Skip to main content

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


Popular posts from this blog

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…