Monday, September 10, 2012

The "Civic Developer" and the Culture of Cheating: how Bruce Ratner backed off promises to build Atlantic Yards in ten years and to build conventional towers with union labor

There's nothing criminal about Atlantic Yards, nothing corrupt--at least nothing found or even investigated.

But many people feel uneasy about the project and the process, suspicions validated by a finding of serious civil illegality--the state's failure to study the impacts of a 25-year buildout.

That failure, left unresolved when the Barclays Center opens Sept. 28, was linked to the signing of a Development Agreement in 2009 after the project was approved. The Development Agreement, which gave developer Forest City Ratner 12 years to build the first towers on the arena block and 25 years to build the project, was initially withheld from public and legal scrutiny.

It's part of a pattern that pervades the Atlantic Yards saga. I call it the "culture of cheating," drawing on The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead, a book by business ethicist David Callahan. (The book doesn't deal with Atlantic Yards, though an update could.)

Developer Bruce Ratner has made two self-sabotaging--if rather little-noticed--statements that back up charges of cheating:
  • he repudiated the ten-year timeline to build the project previously endorsed by his company and the state
  • he claimed that high-rise, union-built affordable housing isn't feasible, even though that's what he long planned and the state approved twice
Instead, a "civic component"

Still,  Ratner can speak with uninformed interviewers, like the Wall Street Journal's Lee Hawkins last month, and proclaim corporate virtue in the face of no skepticism.



"Our company is really what I call a civic development company," Ratner declared. "They really have to have some civic component."

"Conscious capitalism," pronounced Hawkins. He asked when it started.

"In law school, I was involved in the Vietnam War protest movement," responded Ratner, who then described his path away from Big Law but into teaching and city government as Consumer Affairs commissioner. "From Day 1, the first building I built I insisted we have an affirmative action program for contractors and workers... that was unheard of then... every project I've done since then, we set a goal, we have a monitor.... I will only build union."

A "civic developer"

It echoed the discussion Ratner had with Charlie Rose this past March. "Tell me how you see developers, and what do you think of the role of developers," Rose asked. "And why should we admire them and why should we not so very much admire them?"

"That's a very, very good question," replied Ratner, almost purring. "First of all, the way I think about myself as a developer is as a civic developer. We do a lot of civic projects. And every project that we do has to have some civic component. It can be architecture. It can be economic development. Or it can be something like the arena, where we're providing entertainment, where it's in some sense a public building."

Ratner's been using the word civic a lot, but it's a weasel world. It means "relating a city," or to citizenship, but it does not necessarily denote the public interest. Ratner seems to be saying that, as long as he's building in the city, he's somehow helping the city. The reality is a bit more complicated, since he also gains things like public subsidies, tax breaks, and eminent domain.

"Most developers," Ratner said later in the interview, "really don't look at the whole, in a holistic kind of way. They look at more, I think, the economics."

Wow--is that why Ratner stopped Frank Gehry's Beekman Tower (aka 8 Spruce Street) midway to renegotiate with the unions? Or why Ratner has been unwilling to hire the Independent Compliance Monitor required by the Atlantic Yards Community Benefits Agreement? Or the developer's posture, as per business-friendly columnist Greg David, of "See no evil, hear no evil."

Union work

"I will only build union," Ratner told Hawkins in the interview segment below. "Unions have made America's middle class. That's not popular to say."

"In a changing professional landscape, is that becoming more difficult, to have that opinion?" Hawkins asked, unmindful of Ratner's plans to significantly cut labor costs by building the Atlantic Yards towers via modular technology.

"It's not hard to have the opinion," Ratner said, though he acknowledged it was harder to intgrated into business. "But I integrate it. Our business is about jobs, our business is about affirmative action. In the case of the arena, tickets that are reasonably priced, and so on. People say just the opposite, that's OK."



Well, it's not quite the opposite, but Ratner undermined that union pledge on his own. In November 2011, he talked up his firm’s plan to build the world’s tallest pre-fabricated towers, an innovative, risky, and money-saving tactic, one that initially infuriated construction workers who’d aggressively rallied for Atlantic Yards.

The Wall Street Journal, without raising an eyebrow, reported Ratner’s rationale “that the existing incentives for developments where half the units are priced for middle- and low-income tenants ‘don't work for a high-rise building that's union built.’”

Of course, that’s exactly what Ratner proposed and the state approved--twice. Sure, the economics had changed, but they had changed by 2009 when the state re-approved the project. (And, for the record, half the 6,430 units wouldn't be subsidized, just half the rentals: 2,250.)

But Forest City needs to make money, and the way to do that, apparently, is by creating new efficiencies through modular housing and to pay workers far less money in the factory. Crain's New York Business reported 9/9/12:
Forest City will construct a prototype module this month and then decide by Christmas on whether to build modular towers or conventional ones. The choice hinges largely on whether Forest City can ink a deal with unions that would require them to take significant pay cuts to help the developer achieve its goal of lowering construction costs by up to 25%. Saving that money is especially important because 50% of the 4,500 rental apartments planned for Atlantic Yards are designated to be affordable or low-income housing.
Saving money is especially important because there'd be subsidized housing? That essentially endorses Ratner's claim that existing incentives don't work.

Backing off the timing

Ratner made another astonishingly casual admission in September 2010, in an interview with WNYC's Matthew Schuerman:
Developer Bruce Ratner said Tuesday morning what many of his critics and even some of his associates have been saying for years: there is no way the entire Atlantic Yards project will be done in 10 years.
He said the 10-year timeline was always misunderstood. It was never meant to be more than a best-case scenario to be used in environmental impact statements.
“That was really only an analysis as to what the most serious impacts [would be], if all the other planned development in downtown Brooklyn happened right away,” Ratner says. “It was never supposed to be the time we were supposed to build them in.”
Reporter Schuerman added some appropriate skepticism:
But the 10-year-timeline was also used by the city, state and Ratner’s own consultant to determine that the financial benefits to the public outweighed the roughly $300 million in direct subsidies the project is receiving.
New light on promises

And that cast a new light on promises made by the developer and the state. For years, and before the economic downturn, not merely project critics but supporters and even participants had expressed doubt that Atlantic Yards could be completed in a decade.


From the 4/1/06 Brooklyn Paper, headlined BRUCE: I WILL BUILD ARENA:
Despite months of delays and false starts in realizing his vision of building a Brooklyn arena for his New Jersey Nets, Bruce Ratner remains convinced that everything is going according to plan.
“These things do get delayed, [but] I have a very a good track record of getting things done,” Ratner told The Brooklyn Papers and other reporters before a Nets game at the Meadowlands last week.
“You look at the kind of development [Forest City Ratner Company] does, almost everything winds up taking longer than we anticipate. This is how it is.
(Emphasis added)


In December 2006, before Atlantic Yards was approved, I got into a colloquy with Kathryn Wylde of the Partnership for New York City, a prominent Ratner supporter. The project, she suggested, would take 15 to 20 years.

“They say ten years,” I riposted.

“Not a chance,” Wylde responded, with a smile.

Three months later, talking to investment analysts, Chuck Ratner, then-CEO of parent Forest City Enterprises (and Bruce Ratner's cousin), said “this is going to be a 15-year buildout.”

After those remarks were reported, he issued a weaselly clarification: “When I referred to the project taking 15 years to build I was referring to the total time, from the idea or conception of the development to completion of the final building. The actual construction of Atlantic Yards will take 10 years.”

But that was belied by his own words. “We’re very good at estimating markets, we’re very good at estimating rents, at estimating lease-ups, and estimating costs,” Ratner had told the investment analysts. “We are terrible, and we’ve been a developer for 50 years, on these big multi-use, public private urban developments, to be able to predict when it will go from idea to reality. All we know is that if we pick the right place and we’re in with the right people, that over time we’re going to create tremendous value.”

More doubts

In March 2007, original project landscape architect Laurie Olin acknowledged some doubt. “It’s a great project, if it all happens,” he said. “The time calendar we are talking about is probably 20 years. People say 10 to 15, but take a look. How long does it take the market to absorb that much stuff?”

“Laurie has his views,” Forest City executive Jim Stuckey, then the Atlantic Yards point man, retorted. “We don’t believe it is going to take 20 years. We expect that it will take 10.”

And while Olin predicted that architects specializing in residential towers would be brought in, Stuckey maintained, “Frank Gehry will be the architect on every one of them.”

Gehry, of course, was dropped because his arena was too big, and had to be decoupled from the towers around it, which would not be built as an ensemble. Now he's referred to as the project master planner.

In May 2008, after the Brooklyn Paper overdramatically produced a headline that claimed Atlantic Yards Dead, Ratner was granted op-ed space in the Daily News, declaring Atlantic Yards dead? Dream on. “Working with our public sector partners,” Ratner pronounced, “I am confident we will continue to overcome all obstacles to complete this project.”

For the first time, Ratner claimed, he was offering “ an updated construction timetable,” claiming a goal of breaking ground on the arena “later this year,” then starting the first residential building, and getting the second and third affordable towers off the ground by 2011. “We anticipate finishing all of Atlantic Yards by 2018,” he closed, simply nudging everything back two years.

None of that happened, and it didn't have to.

Unmentioned was that his public sector partners, in documents signed in September 2007, had already given him a long leash. A State Funding Agreement gave Ratner at least six years to build the arena and 12 years to build the towers around the arena.

The timetable for the rest of the project? No one knew.

Timing helps tax-exempt bonds

Still, the official timetable proved very helpful to an effort by the state and city to ensure tax-exempt bonds for the arena, as well as the for the city’s two baseball stadiums.

In a 5/8/08 letter to the Internal Revenue Service and U.S. Treasury Department, the Empire State Development Corporation (ESDC) and New York City Industrial Development Authority cited the chimerical timetable in arguing that the PILOTs (payments in lieu of taxes) plan for arena financing should stand, even if the feds changed the rules for tax-exempt bonds.

Their argument, essentially, was that it would be unfair to change the rules in midstream: “In order to illustrate the substantial progress that has been made with the Project prior to the issuance of the Proposed Regulations, we have provided the chronology of events set forth below. The Project commenced in 2003; the Arena is anticipated to be completed in 2010, and the balance of the Project is expected to be built over the next decade.”

The claim that "the balance of the project" would be "built over the next decade" was extremely unlikely, given the loose deadlines for the arena and Phase 1--and the lack of any deadline for Phase 2--in the State Funding Agreement, not to mention the other snags in Bruce Ratner's projections.

Now, of course, it's impossible, and the Development Agreement signed in late 2009 further put a lie to the claim, offering 25 years. But the process worked: Forest City saved perhaps $150 million on the tax-exempt bonds.

2 comments:

  1. Nothing corrupt about Atlantic Yards? Building the Borough's largest development (and the city's largest by a single developer), while taking advantage of a highly questionable use of eminent domain, taxpayer subsidies and tax breaks, free land, below market value public land sales, a wired "bidding" process, overriding all local zoning regulations to give away huge density increases, bypassing the only democratic land use approval process the city has---ALL gained without a single vote on the project by a single legislator.

    I don't know what other word there is to describe that. It is fundamentally corrupt.

    ReplyDelete
  2. Nothing legally corrupt.

    ReplyDelete