Skip to main content

Immigrant investors seeking green cards now own mortgage on development rights for Atlantic Yards tower; more mortgages coming

Chinese millionaires are closer to owning a piece of the Atlantic Yards project.

Immigrant investors now own a $24.7 million mortgage on the 1.24-acre site for B12, the first of seven development parcels promised as collateral for a low-interest loan to developer Forest City Ratner.

More such mortgages are coming, a state official says, indicating that proceeds from the $249 million low-interest loan garnered through the EB-5 visa program are being delivered.

Forest City Ratner is thus transferring portions of a longstanding high-interest loan to the cheaper capital raised via Brooklyn Arena Infrastructure and Transportation Improvement Fund, an affiliate of the New York City Regional Center (NYCRC), a private investment pool authorized to recruit immigrant investors.

It looks like the large majority of the cheaper capital will replace that existing loan rather than be used, as Forest City officials once said, to build a new railyard.

(Map from promotional material issued in China, which claimed the value of the collateral is $542.4 million. The sites are located on the arena block as well as the southeast block, 1129, which is designated for interim surface parking. Omitted are building sites that require an expensive deck over the railyard.)

How it works

Forest City gets a low-interest loan--likely 4-5%, as the city has advertised for similar endeavors. Of the the 498 immigrant investors, the majority, from China, get no interest. Instead they get green cards. The NYCRC keeps the spread.

The justification for this alchemy? The creation of jobs, but the federal agency in charge of EB-5, the United States Citizenship and Immigration Services, won't release the economist's report it relied on.

State officials acknowledge that no new jobs would be created than originally promised. And there's no evidence that the project wouldn't go forward without this new loan--after all, Forest City has to get the arena going by September 2012 to start earning money from naming rights revenues.

This week the New York Times highlighted another questionable aspect of this and other EB-5 projects promoted in New York: the gerrymandering of high-unemployment areas to ensure that investors allocate $500,000, rather than $1 million.

Repayment in seven years

The terms of the loan, to be allocated among multiple mortgages, give Forest City a significant amount of slack. While the maturity date is the fifth anniversary, the Brooklyn Arena Infrastructure and Transportation Improvement Fund agreed to a two-year forbearance period.

That's two years longer than many other EB-5 projects, which promise a return of investors' money in five years. Were investors told this? Were they told there was a plan to repay their money? I don't know.

And I do know that potential investors were told publicly their investment was secured by not by a revenue stream--as with some other EB-5 projects--but by future development rights.

Should Forest City not pay back the loan in seven years, those immigrant investors would have to recoup their investment by selling those development rights. That could involve an unwieldy process, bringing in a new developer or reverting the rights back to the ESDC (aka Empire State Development) or its designee.

Details: 8.5% rate if default

Given the extensive descriptions of how that loan could go into default, it's seems like it's been carefully contemplated.

According to a mortgage document (below) dated 7/26/11, the $24,736,928 mortgage on Development Parcel B-12 is based on a loan agreement dated 10/5/10 and amended 5/27/11. Should the loan default, any expenses or advances paid by the lender will be paid at 8.5% per year, in case of event of default.

Other details are laid out in a Recognition Agreement (below) among Brooklyn Arena Infrastructure and Transportation Improvement Fund, AYDC Regional Development Company, and ESDC, dated 7/28 but not prepared until 11/7/11 (and not recorded on the city's ACRIS system until 12/6/11).

What's coming at B12

Attached to the Recognition Agreement is a Project Requirements Allocation Schedule (below; click to enlarge) for B12, which has a maximum of 276,390 gross square feet, no less than 154 Project Site Affordable Housing units, 277 non-exclusive arena parking spaces and 123 resident parking spaces.
The page also cites the Anticipated Allocation for Parcel B11, with nearly as much parking but no less than 60 Project Site Affordable Housing Units. The document states that  the "loan is secured  by (or will be secured by) Developer's interest in the Lease as well as multiple other Development Leases."

So, what about B11 and the other sites?

"We expect similar agreements to be signed for additional parcels in the first quarter of next year," confirmed Arana Hankin, Director, Atlantic Yards Project, for Empire State Development, the state agency overseeing the project. "To date, Forest City Ratner has only posted parcel B-12 as collateral."

A 10/5/10 Recognition Agreement involving the three parties mentioned an Exhibit E, a schedule "allocating among the Project Site included in the Lease... and the remaining balance of the Project Site... the development and construction requirements..." I asked for a copy last year but was told it had not been prepared yet.

Exhibit E, Hankin explained, is the above Project Requirements Allocation Schedule, which will be updated each time a parcel is severed.

The deal with Gramercy

Another document below, Partial Lease of Mortgaged Premises (Subordinate Loan), dated 7/26/11, by Gramercy Warehouse Funding and FCR affiliates, regards a loan agreement dated 7/3/07 and modified several times.

The lender agreed to payment of "the applicable Development Parcel Release Price" to release Forest City from the lien of the Existing Mortgage. It does not affect the Remaining Mortgaged Property, identified a leasehold estates in the rest of Block 1129, minus the B12 site, as well as the four parcels on the arena block, Parcels B1, B2, B3, and B4.

Such leasehold mortgages involve not ownership but the right to use land. Gramercy also has fee simple mortgages (right to ownership) regarding four parcels on Block 1128, east of Sixth Avenue between Dean and Pacific Streets: Lots 1, 2, 88, and 89.

How much does Forest City owe?

As I reported 1/31/11, the Gramercy mortgage was $153.9 million when the Recognition Agreement was signed in December 2009. It expires in February 2012.

At 8.5%--the sum chosen as the default rate noted above--after 1.5 years, Forest City would owe about $174 million. Subtract the $24.7 million for B12 and the bill, after 1.5 years, dips below $150 million. But after two years, at 8.5%, the tab again tops $160 million.

That suggests that some $185 million of the $249 in immigrant investor financing immigrant investors would be replacing the Gramercy loan.

(At a higher interest rate, the developer would owe more; at a lower interest rate, the developer would owe less.)

What Forest City promised

Forest City never said that most of the new funding would simply replace the Gramercy loan.

In an unskeptical 9/21/10 article, Ratner Mulls Visa Financing, the Wall Street Journal nonetheless provided this important detail, one that seemed contradicted by the project's promotion in China and the evidence that has since emerged:
[Forest City Ratner executive MaryAnne] Gilmartin said she expects much of the money raised through the program would go toward financing the construction of a new rail yard for the Long Island Rail Road to replace the one that occupied a large portion of the site. Some may also be used to help pay off land loans on the project, she said.
(Emphases added)

That's not what it looks like now.

AY Mortgage 72711

AY Lease 2 72611

AY Partial Release of mortgage 72611

AY Recognition Agreement 72811

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.