Tuesday, May 04, 2010

KPMG's lies about condo sales? ESDC calls "alleged inaccuracy" trivial and belied by current "robust demand," but ignores the deep discounts

So what do the attorneys for the Empire State Development Corporation (ESDC) say when faced with legal papers calling attention to a blatant lie from consultant KPMG regarding condo sales in Brooklyn?

They question the conclusion, call it trivial, and say it's belied by other evidence.

It's quite a strained performance, given that current prices at the Oro development are less than half the prices Forest City Ratner expects for condos coming on line in five years.

Timetable issues

The statement comes in a motion (below) arguing that Supreme Court Justice Marcy Friedman should not reopen the case in which she dismissed a challenge to the ESDC's 2009 approval of the Modified General Project Plan, though she criticized the ESDC’s “deplorable lack of transparency."

One of the key issues is whether it was reasonable for the ESDC to assume a ten-year timetable for the project and thus evaluate environmental impacts based on that scenario, an issue seemingly belied by the Development Agreement that sets 25 years as an outside date. (I'll discuss more of the arguments in another post,)

The condo market

But another key issue concerns the current condo market in Brooklyn.

The KPMG market study (below) concluded that the market could absorb the projected market-rate units by 2019. In her 3/10/10 decision, Friedman wrote, on p. 9:
KPMG concluded that FCRC's residential absorption rate estimates were supported by current market data for condominiums...
(Emphasis added)

Current market data?

But they weren't supported by current market data, because the market data was a lie.

As I wrote 3/30/10, while KPMG said that as of last August the Oro condo development had sold 75% of its units, a 3/29/10 press release indicated that the development had finally reached the halfway mark. And a New York Times article demolished KPMG's claims regarding sales of Richard Meier's One Prospect Park.

That press release was cited in the motion to reargue filed by organizational members of BrooklynSpeaks, several local elected officials, and several Prospect Heights residents.

ESDC response

The ESDC response described the Oro information as an "alleged inaccuracy" and called it "far too trivial to warrant reargument," given that there's no demonstration it was material to either KPMG's conclusions or ESDC's decision:
Assuming the accuracy of the internet press release cited by petitioners, the recent surge in condominium sales at this 303-unit luxury building in downtown Brooklyn well illustrates the robust demand for market-rate units in the area, even in today's tough economic climate.
Really?

It illustrates the robust demand for market-rate units at a 25% discount, as Crain's reported. The most recent sales data, according to StreetEasy, is $589/psf.

The KPMG numbers

According to the KPMG report, Forest City Ratner is counting on condo sales prices at Atlantic Yards of $1217/sf in 2015 up to $1369/sf in 2019.

Is that realistic? Keep in mind that the Kahr report commissioned by the Council of Brooklyn Neighborhoods was skeptical of even the $850/sf (in 2006 dollars) assumed in a 2006 KPMG report.

"Modest inflation factor"?

Even though the average high sales price in the three surrounding neighborhoods is $970/sf, the KPMG market study stated that only a "modest inflation factor" would allow the expected prices to be reached:
Mindful that these prices are based on transactions that have occurred over the past 12 months during a severe recession, the value ranges for Fort Greene ($480 - $720), Park Slope ($500 - $950) and Prospect Heights ($470 - $1,225) lend support for the FCRC’s projected sale prices when a modest inflation factor is applied given these future sales prices.
Can we expect prices to double in five years, from the Oro to AY?

The KPMG report doesn't make that case.

Will it make a difference?

These points about Oro, however, do not appear in the response papers filed by the attorney for the BrooklynSpeaks coalition.

Only if the case goes to oral argument, rather than simply be decided on papers, might the record be put straight.

In Williamsburg, prices decline from "complete fiction"

Meanwhile, the Greenpoint Star reports on a 2006 analysis by the city Department of Housing Preservation and Development (HPD) that "raises questions about the developer's insistence that New Domino must be so large in order to provide the promised-for level of affordable housing."

That's a very interesting argument, and one that could be made about Atlantic Yards, though there's no evidence HPD conducted a similar study, given that AY was outside of the city land use review process.

More importantly, HPD's analysis was based on the sale of market-rate units priced at $900 per square foot, “assumptions that would have been aggressive even at the height of the real estate market and are a complete fiction today,” according to HPD Deputy Commissioner Holly Leicht.

These says, Williamsburg waterfront real estate has dropped $650-$700 psf. That sounds roughly equivalent to prices in Downtown Brooklyn and the neighborhoods near Atlantic Yards.

If so, that means the 2006 KPMG numbers were "aggressive" at the time and "a complete fiction today." And that suggests that the 2009 KPMG analysis was even more of a fiction.
ESDC Memorandum of Law in Opposition to the Motions to Reargue and Renew case challenging 2009 MGPP

KPMG Atlantic Yards Market Study Aug. 31, 2009

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