Tuesday, August 03, 2010

If FCR doesn't build over the railyard, would "the vast majority" of benefits be realized, as the developer claimed last year to the ESDC? Not at all

What happens if Forest City Ratner doesn't build a platform over the Vanderbilt Yard and build out the full Atlantic Yards project?

That's a possibility, given the renegotiation of the railyard deal last June with the Metropolitan Transportation Authority, which allows FCR bow out of railyard development after Phase 1 by paying out less than the cost of building a new permanent railyard.

Astonishingly, FCR in March 2009 told the Empire State Development Corporation that "the vast majority" of benefits for the community would be "entirely realized in the remote circumstance of MTA's default scenario."

As I explain below, that's not true in the slightest, given vast differences in the amount of jobs and affordable housing, and the complete absence of any analysis of tax revenues.

FCR, as a "show of good faith" in its commitment to the full project, said it would ensure that $2 million of $3 million planned for local parks and public spaces would be available in the first phase.

But that's hardly a guarantee that Phase 2, which would cost a few billion dollars, would be built.

A default?

Atlantic Yards would be built in two main phases: the arena block, and the rest.

According to the June 2009 MTA staff summary, below, Forest City Ratner must pay $20 million cash for the piece of the railyard needed for the arena block, then pay $2 million a year over four years to June 2015, after which is would pay about $11 million a year over 15 years.

If it abandons the project after Phase 1, rather than spent $147 million on railyard improvements, it would forfeit an $86 million letter of credit.

According to the Development Agreement, there are specific penalties for delayed construction of the first three towers beyond the arena, but the penalties are fairly gentle; the third tower need not be started for ten years.

The developer is supposed to build housing on Block 1129, the southeast block below the railyard, but there are no penalties other than general penalties for default.

Looking at the benefits

What's wrong with FCR's claims? Take a look at the chart below. (It includes the 150 square foot meditation room mentioned yesterday. I obtained the document and a cover letter via a Freedom of Information Law request.)

Atlantic Yards Benefit Chart

First, taking FCR's narrow definition of benefits, nearly half the construction jobs would be cut. The document indicates that instead of 17,000 construction jobs, there would be 9000 jobs; in both cases, the reference should be to job-years.

Second, it looks like more than half of the affordable housing wouldn't be built. Instead of 2250 units on full buildout, a partial buildout would mean at least 300 to 500 units on the arena block, "plus a proportional share of the affordable units in Phase II."

Third, while the percentages of minorities and women hired for construction jobs would remain the same, as would the percentages of minority- and women-owned businesses, the raw totals would be much lower.

Perhaps most importantly, the chart takes a notably limited perspective on "benefits to the community."

It omits permanent jobs (office, retail, arena) and it omits new tax revenues, the calculation of which is key to the city's conclusion--however dubious--that the project would be a net gain for the city.

The cover letters

The document was attached an an email message from an FCR executive to Empire State Development Corporation staffers and their outside counsel:
As requested last Friday, attached is a summary of the many benefits for the community under the Atlantic Yards Development plan. As you will see in the attached chart, the vast majority of these benefits are still entirely realized in the remote circumstance of MTA's default scenario. However, in an effort to demonstrate our commitment to the full project and as show of good faith, we are prepared to commit to expending $2 million of our $3 million total commitment to improve local parks and public spaces in connection with the Phase I development, and we will create interim open space where possible, should the development of the residential buildings differ from our intended schedule.
Exepedited construction?

Lower down on the page, a previous email in the sequence refers to negotiation over terms in the development agreement:
Following our conversation yesterday, the attached draft language responds to your requests to expedite the Arena Block residential construction (and to provide a substantial penalty if we fail to do so), and to expedite the construction of the platform once Phase 2 begins. Please note that when the phase 1 and phase 2 time periods were originally negotiated, they were intended to provide flexibility in the event that there was a downturn in the market. Now that we are in the midst of an economic crisis we view these significantly more aggressive time schedules as a major concession and sign of our unwavering commitment to the project and to a Master Closing immediately following resolution of the 207 [eminent domain] case.
(I didn't see any evidence that the ESDC responded to FCR's claims.)

The previous negotiations apparently refer to the City and State Funding Agreements.

Compare to the two earlier documents, the Development Agreement does provide a timetable and penalties for the first three towers. And, yes, it's prudent for developers and government entities to plan for changing economic times.

However, the "significantly more aggressive time schedules"--which require the third of 16 towers to be started within a decade-- have nothing to do with the ten-year buildout on which project benefits, including new tax revenues, have been premised.

In other words, if the city and state wanted to give Forest City Ratner ten to 25 years to build Atlantic Yards, depending on the economic climate, they should have calculated the benefits--and impacts--over multiple periods of time, as well.

MTA Staff Summary Regarding June 2009 Revision of Vanderbilt Yard Deal

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