Monday, April 19, 2010

Three months after AY was approved last year by the ESDC, the Development Agreement allowed for even gentler deadlines

Would you believe that, in three short months last year, the Empire State Development Corporation (ESDC) took gentle deadlines for the Atlantic Yards project and relaxed them further?

In doing so, it made further mockery of its dubious claim that the Atlantic Yards would be completed in a decade.

The ESDC's September 2009 approval of the Atlantic Yards 2009 Modified General Project Plan (MGPP) proposed penalties for delays on only the first three towers and claimed, vaguely, that Forest City Ratner would have to "use commercially reasonable efforts" to build the project in ten years.

That was all to come in a secretive process, the professed arms-length negotiation of the Development Agreement.

And when those documents were signed in December 2009, the state agency provided even more generous deadlines regarding those first three buildings, no teeth to the term "commercially reasonable," and an completion date of 25 years.

Delayed revelation

The penalties were not revealed until January--when the Development Agreement was finally made available for inspection to those of us willing to visit the ESDC offices.

That was one week after the oral argument in a state Supreme Court case challenging the ESDC's professed ten-year timetable in the project--and two weeks after the ESDC initially said the documents would be made available.

Was the ESDC's unwillingness to reveal the Development Agreement before the oral argument an effort to avoid uncomfortable facts? It sure seems so.

The Development Agreement's provision of a 25-year deadline is now the subject of two motions--by groups allied with Develop Don't Destroy Brooklyn and BrooklySpeaks--asking state Supreme Court Justice Marcy Friedman to reconsider her decision deferring to the ESDC's ten-year timetable. (The Development Agreement was also not entered into the record of the case.)

Light penalties relaxed even more

Beyond that, it's notable how the ESDC fudged the timetable in the MGPP, only to relax the penalties even more. From the MGPP:
The build-out of the Project is likely to occur in two phases, with the Project elements on the Phase I Site and the Upgraded Yard (collectively, "Phase I") anticipated to be completed by 2014 and the Project elements on the Phase II Site (collectively, "Phase II") anticipated to be completed by 2019....

Phase I - Arena Block and Site 5
The Project Sponsors expect to commence construction on the first non-Arena building within six months of ESDC's delivery of vacant possession of the Arena Block to the Project Sponsors, but in all cases, on or before the third anniversary of ESDC's delivery of vacant possession of the Arena Block to the Project Sponsors; the second non-Arena building within six months following the commencement of construction on the first non-Arena building, but in all cases, on or before the fifth anniversary of ESDC's delivery of vacant possession to the Arena Block to the Project Sponsors; and the third non-Arena building within six months following the commencement of construction on the second non-Arena building, but in all cases, on or before a date certain agreed to by ESDC and the Project Sponsors. The Project documentation to be negotiated between ESDC and the Project Sponsor will require the Project Sponsors to use commercially reasonable efforts to achieve this schedule and to complete the entire Project by 2019. The failure to commence construction of each building would result in, inter alia, monetary penalties being imposed upon the Project Sponsors.
(Emphases added)

First, while the MGPP says each of the three buildings should start within six months of each other, the Development Agreement allows for two-year gaps.

Ten-year deadline impossible

How could Forest City Ratner be required to achieve "this schedule"--with construction on the second tower not starting for up to five years--and also complete the entire 16-tower project in ten years?

The MGPP included no timetable for the third tower, just "on or before a date certain."

The Development Agreement (excerpt above; document embedded below), however, says the third building doesn't have to start for ten years.

If the third non-arena building doesn't have to start for ten years, how could the project be completed in ten years?

Had this deadline been included in the MGPP, it would've made a further mockery of the claim that the developer would be compelled to use "commercially reasonable efforts" to finish the project by 2019.

(As BrooklynSpeaks attorney Al Butzel pointed out, there's no accepted definition of the term "commercially reasonable.")

The deceptions of inter alia

Let's take another look at this passage:
The Project documentation to be negotiated between ESDC and the Project Sponsor will require the Project Sponsors to use commercially reasonable efforts to achieve this schedule and to complete the entire Project by 2019. The failure to commence construction of each building would result in, inter alia, monetary penalties being imposed upon the Project Sponsors.
Inter alia means "among other things." It helps deflect attention from the actual penalties in the Development Agreement.

Only the failure to commence construction of the three Phase 1 buildings mentioned in the passage above--the three towers--would result in monetary penalties. Those penalties could reach $5 million per building (over the course of a decade), though they could be deferred in the absence of affordable housing subsidies.

The failure to commence construction of the other two Phase 1 buildings would not result in monetary penalties. Nor would the failure to commence construction of the eleven Phase 2 buildings.

So, that passage might more accurately have said:
The failure to commence construction of three buildings would result in monetary penalties being imposed upon the Project Sponsors, while the failure to commence construction of the rest of the project might result in the ESDC taking back pieces of the project site.
Phase 1 vs. Phase 2

The paragraph on which I've focused appears in the section devoted to Phase 1. The section devoted to Phase 2 contains no language about enforcing deadlines.

However, whether sloppy draftsmanship or devilish deception, the paragraph could leave the impression that it addresses penalties for Phase 2, since the sentence about penalties for "each building" appears after a sentence referring to the entire project.
Atlantic Yards June 2009 Modified General Project Plan

Atlantic Yards Development Agreement Section 8

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