Friday, February 26, 2010

Pinsky hopes for AY groundbreaking in weeks, says projects should emerge via RFPs; Gilmartin says FCR's frustrated with absent government coordination

At an interview and panel discussion sponsored by BISNOW on Wednesday February 24, Atlantic Yards was mentioned as an example several times by Seth Pinsky, president of the New York City Economic Development Corporation (NYC EDC), and MaryAnne Gilmartin, the Forest City Ratner executive in charge of Atlantic Yards.

While Pinsky said "we hope to break ground in just a matter of weeks" on Atlantic Yards, perhaps the most interesting statements concerned the unsaid: while he asserted that the city's projects emerge from community consultation and that the best way to proceed was via RFPs (Requests for Proposals), Atlantic Yards proceeded differently.

Gilmartin expressed frustration at the lack of coordination among government agencies working on Atlantic Yards, without acknowledging that, while that certainly may slow things down, it also can give the developer the upper hand.

She also asserted that, in contrast to the example of Stuyvesant Town, Forest City has avoided the "exuberance" of inflated expectations--even though a report from KPMG on Atlantic Yards housing suggests similar expectations.

Entrepreneurship vs. projects

Pinsky, interviewed solo by moderator Ken Frydman, said that NYC EDC aims to transform the way it does business in three ways: one is helping "legacy industries" (such as media) transform from 20th-century business models and another is finding "industries of the future" in which the city has competitive advantages (such as bioscience).

"The third is just trying to encourage entrepreneurship more generally," he said. "What we've found is that when government tries to chase the next big thing, it often ends up chasing the last big thing."

Are not sports megaprojects "the last big thing"? The main benefit, for New York City, comes from capturing tax revenues formerly going to New Jersey, but the New York City Independent Budget Office now calls the AY arena a loss for the city. (NYC EDC won't release its latest economic analysis.)

How to encourage entrepreneurship? Pinsky cited general quality-of-life issues such as public safety, parks, and schools, as well as "traditional economic development: making sure the infrastructure is there."

Dealing with neighborhood opposition

Fyrdman, citing Willets Point and Atlantic Yards, asked how to deal with neighborhood opposition.

"We live in New York and in New York, no matter what you propose, you would always face some sort of opposition," Pinsky replied, noting that such a situation both makes development challenging but also represents the a strength of the city.

"The way that we deal with community opposition is really to try from the beginning to base our projects in community development." he said, ignoring the fact that Atlantic Yards came as a package deal from the developer.

"So, for example, the Willets Point project, although it's certainly garnered fair share of controversy, that grew out of a community development process that we began in early in the first term of the Bloomberg administration, where we put together groups from Flushing area and asked what you want in the area." he said.

"So we worked with community to develop a new plan," he said, disregarding from the "community" most of the businesses and property owners in the busy but unserviced area of Willets Point and the questionable lobbying by the Flushing-Willets Point-Corona Local Development Corporation.

"Notwithstanding high volume of rhetoric and opposition to the project," he said, "it was approved overwhelmingly at City Council... It’s similar approaches to that that we're trying to take throughout the city."

Public-private partnerships and RFPs

An audience member asked if the mayor was trying to attract public-private partnerships.

Pinsky cited "a large number of public-private partnerships that have either been in carried out or in process," including two baseball stadiums "built with private money, but with the assistance of public sector," including "financing mechanisms that the public sector helped put in place… and contributions for infrastructure."

"Similarly, many of our larger developments will involve models where the city and or state are putting in significant seed money to bring infrastructure, then we plan on RFPing the development parcel to the private sector because we believe the private sector does that kind of development best," he said.

The Atlantic Yards project, of course, is a state project and did not emerge from an RFP. There was never an RFP for the project as a whole, just the Vanderbilt Yard, less than 40% of the site, and that RFP emerged from the MTA some 18 months after Forest City Ratner was essentially assured the site.

LeBron James to the Knicks?

In a sign that the LeBron James to the Newark-then-Brooklyn Nets scenario is not yet on the radar screen of many executives, one audience member lightheartedly asked Pinsky if his agency could lure basketball's leading potential free agent to the struggling New York Knicks.

Pinsky handled it with aplomb: "I think that if LeBron James is attracted to new parks and good public schools and safe streets, absolutely."

On the panel

After the Pinsky interview came a panel including Gilmartin; land use attorney Melanie Meyers of Fried, Frank (which represents Forest City Ratner on Atlantic Yards); Columbia real estate professor (and former executive) Vishaan Chakrabarti; and Kohn Peterson Fox President Paul Katz, whose architectural firm has a global practice.

Building in cycles, with government aid

Describing Forest City Ratner, Gilmartin said, "We only do ground-up development... I like to say we're hopelessly devoted to long term."

"A ground-up developer like Forest City doesn't build into one particular market," she added, but rather builds through cycles, with the long-term in mind.

"Because of that one, needs to be patent and tenacious, and be willing to invest the money early. For example, with Atlantic Yards, we have hundreds of millions of dollars in the project. The money has been used to commence infrastructure work," she said. "You need a government and a private developer willing to partner to invest."

The issue, of course, is the ratio. Forest City Ratner takes less of a risk when the city and state put in more than $300 million for land purchase and infrastructure costs, as well as offering major tax breaks, low-cost or free land, and other benefits.

The role of patience with MetroTech and AY

Frydman asked how developer maintain patience and flexibility regarding the City Planning Commission, the Landmarks Preservation Commission, and community opposition.

While the question specifically referenced Atlantic Yards, Gilmartin mostly avoided it.

"I'm not a particularly patient person, but as it relates to the business of building in a city like New York, patience is a virtue," she said. "MetroTech, which was built decades ago, had many of the similar characteristic to Atlantic Yards."

In some ways, that's true, given the role of eminent domain, subsidies, and a buildout that--in the case of MetroTech--took much longer than planned. On the other hand, MetroTech created office space for New York City to compete with New Jersey, while Atlantic Yards would be mostly housing, and only the latter would be surrounded by and enveloped in neighborhoods that had already revived.

"As a company we tend not to dispose of a lot of our properties, we take the long haul," she said. "I think that's a virtue. We don't build to flip. Because of that, we can look like a project like Atlantic Yards and understand that it will, like a fine wine, get better with time."

Remember, Chuck Ratner, CEO of parent Forest City Enterprises, said in March 2007, "We are terrible, and we’ve been a developer for 50 years, on these big multi-use, public private urban developments, to be able to predict when it will go from idea to reality."

Frustration with government

Though planning professor Alexander Garvin has described the Empire State Development Corporation as having "truly amazing powers," panelists expressed frustration with the lack of coordination among and powers of various levels of government.

Chakrabarti, who spent five years on the Moynihan Station project while working for the Related Companies, said he was frustrated with the slowness of that project, which has had "three and a half" environmental impact statements, as well as the "embarrassment" of the stall at the World Trade Center site

By contrast, Hong Kong has a modern airport and a fast train that takes you downtown. "We've let the process take over our critical economic advantage," he said, criticizing a "government structure that is highly broken" and "a populace I think is more focused on entitlements than investments."

"Why does Albany have control over large scale land use decisions?" he asked. "We have to look at some sort of redevelopment authority that has real teeth and can take public land and do things like... maybe we should actually take [the] Javits [Convention Center] and move it to Willlets [Point], or move it to Sunnyside."

Pushing ahead

Later in the panel. Gilmartin said that FCR gravitates to people inside and outside government "to people who think like we think," with an aggressive pace. "We are in some ways government’s worst nightmare, because we push... but without it, you do not get things done."

Updating Robert Moses?

How get things done more efficiently, without going back to a Robert Moses situation?

Chakrabarti cautioned that he didn't mean to make a blanket statement. Government does some things well, he said, mentioning the High Line as one example.

"I think where we are in trouble… are the public private partnership that particularly center around building infrastructure and building density around that infrastructure," he said. "In that regard, I think we need some larger entity, whether it's the port, or a city entity, or someone who actually comes in and thinks about those things in conjunction. So developer, whether its Maryanne, or Related or whoever it is… they go to one entity, instead of sitting in a room with 45 people, trying to figure out how to get it done."

"Atlantic Yards is the uber-public private partnership," Gilmartin followed up, citing the city, state, and other agencies involved. "And it is quite frustrating, and the coordination just doesn't exist, even among agencies in state enterprise, for example. It's as if you're dealing with different organizations altogether."

That frustration, such as in the failure to form a planned Transportation Working Group, is also felt among local elected officials and community members.

Learning from Stuyvesant Town

Without criticizing Tishman Speyer--which overpaid for and lost Stuyvesant Town--what's there to learn from the episode, Frydman asked.

"I just think our DNA is so different, as a company," Gilmartin observed, citing " the exuberance of the market, all the notions of rents reaching a certain levels, and those trophy assets."

Hasn't Forest City Ratner exhibited some excess exuberance, such as promising 10,000 office jobs at Atlantic Yards when there was no market for such? Or helping KPMG prepare a report for the ESDC that assumes $1217 a square foot for condos in 2015?

The difference, perhaps, is that those numbers have been used to sell the project to the public and government agencies, not to investors.

"We were never and will never be a Park Avenue developer. We develop in we think more emerging markets," Gilmartin said.

While the latter may be a reference to places like Harlem and 1980s/90s Brooklyn, Atlantic Yards represents the last "great piece of real estate" (to quote Chuck Ratner) near a transit hub in a market that had well emerged.

"So I think our metrics and our calculus are different," Gilmartin continued. "We are perhaps more conservative, Midwestern… It's a different business model. I remember when that project went down, the numbers were baffling to us... We were never able to get there, even in the exuberance of the peak of market."

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