Skip to main content

Gramercy Recognition Agreement emerges, with hint that immigrant investor funds would mainly be used to pay off FCR's land loan

There are two Atlantic Yards Recognition Agreements after all, both of which allow those loaning money to developer Forest City Ratner to gain development rights for part of the Atlantic Yards site, and also allow the minimum square footage of Phase 1 to be delayed.

And the earlier Recognition Agreement, which is the second to be released, offers hints that the money sought from immigrant investors, subject of the later Recognition Agreement, would be used mainly to pay off Forest City Ratner's land loan, not to build a new railyard, as the developer has said.

Background

As I wrote 12/16/10, the Recognition Agreement that the Empire State Development Corporation (ESDC) signed last October allowed potential immigrant investors development rights to part of the future Atlantic Yards site. And a previous Recognition Agreement did something very similar.

That latter agreement, embedded below and dated December 2009, allows at least 2.25 years of additional time, to February 2012, to reset the clock should FCR default on its obligation to Gramercy Warehouse Funding, which "holds a leasehold mortgage on certain Project parcels."

That would mean at least a 14-year deadline for Phase 1, rather than 12 years. The second Recognition Agreement offers a seven-year extension, meaning a 19-year deadline.

The loan at issue

The Gramercy mortgage, the balance of which was $153.9 million when the Recognition Agreement was signed in December 2009, expires in February 2012.

FCR seeks $249 million from immigrant investors via the New York City Regional Center under the EB-5 program--green cards for purportedly job-creating investments.

FCR executive MaryAnne Gilmartin told the Wall Street Journal that the money would be used for a railyard, but could be used, in part to pay off that land loan.

Given that some 60 percent of the $249 million could be used for the loan, my bet is that's the priority. After all, the railyard doesn't have to be completed until 2016.

That suggests that the developer how has a 13-month window of opportunity to get a no-interest (or low-interest) loan from the immigrant investors to repay Gramercy.

The Gramercy agreement

The Gramercy Recognition Agreement has three parties: Gramercy Warehouse Funding, a subsidiary of Gramercy Capital; the AYDC Interim Developer (aka Forest City Ratner); and the ESDC.

It involves an unspecified portion of the Phase 1 Properties, including those on the Arena Block (but excluding the arena) and on Block 1129, the southeast block in the project site, which includes construction staging and interim surface parking.

Which properties? Likely some if not all of the ones in the second recognition agreement (in graphic at right): three parcels on the arena block, and four on Block 1129.

The value of the mortgage

How much does FCR owe Gramercy? There are several numbers to consider.

The Times reported 2/13/09 that the loan was worth $177 million, but a portion would be paid off:
Forest City will sign an agreement soon as today in which the company will make a $15 million payment immediately, as well as additional large payments in the future, in return for a two-year extension.
In March 2009, parent Forest City Enterprise cited a $161.9 million refinancing on the loan, which implies that the $15 million payment had gone through, lowering the sum from $177 million.

According to the Recognition Agreement, FCR apparently got an additional year for an extension--to 2012, not 2011. According to p. 4 of the document, the stated maturity date, after all extension options in favor of the developer, is 2/11/12.

Again, according to p. 4, the outstanding principal balance as of December 2009 was $153.9 million. If so, then Forest City Ratner seems not to have made many "additional large payments" to diminish the $161.9 million total.

Hence the pressure on the developer to raise cheap capital in China.

The Mortgage Spreader Agreements

The numbers get a bit more complicated when you look at Exhibit B (right), which explains the components of the Certified Mortgage.

The original loan was apparently $152.8 million.

An additional Mortgage Spreader Agreement apparently added about $37.4 million.

That totaled some $190.2 million.

While the document is not explicit, it seems that payments by Forest City Ratner reduced that sum to
$153.9 million.

Gramercy obligations

According to the document, the extension available in Article IV applies only to Gramercy, as Mortgagee, or any Successor Leasehold Owner who takes over after a foreclosure.

The interim lease can be extended, "as necessary" for Gramercy to foreclose on the mortgage and "for a Successor Leasehold Owner to make satisfactory arrangements with a Permitted Developer to perform Developer's Obligations"... provided that Mortgage "is acting diligently, in good faith and in a commercially reasonable manner."

Gramercy as Mortgagee, is not required to build the subway entrance, rebuilt Carlton Avenue Bridge, develop "Additional Affordable Housing Units," fund "the Existing Parks Investment" (as far as I know, money for the Dean Street Playground), develop the Arena, platform, upgraded railyard, or affordable housing on Site 5.

Successor Leasehold Owners may apply for generally available financing for affordable housing.

Reset date: Feb. 2012 or later

As with the deal with immigrant investors, there's a reset date, in which the new developer would have 12 years--FCR's outside date--to complete a minimum square footage in the towers of Phase 1.

That reset date would begin no earlier than February 2012, which is when the loan is due, but likely would take much longer, given the time it would take to find a new permitted Developer to develop the properties.

Minimum square footage

As with the other Recognition Agreement, the developers would be required to build a minimum of 1.3 million gross square feet (gsf) in Phase 1, if Site 5 (currently home to P.C. Richard and Modell's) is not included, or 1.5 million gsf if Site 5 is included.

If a Development Lease has been severed--because a building is under construction--the calculation gets more complicated. The requirement will be reduced by the gross square footage of each project building substantially completed, and will be further reduced by a percentage.

The calculations, in Section 5.2(d) and then Appendix C of the document below, are confusing, to say the least.

This document, as a whole, is an example of a quote from former chairman of the Civil Aeronautics Board, Alfred E. Kahn, who famously said, “If you can’t explain what you’re doing in plain English, you’re probably doing something wrong.”

Liquidated damages

If Gramercy or successors fail to substantially complete the Phase 1 improvements, then they would have to pay $7.5 million on the Mortgagee Outside Completion Date, which is 12 years after the payment reset date.

Then for the next four years, $7.5 million would be due each year. Each payment would extend the term of interim leases one year.

This does not affect the obligation of the Developer under the Interim Leases and Development Agreement. Nor are there offsets or credits, according to section 5.4 or the Recognition Agreement.

This suggests the ESDC might collect damages twice.

Allocation of obligations

Exhibit C (left; click to enlarge) allocates obligations between the part of the site currently included in the Interim Leases--the Mortgaged Leasehold Estate--and the Remainder Project Site.

There's a confusing error on the page.

The project requires no less than 2250 Project Site Affordable Housing Units. However, the requirement of 1305 such units on the Remainder Project Site--Phase 2--is, at least according to the document, diminished by any of the affordable units in the Mortgaged Leasehold Estate, or Phase 1.

That doesn't make sense. Indeed, ESDC spokeswoman Elizabeth Mitchell said, in response to my query, that it was a mistake:

There is in fact a typo on Exhibit C, because it was certainly not the intention to diminish the number of affordable housing units required. The third row of the third column should read “1,305 Project Site Affordable Housing Units in excess of Project Site Affordable Housing Units constructed on the Mortgaged Leasehold Estate”. The Development Agreement clearly outlines the obligation that the developer has to construct 2,250 affordable housing units. The Recognition Agreement speaks to the responsibility of Gramercy if a default were to occur. Therefore, column 2 is the information that is relevant to this document. This typo that you point out in Exhibit C does not alter the obligations of Gramercy or Forest City Ratner. We do appreciate you pointing out this error, and we will be certain to make the correction in all future agreements.

Note that Exhibit C can be revised depending on how Project Requirements are reallocated to new Development Leases. Indeed, the various documents regarding Atlantic Yards are likely to go through multiple revisions.

Gramercy Recognition Agreement with ESDC

Comments

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…

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…

Former ESDC CEO Lago returns to NYC to head City Planning Commission

Carl Weisbrod, Mayor Bill de Blasio's City Planning Commission Chairman and Director of the Department of City Planning, is resigning,

And he's being replaced by Marisa Lago, currently a federal official, but who Atlantic Yards-ologists remember as the short-term Empire State Development Corporation CEO who, in an impolitic but candid 2009 statement, acknowledged that the project would take "decades."

Still, Lago not long after that played the good soldier at a May 2009 Senate oversight hearing, justifying changes in the project but claiming the public benefits remained the same.

By returning to City Planning, Lago will join former ESDC General Counsel Anita Laremont, who after retiring from the state (and taking a pension) got the job with the city.

Back at planning

Lago, a lawyer, in 1983 began work as an aide to City Planning Chairman Herb Sturz, and later served as the General Counsel to the president of the NYC Economic Development Corporation, Weisbrod himself.