Thursday, December 16, 2010

Before signing Recognition Agreement to allow immigrant investors more time for Phase 1, ESDC signed similar document with Gramercy, FCR's lender

Documents released today by the Empire State Development Corporation (ESDC) indicate that the agency was willing to allow extended delay of the project's Phase 1 even as it signed Master Closing documents in December 2009.

An ESDC response (also embedded below) to the State Supreme Court's 11/9/10 order regarding the failure to study a 25-year buildout reveals that, while the Recognition Agreement the ESDC signed in October allowed potential immigrant investors development rights to part of the future Atlantic Yards site, a previous Recognition Agreement did something very similar.

In that case, additional time was allowed if Forest City Ratner defaulted on its obligation to Gramercy Warehouse Funding, which "holds a leasehold mortgage on certain Project parcels."

Neither the additional time nor the parcels were specified.

Phase 1 has an outside date of 12 years for a minimum amount of square footage, but the immigrant investors were given an additional seven years, for a potential 19-year outside date.

The new document suggests that Forest City Ratner, as it indicated to the Wall Street Journal, would at least in part use the $249 million no-interest loan from immigrant investors, via the EB-5 program, to replace higher-cost funding. The developer's land loan from Gramercy Capital was last reported to be $161.9 million.

From the response

The response states:
In a different contract, also executed at the master closing that occurred on December 23, 2009, ESDC entered into a Recognition Agreement with Gramercy Warehouse Funding II LLC (“Gramercy”), the entity that provided financing to FCRC to acquire a portion of the Project site. In consideration for providing such financing to FCRC, Gramercy holds a leasehold mortgage on certain Project parcels. Under the terms of the Recognition Agreement, ESDC has agreed that in the unlikely event that FCRC defaults on its obligations to Gramercy and Gramercy forecloses on its leasehold mortgage, ESDC would provide additional time for Gramercy, beyond that which is provided to FCRC, to perform certain construction obligations under the Development Agreement and various leases. Providing a mortgagee with additional time to cure the default, or an imminent default, of a borrower is not unusual for complex real estate transactions.

ESDC Response to Remand Order, 12/16/10

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