, Schick is setting out a higher standard. And while the justification may be a larger percentage of direct public investment in a project, the widespread special benefits for the Atlantic Yards project constitute a significant amount of publicly provided advantage.

Contrast with AY: no lobbying

Schick writes:
* Lobbying must be prohibited. The news that the banks receiving TARP money lobbied Treasury was one more sign that it was still business as usual in D.C. If pension funds are on the line, it must be all about the numbers, not who you know.

"Who you know" has been a watchword of developer Forest City Ratner, which has long been one of the state's top spenders on lobbying and has a particularly cozy relationship with all-powerful Assembly Speaker Sheldon Silver.

Lately, the developer has deployed former Senator and uber-lobbyist Al D'Amato, apparently to direct federal stimulus funds to the Atlantic Yards project.

Contrast with AY: equity stake

Schick writes:
* The fund must be given an equity stake in projects that obtain financing. The government will create substantial value by establishing this fund, entitling it to capture a portion of those profits when it exits the investment.

As noted above, while this may represent a larger percentage of direct public investment in a project than in Atlantic Yards, the widespread special benefits for the Atlantic Yards project constitute a significant amount of publicly provided advantage.

Indeed, Schick's formulation highlights Brooklyn Borough President Marty Markowitz's stunning willingness to direct federal money to the project without any attendant public share.

Avoiding mistakes of the past?

Schick concludes:
It also would avoid the mistakes of the past, when government stood idly by while unchecked excesses led to the real estate bubble. The looming liquidity crisis represents no less a market failure than the free money era that just ended, and government intervention is just as necessary to correct it.

All of which Nicole Gelinas of the Manhattan Institute, in a commentary headlined The Developers’ Bailout:Propping up politically connected real estate won’t help New York, calls "a truly awful idea."

She points out that there's already a glut of empty real estate, and preventing buildings from falling into default isn't necessarily a desired result--because the correction in a long-climbing market would benefit the new businesses taking cheaper office space.

And she points out that the state pension fund "has a history of allegedly choosing managers based on political contributions" and, yes, developer Bruce Ratner is already lobbying for federal stimulus money for his "centrally planned Brooklyn boondoggle that already benefits from hundreds of millions of dollars in public subsidies."

Bailing out Zuckerman?

New York Post columnist Steve Cuozzo, in a column yesterday headlined A HIDDEN AGENDA AT THE DAILY NEWS, came out swinging:
EVERY big newspaper has conflicts of interest - yet most publishers manage to be subtle about promoting their extracurricular agendas. Our distinguished opposites at the Daily News, however, seem guided by the principle that "desperation is blind."

He notes that Schick is still the chairman of the Lower Manhattan Development Corp., which has a "sorry record" in failing to dismantle the Deutsche Bank building as planned.

And he writes:
Schick's taxpayer-soaking plan would only pile more catastrophe on an industry that's mostly itself to blame for its plight - and which is inextricably bound up with the faltering News' fortunes.

News publisher Mort Zuckerman is also the chairman of the publicly traded real-estate company Boston Properties. Boston, America's largest commercial landlord, has gotten itself into a pickle in Manhattan that threatens the finances of the whole company.

Pension funds and "predatory equity"

Just a year ago, the shoe was very much on the other foot. Housing advocates had discovered that city pension funds had a stake in "predatory equity" investment funds that were buying rent-regulated buildings on the expectation that they could dislodge tenants and jack up rents--a tactic that has proven to be very unsustainable.

(See the example of Stuyvesant Town/Peter Cooper Village, which was bought by Tishman Speyer--not predatory equity--as detailed in New York magazine.)

What emerged was a new residential real estate investment principle, involving an effort to ensure fair treatment of tenants; the creation of a process in which the pension funds opted out of sketchy properties; and an effort to pursue Economically Targeted Investment (ETI) Programs.

The goal was "a market rate of return that is commensurate with the risk assumed, to fill capital gaps in New York City, and to provide specific quantitative or qualitative benefits to New York City and, in particular, its low-, moderate- and middle-income communities and populations."

Yes, that's a market intervention, and thus subject to scrutiny. But the beneficiaries would not be the Mort Zuckerman's of the world.

Noticing New York's critique of major projects, and the path not taken of site preparation (at Hudson Yards and AY)

If you want a one-stop critique of megadevelopments and major projects in New York City, go to Michael D.D. White's latest Noticing New York post, headlined UN-FUNNY VALENTINES ARRIVING LATE: YOUR COMMUNITY INTERESTS AT HEART.

There White takes on stadium projects, Brooklyn Bridge Park, the Columbia University expansion, the Rudin/St. Vincent’s Real Estate Deal, and a whole lot more. Atlantic Yards, not surprisingly, is deemed "Poster Child For Everything Developmentally Bad."

Site preparation + stimulus

But probably the most resonant observation regarding AY comes in the segment White devotes to the Hudson Yards project, to be built on railyards that require some very expensive platforms. (The Vanderbilt Yard, less than 40% of the AY site, also would require a platform but not one as extensive.)

White observes:
If the government (as opposed to a private developer) was preparing the site it would not be necessary to postpone the site’s preparation at this time. Site preparation during the current economic downturn might even be cheaper. As it would be a public work, it would arguably be in the running for funding through federal stimulus, an important part of that being that the prepared parcels would later be bid out. But stimulus money cannot be given to a private developer already signed onto the deal because it would totally change the equation based upon which the developer bid to pay the public a low amount for the site. Used that way, the money would eliminate the risk developer assumed and constitute an award of enormous private benefit to the developer without bid.

The same would be true regarding Atlantic Yards, despite Brooklyn Borough President Marty Markowitz's push for federal stimulus money for the railyard.

Public investment

White observes:
Would the current change in the economy resulting in the devloper's default have made it possible at this point to switch over and have the government prepare the site, especially as time now seems to have borne out that this would have been the better way to proceed in the first place? Yes, the developer missing its payments presented precisely this valuable opportunity. BUT that is exactly what the administration elected NOT to do when, instead, it extended the developer’s rights to the 26 acres.

Extending the developer’s rights seems consistent with a city administration bias, as exprssed by the adminstration itself, to bequeath extended monopoly rights to individual large developers for large swaths of acreage that they will have on an “unfolding” basis “across many years” and “economic cycles” no matter the “various economic conditions” encountered along the way. Why does the Bloomberg administration do this? Is there benefit to this particular administration’s making single large, unstructured and inchoate bequests that apply for decades going out, thus sidestepping multiple opportunities for bids and checkpoints on accountability going forward into the future? By their very nature these arrangements limit participation in ownership of the city only to the very largest developers, and the arrangement works out only if the very large developers happen to remain solvent for longer than many people’s careers.

Loss of the public realm

White concludes
Strip things down to their core and you find that something is being sold. What is being sold is what belongs to public. Sometimes it is referred to as the “public realm.” That means such things as the right not to have our streets and avenues closed and sold off, the right to our historic neighborhoods, the right to good urban design, livable density and the right not to have our parks or amusement areas like Coney Island given away for development or speculative purchase. Real estate taxes should be paid by everyone, without special friends of the mayor being excused or allowed to intercept those moneys for their own private use and benefit. Subsidies which come out of the public’s general funds (once those taxes have been collected) should not be made special and piled on the mayor’s favorites.

Government’s function should be to protect the public interest, not to sell off the public’s assets. Government functions should not be privatized and handed out to developers whose interest is adverse to the public. Eminent domain should be the public’s special and rarely used tool for those special public improvement the public itself creates and owns. It shouldn’t be handed out for private use by developers to enrich themselves however they chose by accumulating and owning more of the city.

The next mayoral race?

White muses:
All of this provokes the thought: If all our communities have similar interests in common then, collectively, these communities are in the majority. As a potentially powerful majority with common concerns at heart, there is no reason for our communities to be losing the fights to the mayor that they are. Or does the reasoning run that we must put up with this perpetual selling off of the public realm because Bloomberg is, in other respects, such a good mayor? Would one argue, as some do, that Bloomberg is needed as a mayor because his financial acumen is critical to the city? But the answer to that is the reverse. Just as the mayor has been squandering public realm assets by selling them off to the big real estate developers throughout the city, Bloomberg has also conducted the city’s finances in a squandering city-fiscal-health-debilitating way.

However, on issues of development, Bloomberg's major challengers (so far), Rep. Anthony Weiner and Comptroller Bill Thompson, haven't launched a significant critique and likely won't do so; they're also dependent on the same forces.

Longshot candidate Tony Avella, perhaps, will be the only person to raise the critique.

"If a shot falls in the woods," well, what if there weren't many Nets fans there to begin with?

Last night the Meadowlands hosted just about as exciting a game as you could possibly imagine," wrote Henry Abbott yesterday in ESPN's TrueHoop blog, referring to the New Jersey Nets-Philadelphia 76ers contest that ended with an astonishing half-court buzzer-beater from Nets point guard Devin Harris.

But his local newspaper, the New York Times, didn't send a staffer to the game, and it was covered with three paragraphs of bland AP copy. (The New Jersey papers, the Star-Ledger and the Record, surely played it big, and New York's tabloids hardly ignored it.)

The Times's omission--actually, they cover the Nets, but inconsistently--says more about shrinking newspaper budgets than anything.

How many people were there?

But Abbott's headline, If a Shot Falls in the Woods..., has another meaning: what if there weren't that many Nets fans in attendance in the Izod Center in the first place?

The reported attendance was 13,235, or 66.3% of the 19,968 capacity. Now, I know that attendance reflects tickets distributed, not gate count, but does anyone think they came even close to the reported total?

Keep in mind that the game was competitive until the end, so few should have left early.

(Photos are crops of copyrighted photos Jesse D. Garrabrant/NBAE via Getty Images. Note that crops on the first photo and the second photo
eliminate the value as intended--the hoops action--to focus on the crowd size.)

Tuesday, February 24, 2009

In a swift half-hour, eminent domain argument touches on balance of public and private benefit--but not much more

In a quick but somewhat disjointed 30-minute argument before a four-judge appellate court panel yesterday, attorneys in the Atlantic Yards eminent domain case touched lightly but inconclusively on several contested issues.

Does the state constitution, as the plaintiffs contend, require a stricter evaluation of public use--the bedrock of condemnation--than does the federal constitution? The judges in the ornate Brooklyn Heights courtroom of the Appellate Division, Second Department, seemed willing to consider the argument, but also injected skepticism.

The plaintiffs gained ground on one potentially important point. While the defendant Empire State Development Corporation (ESDC) had in legal papers claimed (without foundation) that a document quantified the private benefit to developer Forest City Ratner, that document went unmentioned.

Indeed, an ESDC lawyer conceded no such analysis comparing private and public benefit was performed, but quickly argued that no such analysis was required. Indeed, case law suggests that even if there's substantial benefit to a private entity, the condemnation should be confirmed if public purpose is dominant--and an ESDC lawyer claimed there's "overwhelming public benefit."

Still, one judge called the absence of such an analysis a "critical point."

Back to ESDC, or to higher court?

The bottom line, contended plaintiffs' attorney Matthew Brinckerhoff after the hearing, is that the case should be remanded to the ESDC. "Then we would finally find out what Ratner's profit projections were, and that could be compared to all the allegations of public benefit," he said.

The state found that public benefits include blight removal, affordable housing, transit improvements, open space, and a publicly-owned (though leased for $1) arena, and says that those benefits are palpable enough to preclude any balancing.

"This [profit] is something Ratner and his companies have zealously guarded," Brinckerhoff said. "What they don't want is for the public to understand that they're going to make billions of dollars when it was never bid out."

Should his clients lose in this court--and that's more likely than not, I'd say--the case likely will wind up in the state's highest court, the Court of Appeals, Brinckerhoff suggested. "They made it clear last week [in a ruling] that they're leaving open the possibility that the state constitution is not as forgiving of governmental takings as the federal government."

Assuming a decision on this case comes down within two months, the next step could last from two to seven months, he said. That would make it very tough to break ground, as the developer now predicts, in the spring or summer, and further confirms that 2012, not 2011, is a more likely best-case scenario for an arena opening. (The Nets just announced a new arena sponsor, in a seven-year deal for "low seven figures" a year.)

But it may not threaten the developer's goal of getting financing by the end of 2009, a deadline set by the Internal Revenue Service for tax-free bonds, though Develop Don't Destroy Brooklyn spokesman Daniel Goldstein, the lead plaintiff, said he doubted the deadline would be met.

Also pending is a decision in the appeal of the dismissal of the case challenging the AY environmental review; it was argued in September and a decision is overdue.

(Here's coverage in the Brooklyn Paper, the New York Observer, and the Bergen Record; the latter was the only daily newspaper to send a reporter.)

More discussion in federal court

The relatively brief hearing was a graphic reminder why the plaintiffs—originally 13 but now nine homeowners and business owners, and commercial and residential tenants—initially went to federal court, where, a little more than two years ago, their arguments questioning the public purpose of the project got a thoughtful and extended airing.

Ultimately a judge dismissed the case, concluding that there were sufficient public benefits to preclude bringing the case before a jury, an appellate court affirmed that decision, and the Supreme Court declined to hear the case.

The state’s Eminent Domain Procedure Law (EDPL), set up in 1977 to expedite and streamline eminent domain cases, allows only 15 minutes per side in oral arguments, with no witnesses nor discovery. The case starts in the mid-level court, the Appellate Division, and an appeal of an adverse decision is discretionary, unless there's a two-judge dissent.

The lawsuit, Goldstein et al. v. Empire State Development Corporation, is organized and funded by Develop Don’t Destroy Brooklyn.

Leading off

The judges yesterday seemed unsympathetic to the plaintiffs' argument, previously untested in court, that a section of the state constitution approved at the 1938 Constitutional Convention requires projects developed with state subsidies or loans to be restricted to low-income people.

Jennifer Levy of South Brooklyn Legal Services, the first attorney to argue for the plaintiffs, began somewhat nervously and soon found herself interrupted by Justice Randall Eng, who pointed out that this was a case not about sate funding for low-income housing but about an act of condemnation.

But the ESDC’s own approval of the project, Levy contended, violated the constitution. Furthermore, she pointed out, there’s a state funding component: $100 million for infrastructure.

“Why is that an issue here?” asked Presiding Justice Robert Spolzino (right), who asked the most questions.

Because ESDC’s receipt of state funding triggers Article 18, Section 6, she said.

Wouldn't more than 2000 affordable units be produced in the Atlantic Yards project, asked Justice Howard Miller.

“Yes,” said Levy, then catching herself to clarify that, while that may be the number as approved (actually: 2250), “we don’t know how it will be implemented.” (The plaintiffs' brief points out that the project could indirectly displace 2929 households, thus obviating the public benefit.)

After the hearing, Brinckerhoff noted that "the crazy thing" was that the project under discussion, Atlantic Yards as approved in December 2006, was unlikely to be built and no one knew exactly what it would be.

Slum clearance

Bolstering her point, Levy pointed out that the framers of the state constitution envisioned that slum clearance “would mean enormous displacement,” hence the provision for low-income housing.

There was no time to tease out the ironies of that statement, but Atlantic Yards is by no means a classic slum clearance case. There is no massive blight—remember, project proponent Roger Green declared that the neighborhood wasn’t blighted—nor would there be enormous immediate displacement (though there may be significant indirect displacement).

Eng asked what should happen.

The project should be remanded to the ESDC for review, Levy said.

She pointed out that courts have allowed the legislature to defined “low-income” as people who can’t afford to buy or rent on the private market. She noted that some of the Atlantic Yards units would rent for $2600 a month and be eligible to households earning 160% of Area Median Income (AMI)--the implication being that that was above-market.

Handoff to Brinckerhoff

Lead attorney Brinckerhoff, taking the remainder of the allotted 15 minutes, gained some steam, pointing out that the state offered many other benefits beyond the $100 million, such as “extraordinary infrastructure” (actually, that’s just a potential benefit) and “triple tax-free bonds.”

However, there was not enough time to argue, as he had in federal court and as expressed in briefs in this case, that Atlantic Yards seems to be a sweetheart deal, with, for example, a blight study limited to the properties Forest City Ratner sought and a likelihood that the arena would be a money-loser for the city in terms of tax revenues.

NYS and public use

Brinckerhoff told the panel “I’m sure you’re aware” of a Court of Appeals decision last Tuesday in a case known as In the Matter of Aspen Creek Estates, Ltd., v. Town of Brookhaven, in which the decision noted, "Finally, the parties have not argued, and we do not decide, whether the New York Constitution... imposes a more stringent standard for takings than does the Fifth Amendment as interpreted by" the U.S. Supreme Court's Kelo v. New London decision.

“Our argument,” he said, is that New York state does provide more protections than the federal constitution.

Spolzino responded skeptically. “There’s a century of decisions about public purpose,” he said. “A problem like this seems to fall under public purpose.”

Brinckerhoff suggested that the state constitution was strictly construed in early cases, but later cases relied on the federal constitution.

Relative benefit

He pointed to a 1951 state case known as Denihan Enterprises, Inc. v. O’Dwyer, which the court invalidated a deal between the city of New York and insurance company to build a parking garage and a small park. The court ruled that "the use is not public where the public benefit is only incidental to the private."

(Actually, the Court of Appeals found that the taxpayer had sufficiently pleaded its case to survive a motion to dismiss, stating, "We are here and now solely concerned with the legal sufficiency of plaintiff's complaint.")

“We have no record of what the private benefit will be,” Brinckerhoff declared.

"What about the Yonkers case," Spolzino asked, referring to a 1975 case known as Yonkers Community Develop. Agency v. Morris, and summarizing it as: once you have a finding of blight, the blight correction constitutes a public purpose.

Rulings in state cases on eminent domain, Brinckerhoff said, had been relying on the federal constitution, not the state constitution, which could be construed more narrowly.

(According to the state's brief, Yonkers affirmed that taking land for urban renewal was legitimate under both state and federal provisions.)

Questions of blight

Eng raised the issue of the railyard at the heart of the footprint. “We’re talking about acres and acres of blight,” he said.

“You consider it blighted,” Brinckerhoff responded.

It has been found to be blighted, Eng replied, referencing the state’s blight study.

“I’m not trying to say you can’t make a reasonable argument that that area is blighted,” Brinckerhoff conceded.

(It was a legitimate admission on legal grounds—the railyard is part of the Atlantic Terminal Urban Renewal Area, or ATURA, which is per se blighted, and all the plaintiffs have property outside ATURA. But it glossed over a much larger issue: the Vanderbilt Yard has been a working railyard rather than a fallow spot, and, as it finally became feasible as a site for high-rise development, the city and state never built a platform to entice developers nor put the site out for bid, until Forest City Ratner was anointed the site.)

However, he said, “you still have to argue the private benefit,” he said, stressing that there was no competing bid for the site (presumably he meant for the site as a whole; there was a belated RFP for the Vanderbilt Yard).

“There is no record—at all,” he said, of the state making a finding.

“That’s the critical point,” Spolzino said. “Had they made a record, we’d be in a position of sustaining judgment if it’s (a) reasonable (assessment).”

Brinckerhoff used his remaining moments to argue against defense contentions that the case was out of bounds. “You have to reach the merits” of the issue, he insisted.

Defense case

ESDC attorney Charles Webb began by criticizing Brinckerhoff for giving “very little attention to a significant issue,” the intent of the drafters of the state constitution.

Spolzino interrupted. “Could you address the last point,” he asked, wondering if the ESDC articulated the balance between private and public benefit.

There’s no requirement of such a finding, Webb said.

Is that an admission that ESDC did not make a finding, Spolzino asked.

Webb said no, stressing that the site was “afflicted for decades with substantial blight.”

Spolzino pressed the question, asking if a finding had been made.

“I don’t believe there is,” Webb conceded. “There’s no reason to. They don’t have to.”

(The Brooklyn Paper observed that Spolzino "appeared to be sympathetic to Brinckerhoff’s argument." I'll point out that Spolzino, in a separate case involving a challenge to the ESDC's relocation offer for AY footprint residents, seemed skeptical of the ESDC's arguments, but wound up joining the unanimous opinion in favor of the agency. Then again, he was the presiding judge who granted leave to appeal in the Aspen case, which led to the Court of Appeals' reference to not addressing whether the state constitution imposes a stricter standard when it comes to eminent domain.)

State vs. feds

What about the plaintiffs’ argument that there are “really no cases under the New York State constitution,” Spolzino asked.

Webb said there were, citing a 1936 case known as N.Y.C. Housing Auth. v. Muller, which had rejected the claim that public use literally required use by the public. (This was a case in which there was no private developer involved.)

“If we were arguing the case in 1909,” he said in a dig at his adversary, “I’m sure he would have a better set of authorities” to consult.

Procedural issues

“Let me go to the real issue: should they be here at all?” Webb asked rhetorically. “They made a calculated decision” to first go to federal court. Should other plaintiffs do that, and be permitted to refile their cases in state court, “the intent of the [EDPL] is completely thwarted.”

He also argued that, given that EDPL was enacted to expedite condemnation cases, any provision in the CPLR (Civil Practices Laws and Rules) that allowed the case to be delayed would be inconsistent. Brinckerhoff had argued that the CPLR applies to other special actions that are supposed to be expedited.

Prior to the EDPL, he noted, there was no provision for review prior to the government’s attempt to condemn property.

Was there no way to raise these issues, asked Spolzino.

“Not before the taking,” Webb responded.

The issue of procedural impropriety, however, got only a brief discussion; presumably, had the judges wanted to dismiss the case because it duplicated the federal lawsuit, they would have done so in an earlier legal round.

Finding of benefit?

ESDC attorney Philip Karmel soon took the podium. He noted that “ESDC made all the findings required,” pointing to page 20,078 from the absurdly voluminous record, which includes numerous documents created during the environmental review.

Spolzino questioned whether that page in the General Project Plan covered the question at issue.

It shows ESDC examined all aspects of how the project would be paid for, Karmel said, adding, “There’s overwhelming public benefit.”

He explained that while there may be no full explanation in the Determination and Findings of how the state’s $100 million appropriation would be used, there is an explanation in the General Project Plan.

Back to Article 18

In the final moments, Spolzino questioned Karmel about whether Article 18 had been violated.

Karmel said the petitioners had misinterpreted Section 6. While the petitioners say the ESDC has created a distinction between a low-income housing project and a project removing blight, he said ESDC was acting within the letter of the law.

“ESDC can address blighted conditions to create market-rate housing,” he said.

Beyond that, the project “would only displace 146 people."

“So your argument is, if Article 18 applies, it’s been satisfied,” Spolzino stated.

“Absolutely,” Karmel replied.

After a few more moments of discussion of Article 18, Section 6--the state's contention was that it applies only to low-rent housing projects, not a more wide-ranging project like AY--the argument was over.

Filing out

Dozens of people--perhaps half of the spectators, flooded out of the room, perhaps the last major court hearing in the Atlantic Yards saga. Among those looking on were ESDC general counsel Anita Laremont, BUILD president James Caldwell, Forest City Ratner executive MaryAnne Gilmartin, and additional lawyers on the case.

Those clustering around the defense lawyers seemed encouraged, even as Brinckerhoff, in the next room, with numerous Atlantic Yards opponents nearby, maintained that, no matter the outcome, the case would have to get a hearing in the state's highest court.