Wednesday, January 20, 2010

In court argument over ESDC project approval, questions about the MTA's Vanderbilt Yard deal and the mysterious development agreement

Well, if you'd read the papers in the lawsuits challenging the Empire State Development Corporation's (ESDC) approval of the 2009 Atlantic Yards Modified General Project Plan (MGPP), the two-hour-plus argument in court yesterday wasn't all too surprising.

But the reason some 70 people--mainly Atlantic Yards opponents (including Council Member Letitia James, a plaintiff), but also ESDC officials and Forest City Ratner executives--packed a state Supreme Court courtroom in Lower Manhattan is that the courts remain a wild card, a potential, if unlikely, brake on state power in such cases.

Justice Marcy Friedman asked marginally tougher questions of the ESDC attorney, but evinced no particular sympathies, maintaining a serious and skeptical mien throughout the proceeding.

She did not rule on a requested preliminary injunction that would stop current activities--demolition, railyard work, environmental remediation--but indicated she'd rule on the case in a few months, before significant construction.

So it's unlikely anything other than a symbolic groundbreaking would be held in the near future. Should the lawsuits succeed, the ESDC's Modified General Project Plan for AY would be annulled, as would be the subsequent resolutions and contracts--essentially setting the project back and, given the snag in arena bonds, dealing it a serious if not fatal blow.

(Photos and set by Tracy Collins. Here's coverage in the Brooklyn Paper.)

Basic argument

The fundamental argument made by the petitioners, including groups led by Develop Don't Destroy Brooklyn and the BrooklynSpeaks coalition, is that the changed deal for the Metropolitan Transportation Authority's Vanderbilt Yard, allowing payments and acquisition through 2030 rather than in one transaction, was not revealed to the ESDC board.

And that means the ESDC board didn't consider the need for a Supplemental Environmental Impact Statement (SEIS).

The fundamental response from the ESDC is that 1) that's not so and 2) it doesn't matter, because a separate development agreement requires Forest City Ratner to "use commercially reasonable efforts... to complete the entire Project by 2019."

The latter was a particularly challenging detail for ESDC attorney Philip Karmel to bring up in court, because the development agreement is not part of the enormous case record--at least 13 volumes, going by the numbered stack on his counsel table--having been completed only at the December 23 master closing.

And, as DDDB attorney Jeff Baker argued, the court should not consider that as part of the basis for affirming what the ESDC board did in September 2009, because it didn't exist at the time. Also, he said, the term "commercially reasonable" is so vague it's worthless. He called the ESDC action "a classic bait and switch."

But the ESDC has on its side case law that generally favors state agencies.

Baker on video

Below is a video of Baker answering a few questions after the hearing.



The MTA deal

In 2005, Forest City Ratner promised to pay $100 million in cash for the 8.5-acre railyard, and construct a new railyard as part of a package of improvements. In 2009, the MTA agreed to accept $20 million for the segment--less than one-third--needed for the arena block, and allow 22 years for the acquisition of the rest of the site in stages, with FCR paying the equivalent of $80 million, with a generous 6.5% interest rate.

In legal papers, ESDC claims that the ESDC board had details of the MTA deal, but a look at the memos, as I wrote, confirms that the 22-year time frame was not specified. "The fundamental point," Baker said, is that the board "was never told what that time was."

And FCR would have to put $86 million in escrow toward the permanent railyard--estimated to cost nearly $150 million--should it choose not to continue with Phase 2 of the project. That $86 million, Baker told the judge, is not a penalty but a "new condition."

Why was there no letter of credit required in 2006? Because Forest City was buying all the air rights to the railyard and funding conveyance of all project land via eminent domain (which instead would proceed in two or more phases).

Judicial discretion

Baker (left) told Friedman that this was not a situation in which the court is being asked to be deferential to a policy decision but rather a "clear underlying factual omission."

And had the board recognized the time frame, he contended, it would have changed their view and required them to issue an SEIS and reevaluate the plan to eliminate blight, prompting a greater look at alternatives, such as the division of the project into segments to be carved up.

"The respondents argue that a GPP can be aspirational," Baker said. "That's true. But that's not what they did here. This was not an organic planning exercise by ESDC." Rather, it's tied to a single developer.

Friedman asked whether the state's underlying blight determination, which has been upheld in court, was being challenged.

Baker said the petitioners weren't challenging the blight finding, but rather than plan to remove blight, because "it's no longer a rational plan."

Though there's the opportunity for Forest City Ratner to string out the project, all the economic analyses conducted by the state, looked at the project as a whole--with a decade-long buildout. Moreover, he said, there's never been an analysis of the impact of Forest City Ratner building only two-thirds of the announced square footage, which is the minimum revealed in documents released upon project approval.

The BrooklynSpeaks case

BrooklynSpeaks attorney Al Butzel began by describing AY as "a monstrous project," citing not just its size but the disruption it would pose to the surrounding community.

He said it was unrealistic for 6000-plus housing units to be built in ten years and, beyond the MTA agreement, project lease abstracts give Forest City Ratner 25 years to complete building after vacant possession of the arena site--a date that hasn't been reached.

"The respondents say those dates don't mean anything," Butzel said, noting those are seen as the outside dates. But "it can't be sloughed off as just meaning nothing."

Construction impacts

Butzel and Baker essentially divided aspects of similar but separate cases, so, while Baker focused on the MTA deal, Butzel stressed the ESDC's unwillingness to evaluate the worst-case scenario--in this case continued construction.

ESDC consultants describe the impact of continued construction as merely the "continuation of the temporary effects for a longer duration," he said. But "there's a point" where "temporary… becomes meaningful," he said.

Like Baker, he acknowledged that courts must accord ESDC great deference, but that's not "absolute discretion." He cited a 1986 case known as Jackson v. New York. State Urban Development Corp, which requires the state take a hard look. "In this case, when it comes to construction impacts," he said, "there was no hard look taken."

Private project

Butzel closed by sketching his argument that Forest City Ratner, not the ESDC, is in the driver's seat regarding AY. He quoted company head Bruce Ratner's statement to Crain's New York Business: "It's a private project."

Members of the audience were handed out, and wore, yellow stickers with the message "Real Accountability on Atlantic Yards," a message from BrooklynSpeaks.

ESDC case

When Karmel began his presentation, he emphasized the legal if not factual advantage held by his side: no cases back up such an effort to annul a GPP.

Moreover, the statute requires neither a guaranteed schedule or a specific one. And both the 2006 and 2009 plans approved by ESDC involve clearance of "a substandard and insanitary" area, or blight.

(In photo, Karmel is at right. At far left is FCR General Counsel David Berliner, with FCR attorneys Jeffrey Braun and Richard Leland.)

The MTA deal

Karmel said that, because FCR had to put up an $86 million letter of credit, the same amount of capital--$100 million--is at risk, with no diminution of the developer's exposure. That's not so, because in the original deal the developer also had to build a new railyard.

But the MTA deal, he said, isn't important. "We're relying on the contracts that we're developing," he said, acknowledging they didn't exist at the time of the 2009 ESDC approval.

He said the ESDC had a variety of remedies in those contracts, including forfeiture of development rights. Forest City Ratner can acquire development rights at a more rapid clip than allowed in the MTA deal, and will be required to use "commercially reasonable efforts" to move forward.

He even suggested that "the MTA is just a property owner on the site," with a deal separate from and irrelevant to the fundamental ESDC deal with Forest City Ratner.

That, of course, ignores the fact that both the MTA and ESDC are governmental authorities controlled by elected officials--mainly the governor--working in concert, and the approval of the MTA deal last June was coordinated with the ESDC board's adoption (preliminary approval) of the MGPP.

Time frame

As for the ability to absorb housing, he said that ESDC determined that the ten-year timeframe was reasonable, given the vacancy rate and expected population increase in Brooklyn, part of a report by consultant KPMG.

He didn't mention Forest City Ratner's astronomical projections for condo prices and KPMG's dubious analysis.

Impact on neighborhoods

Karmel acknowledged that the ESDC concluded there would be "significant adverse impacts as a result of ten years of construction," and thus also produced several mitigations.

Now, he said, the situation is no different: "If it's ten years or 15 or 20 years, there will also be significant neighborhood character impacts." He said the petitioners had not identified impacts not previously described, so there's no need for an SEIS.

He added that the standard for an SEIS does not derive from the Jackson case, but a 2007 case known as Riverkeeper v. Planning Board of the Town of Southeast, which gives more deference to agencies. And the issue is not a "worst-case scenario" but a "reasonable worst-case scenario." (Butzel later responded that that's what he was describing.)

FCR case

In his brief opportunity to address the judge, Forest City Ratner attorney Jeffrey Braun suggested, with no little chutzpah, that the MTA deal was nothing surprising: "It is an inevitable fact of life that projects get tweaked and refined over time."

Braun said FCR would be compelled to proceed in an accelerated way because of "huge financial investments" it's already made--investments Baker questioned in legal papers and in court, given the significant public subsidies that have been passed through to the developer.

The rebuttal

Baker got about ten minutes to respond. Karmel's position, he said, is that state law does not require a specific time frame. But the state "has to be honest about the time frame," he said.

In a previous case challenging the AY environmental review, which was dismissed, community groups called the originally promised ten-year project time frame "ridiculously optimistic," he said, 'but the court said we did not have any evidence. The difference is now we do."

He called the scenario in which FCR might acquire property faster than required a "pie-in-the-sky scenario. "I don't base my retirement plan on winning the lottery," he said.

As to Karmel's citations of statements in the record, if not before the ESDC board, that allegedly revealed that the MTA deal could last until 2030, Baker said, "I'm prepared to read each one of these cites."

He questioned whether the development agreement signed during the master closing actually encompassed Phase 2 of the project, because the master closing concerned the arena.

The statement that the ESDC does not have to take into account the MTA agreement is, Baker contended, "a head-in-the-sand attitude of ignoring the fact of the deal."

He urged Friedman to hold the ESDC to the record, unless somehow the development agreement--for which Baker has filed a Freedom of Information Law request--can be made part of the case.

There's no evidence, he said, that the KPMG report took account of the MTA terms.

Preliminary injunction?

Before closing down for the afternoon, Friedman quizzed Braun about the ongoing work on the project. Braun noted that FCR had demolished more than 30 properties it owns, and for the petitioners to ask the court at this late date to stop three additional demolitions, he said, is "chutzpah."

Baker noted that FCR can't proceed with significant construction until the eminent domain process is concluded, a process that--for the moment--he and others thought would not occur until March at the earliest, but now seems back on track for January 29.

That doesn't mean title will transfer at that time, however, because attorneys for some property owners will do their best to challenge the case.

Petitioners

In the DDDB case, the petitioners include the Council of Brooklyn Neighborhoods; Atlantic Avenue Betterment Association; Brooklyn Bears Community Gardens; Brooklyn Vision Foundation; Carlton Avenue Association; Central Brooklyn Independent Democrats; Crown Heights North Association; Dean Street Block Association (4th-5th Avenues); Democracy for New York City; East Pacific Block Association; Fort Greene Association; Fort Greene Park Conservancy; Friends and Residents of Greater Gowanus (FROGG); Park Slope Neighbors; Prospect Heights Action Coalition; Prospect Place of Brooklyn Block Association; Society for Clinton Hill; South Oxford Street Block Association; and South Portland Block Association.

In the BrooklynSpeaks case, groups and elected officials filing suit include the Atlantic Avenue LDC, the Brooklyn Heights Association, the Boerum Hill Association, the Fifth Avenue Committee, the Park Slope Civic Council, the Pratt Area Community Council, the Prospect Heights Neighborhood Development Council and State Senator Velmanette Montgomery, Assemblyman Jim Brennan and City Council Member Letitia James.

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