Monday, June 25, 2012

Behind the revision of the railyard deal: MTA says it leaves agency whole, won't try to put a dollar figure on work so far, says disruptive work to meet deadline not expected

As noted on June 7, the Wall Street Journal broke the news that developer Forest City Ratner, which successfully revised the Vanderbilt Yard development rights deal to build a smaller, cheaper replacement railyard and to attenuate payments, has managed to save cash flow by renegotiating another aspect of the schedule with the Metropolitan Transportation Authority.

Instead of beginning the permanent railyard this June 30, as indicated in an MTA Staff Summary dated 6/22/09, the official start date has been moved back 18 months to 12/31/13, with terms disclosed to the MTA board members on June 4.

Now that I have the underlying documents and posed questions to the agency, I can attempt answers at some of the lingering questions:
  • Does Forest City save money? Probably.
  • Does it leave the MTA where it wanted? Yes, but thanks in part to the agency's own delays.
  • Will a concentrated schedule mean noisy late-night work? No, they say.
  • Can the schedule be extended/relaxed again? Surely.
  • Does Forest City have the upper hand? Looks that way.
By building the arena, Forest City Ratner had to move the railyard functions (storage and cleaning) to a smaller temporary yard east of the arena block, and to build an upgraded yard--though not as large as originally promised, and smaller than its predecessor-by 9/1/16.

Note that Forest City Ratner in 2005 agreed to build a nine-track yard that can accommodate 76 train cars but, with the 2009 renegotiation, got the MTA to agree to a seven-track yard holding 56 cars, valued at $147 million, perhaps $100 million less than the larger yard.

The temporary railyard has capacity for only 42 cars. It was once supposed to last 32 months after construction, but could last six years and eight months, or 80 months.

Little changing?

The Journal reported:
Forest City spokesman Joseph DePlasco said the yard will still be completed on time. The developer has already built a portion of the yard, he said, and other related work will continue.
MTA spokesman Adam Lisberg said the developer has agreed to do $10 million of additional work in the interim, and the LIRR is using a temporary rail yard meanwhile.
"From our perspective, very little is changing here," Mr. Lisberg said.
Why the delay?

MTA Chairman Joseph Lhota wrote to board members:
While substantial work has been performed that progresses the new yard, Forest City has asked for an extension of the formal construction commencement date for a period of 18 months, until December 31, 2013. Forest City has indicated that it will be completing work at the arena site and in the temporary rail yard to facilitate the arena's opening. 
That's fairly opaque, since it doesn't explain why, so I asked. "I don't have an official reason why they asked, but it's sort of immaterial to us, because we don't need it [finished] until 2019," Lisberg told me. As the Journal's Eliot Brown wrote:
The delay comes as developer Forest City Ratner Cos. has struggled with higher-than-expected costs and a sluggish economy that have slowed other portions of the project.
So it seems likely that the delay, at minimum, will save Forest City some cash flow.

Delayed East Side Access means a delayed yard?

The new railyard is needed to facilitate East Side Access: service to Grand Central Station, with Atlantic Avenue to Jamaica trains as a shuttle service. Until last month, the MTA had been predicting 2016 as the start date; hence the requirement, in the 2009 revision of the Vanderbilt Yard deal, for the railyard to be finished by 2016.

But East Side Access is delayed, and the new goal is 2019. "We did not put forward a new time estimate until last month, but had backed off earlier ones," Lisberg said.

Of course, if the railyard is not needed until 2019, that gives opportunity for Forest City to further revise the deal. The year 2016 is no longer a drop-dead date, so if things are going slowly, or they need to save cash flow, why not simply ask for more time?

The amount of spending: ahead or behind?

If the new railyard costs $147 million and would take four years and three months to build, a $10 million expenditure over 18 months represents a slowdown in progress, I wrote.

Then again, presumably Forest City has already spent a portion of the overall cost.

Indeed, that's what Lhota indicated:
As background, in February of 2011, LlRR/MTA agreed to allow Forest City to enter into the existing temporary rail yard so that Forest City could begin the reconstruction of the Carlton Avenue Bridge -a road connection over the rail yard that the City and the Empire State Development Corporation (the Project Sponsor) required for the opening of the Barclays Center in September 2012. To construct the bridge, Forest City Ratner has had to excavate within the rail yard in order to ensure adequate clearance over LlRR trains using the yard. Because this excavation would also be required in connection with the construction of the permanent yard, this early work has advanced the construction of the permanent yard before the official "commencement of construction" and has been achieved without Forest City being permitted to draw down on the $86 million letter of credit. Thus, LlRR has received the benefit of the excavation without any diminution of its security. 
(Emphasis added)

So, can that benefit be quantified? No. Lisberg said "we are not, as a matter of policy, giving any estimates on the value of work done so far."

He noted that the additional $10 million letter of credit protects the MTA, so if Forest City backs out, the agency would get a letter of credit worth $96 million to construct the new railyard, and have the opportunity to sell new development rights.

Disruptive work?

If the deadline is met, I asked, how much disruptive late-night and overnight work will be necessary? That's a very relevant question, given that late-night railyard work to finish the Carlton Avenue Bridge has proven quite disruptive to nearby residents.

The LIRR engineering staff examined the proposed schedule, and said--according to an internal memo Lisberg quoted to me--that the work for the permanent yard could be completed without "resorting to extensive multiple shifts over time, night time work, or other extraordinary measures."

That suggests that railyard work would not be as disruptive as the current work. But it also looks like they have a time cushion to extend work.

Delegated decision

As Lhota's memo indicates, the board did not have vote on this, because in 2009 they delegated authority to:
the Chairman and Executive Director and their designees "to negotiate, execute and deliver contracts and any other necessary or appropriate agreements, leases, deeds, documents, and other instruments, and to take any other necessary or appropriate steps, to implement the Atlantic Yards Project." 
Lhota noted ESDC concurrence:
MTA/LIRR have been coordinating closely with the Empire State Development Corporation, who supports this amendment to the permanent yard construction agreement. 
Vanderbilt Yard Agreement, 6/4/12, MTA & Forest City Ratner

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