Thursday, April 08, 2010

DDDB, allies aim to reopen case based on Development Agreement that gives Forest City 25 years to complete AY; ESDC claims those provisions trumped

Pointing to the curious delay by the Empire State Development Corporation (ESDC) in releasing the Atlantic Yards Development Agreement until after a key January 19 oral argument in the case challenging the ESDC's 2009 approval of the project, Develop Don't Destroy Brooklyn (DDDB) and 19 community groups have asked that the case be reopened.

The Development Agreement, as I've written, gives developer Forest City Ratner 12 years to build Phase 1 and 25 years to build Phase 2. Meanwhile. the ESDC maintained the project would take a decade, a finding to which Supreme Court Justice Marcy Friedman reluctantly deferred in her March 10 ruling dismissing the case.

"ESDC's continuing use of the 10 year build-out was supported—albeit, in this court’s opinion, only minimally—by the factors articulated by ESDC," she wrote, with one of those factors being the ESDC's professed intention to ensure that Forest City Ratner used "commercially reasonable" efforts to finish the project in a decade.

However, wrote DDDB attorney Jeff Baker in an affirmation filed today:
As set forth below, ESDC did not obtain a commitment from FCR to use commercially reasonable efforts to complete the project by 2019 and in fact signed an agreement that extends the completion of project until at least 2035. Thus, where the Court previously found that ESDC’s rational [basis] was only “minimally” supported, since one of the essential elements is demonstrably false, the Court should reconsider its decision in light of the new evidence.
"We think the Court will recognize that the ESDC's argument, and therefore the ruling, was egregiously incomplete, lacking the essential document that worked against their entire rationale that the project would take ten years. Reconsideration of the case is necessary because of the self-contradicting and revealing information ESDC intentionally held back from the Court and the public," said Develop Don't Destroy Brooklyn legal director Candace Carponter.

Bad faith

The petitioners might have gone even farther, charging bad faith. Remember, the Development Agreement, signed December 23, 2009, was not released until January 25, about three weeks after ESDC spokeswoman Elizabeth Mitchell told me the documents would be made available.

ESDC response and defense

Mitchell told the Brooklyn Paper that the agency will oppose the motion and expects to prevail.

Still, the ESDC has offered a rather weak defense of the timeline discrepancy in a motion to dismiss the only extant case, which challenges the failure to issue a new Determination & Findings:
Their allegations... [of delay] are inconsistent with the plain terms of the Development Agreement, which requires that the Project be constructed in accordance with the 2009 MGPP. See Development Agreement at pp. 4-5 (“Project Description”); p. 10 (requiring that the 2009 MGPP requirements be satisfied); p. 4 (requiring that FCRC use commercially reasonable efforts to complete the entire Project by 2019); p. 21 (requiring that the Project “shall have not less than the required Project Site Affordable Housing Units,” a term defined at page 15 of Appendix A to mean the 2,250 affordable housing unit required by the 2009 MGPP).
In a Memorandum of Law, the ESDC stated:
The Development Agreement expressly provides that the deadlines and periods set forth in Article VIII, which covers Construction Activities, “shall not modify, limit or otherwise impair” FCRC’s obligation under Section 2.2 of the agreement to use commercially reasonable efforts to substantially complete the Project by December 31, 2019, which is in full accord with the MGPP.
However, wrote Baker in the document filed today:
This Court relied on ESDC’s representations regarding its assurance that it will require commercially reasonable efforts to require FCRC to complete the project by 2019. However, while that term is used in a general provision of the Development Agreement, the more specific requirements of Articles 8 and 17 of the Agreement control over the vague provision of Sec. 2.2.
(Emphasis in original. See documents embedded below.)

Baker noted that “commercially reasonable” appears in only one place, and is not defined. Meanwhile, the Project Effective Date--the time when properties are delivered--is no earlier than this year, which means the Outside Phase II Substantial Completion Date would be 2035.

More on the Development Agreement

There is no date by which construction of Phase II must actually commence, writes Baker. He apparently missed the provision that does require the commencement of one building on the southeast block, Block 1129, to be begin within a decade after the Effective Date.

Beyond that, he points out that the document requires the Atlantic Yards Development Corporation to begin construction--or cause it to begin--of the platform no later than the 15th anniversary of the Project Effective Date.

However, as he notes, Section 8.5 "does not actually require commencement of construction" since all that's required is a completion guarantee and plans for construction:
Thus, even under this section, all that is required is a Development Lease, plans, and a completion guarantee for the first building on Phase II. There is nothing that even specifies when the construction of the platform must actually commence, when that first building must commence construction and when the balance of the platform must be constructed. Nor is there any requirement that FCRC actually proceed with the acquisition of the air rights over the Vanderbilt Yards.
Beyond that, the developer, according to Section 8.6 must complete Phase I within 12 years of the Project Effective Date—or 2022 at the earliest.

And, while Article 17 provides for Events of Default and Liquidated Damages, "none of the relevant defaults pertaining to Phase II are subject to liquidated damages," which means ESDC could terminate the agreement, with no penalties for the developer beyond losing the development rights.

What's commercially reasonable?

Baker observes:
“Commercially reasonable efforts” is in itself a largely meaningless term. The Development Agreement makes it clear that ESDC defines “commercially reasonable efforts” as meaning not 2019, but in realty 2035 at the earliest and even that date is largely devoid of any penalties or incentives.
Thus, the ESDC's plan to alleviate blight, a precursor to the use of eminent domain, is illusory, and thus the ESDC failed "to consider the effect of the significantly delayed plan or the possibility that it would not be completed when it made its findings under the [Urban Development Corporation Act]."

Atlantic Yards Development Agreement Section 2.3
Atlantic Yards Development Agreement Section 8
Atlantic Yards Development Agreement 17.2

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