Thursday, May 26, 2011

Forest City Enterprises gets one-third off loan due Cleveland; will subsidary FCR pursue similar discounts regarding Atlantic Yards?

Is a discount on a Forest City Enterprises loan from the city of Cleveland a harbinger of further requests to adjust Forest City Ratner's public obligations regarding Atlantic Yards?

Well, we can't be sure, but the Forest City modus operandi, it's clear, is to play hardball, taking advantage of what public agencies allow.

(FCR doesn't have any loans to pay back, but it is supposed to create new public infrastructure, and already renegotiated a discount on the development rights to the Vanderbilt Yard and got permission to build a replacement yard smaller than promised.)

The discount in Cleveland

From the Cleveland Plain Dealer's blog, a post headlined Forest City paying $10.3 million to close out $15 million in city loans:
Forest City Enterprises will pay Cleveland $10.3 million of $15.4 million owed on three development loans, and the city will call it even.

About half the money will replenish a "rainy day" fund that is to run out this year, and $3.9 million will go to economic development. The City Council has set aside $1.4 million for neighborhood projects, with each of the 19 members receiving $75,000.

The deal, initiated by the city, involves loans made to the real estate and development company with federal Urban Development Action Grant money in the late 1980s and early 1990s. Forest City used the low- and no-interest loans to develop The Avenue at Tower City Center.

Forest City had faced balloon payments totaling about $15.4 million due in 2016 or 2020, depending on the loan.

Ken Silliman, Mayor Frank Jackson's chief of staff, said the deal ensures the city will collect two-thirds of a debt that would be hard to recover if Forest City defaulted. He and Economic Development Director Tracey Nichols said it also makes money available for economic development at a time when private financing remains tight.
(Emphasis added)

Making the deal

Why should Forest City default? They can afford to pay back the loan. They just don't want to.

The question is why Cleveland let them get away with it. Yes, as the newspaper reports, it has made similar agreements with other borrowers. Now, the city will try to do the same with other borrowers; it began with Forest City because it had the largest loans.

Paltry payoff

The payoff seems paltry:
In 2008, council members each received $100,000 for neighborhood projects. Council President Martin J. Sweeney said the council sought the same amount this time but reached a compromise with an administration that didn't want to surrender any of the money.

"We carved out a small portion to make sure it touches every part of the city of Cleveland," he said.

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