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Forest City re-interprets Atlantic Yards Phase 1: arena block plus Block 1129, to the southeast. The platform for the blighted railyard has 15 years (and who knows when the towers rise)

Update March 29: In my initial post yesterday, I neglected to point out what I reported last October  regarding previous comments about the construction sequence; the Development Agreement, released in January 2010, gives the developer 15 years to start the platform after the project Effective Date (May 2010). So this revision has a few changes.


It's official. Atlantic Yards developer Forest City Enterprises (FCE) in a document released yesterday has confirmed that its Forest City Ratner subsidiary has no plan to build an expensive deck over the 8.5-acre Vanderbilt Yard--the most clearly blighted part of the 22-acre Atlantic Yards site, and a major justification for eminent domain--before building four towers on the southeast block of the site, Block 1129.

That sets up, as the graphic at right suggests, a odd map in which the "project" leapfrogs one long block between Sixth and Carlton Avenues.

That leaves the below-grade railyard waiting for an expensive deck (which can wait 15 years) and furthering development on the main piece of terra firm beyond the arena block. It further undermines the once-promised plans to build the 16-tower project in ten years, rather than the 25 years permitted by state contracts.

And the document raises questions about whether and when that deck will be built. Even if they build it soon after constructing a new railyard, they're not planning to build over it soon.

Sequence questions


The sequence also raises questions about the ongoing Supplementary Environmental Impact Statement (SEIS) process for Atlantic Yards, in which Empire State Development, the state agency overseeing the project, is supposed to examine the community impacts of multiple potential sequences.

While the forthcoming Scope of Analysis, a prelude to the issuance of a Draft SEIS, will surely mention the once-promised clockwise buildout east from the arena block, which would mean prompt construction over the railyard, that seems completely unrealistic, given Forest City's announced plans.

So, while the southeast block remains formally part of Phase 2 in the state plan, Forest City for business purposes considers it part of its first phase.

Forest City's empty claims

To the New York Observer, company spokesman Joe DePlasco claimed that sequencing for Phase 2 had yet to be determined. But the new documents confirm Forest City's plans to build first on Block 1129. And DePlasco's claim that there is still a construction deadline for the new railyard is irrelevant, since the question is when they'd build an expensive deck over that railyard.

The news further undermines that misguided New York Times article last April, which stated:
For Forest City Ratner... the [retail] changes are evidence that the arena has already met its goal of transforming a dreary section of Brooklyn — the Long Island Rail Road’s rail yards and surrounding industrial buildings, which the company’s spokesman described as “ a scar that divided the neighborhood.”
Stated in October, confirmed yesterday

Forest City Ratner executive MaryAnne Gilmartin last October told investment analysts "we have seven buildings that we will build before we commence construction on any platform buildings."

From the report; click on graphic to enlarge
In the FCE annual report 10-K filed yesterday with the Securities and Exchange Commission, the company offered a new interpretation of the Atlantic Yards phases, which according to state documents have been separated by Sixth Avenue, leaving the arena block and adjacent Site 5 (across Flatbush Avenue) in Phase 1 and all buildings east of Sixth Avenue in Phase 2.

The annual report stated:
Phase I of Brooklyn Atlantic Yards  is comprised of eight buildings totaling approximately 3.4 million square feet—four buildings on the Arena Block (adjacent to the Barclays Center ) and four buildings on Block 1129. Phase II consists of seven buildings totaling approximately 3.3 million square feet—three buildings on Block 1120, three buildings on Block 1121 and one building on Block 1128.
(Emphasis added)

While Gilmartin said "seven buildings" and the annual report said eight, in actuality, there could be nine buildings in the new Phase 1: four buildings on the southeast block, four on the arena block, and one on Site 5, currently home to P.C. Richard and Modell's.

Given that the flagship tower at Flatbush and Atlantic avenues is slated to be an office tower, for which there is no market, and Site 5 may be an office tower, it sounded like Gilmartin was being cautious.

The irony, of course, is that initial plans in 2003 for Atlantic Yards completely omitted the southeast block of the site, as indicated in the graphic above, which was limited to the arena block and then the two blocks to the east containing the rest of the Vanderbilt Yard.

Why was that southeast block added? Likely for construction staging, parking, and to increase the amount of development.

SEIS impact?

The 10-K states:
As a result of ongoing litigation, a Supplemental Environmental Impact Statement ("SEIS") is required to be completed before proceeding with a portion of Phase I and all of Phase II of the project. We do not expect that the current ongoing litigation and SEIS process will affect the development of the four buildings located on the Arena Block within Phase I.
Again note this reinterpretation of the notion of Phase 1. ESD's June 2009 Modified General Project Plan describes the Phase 1 site as the "portion of the Project Site west of 6th Avenue" and the Phase 2 site as the portion east of 6th Avenue.

Will new railyard, deck be built?

Such regulatory documents are supposed to disclose risks, whatever the likelihood, and this one raises questions about the railyard:
A substantial amount of additional costs for railyard and infrastructure improvements will be required to proceed with Phase II of Brooklyn Atlantic Yards. More specifically, there is an upcoming December 31, 2013 deadline to commence construction on the Permanent Railyard and to post the completion guaranty for such work. If we choose to begin construction on the Permanent Railyard by December 31, 2013, it must be substantially completed by September 30, 2016. We have previously provided an $86 million letter of credit to the Metropolitan Transit Authority ("MTA") as collateral for such future work related to the construction of the Permanent Railyard. In order to construct the aforementioned eight buildings in Phase II, we will be required to construct a platform over the new Permanent Railyard.
Alternatively, if we do not commence construction on the Permanent Railyard by December 31, 2013, we will be in default of various MTA project agreements and the MTA will have the ability to draw down our $86 million letter of credit. We would also lose approximately 3.3 million square feet of development rights for Phase II of Brooklyn Atlantic Yards.
Will Forest City give up $86 million and 3.3 million square feet of development rights? Unlikely. The developer can lobby for more subsidies to shift the risk. They can always wait to build those development rights. Also, as the document relates,  the Company may elect to pursue future vertical development of this project with joint venture partners."

And, I'd add, they could always lobby the MTA to revise the deal, as they did with the original Vanderbilt Yard deal.

Still, if everything goes wrong, FCE could face $600 million in losses, including liquidated damages for failure to the city and state of New York to meet certain deadlines for the first few towers.

Modular risks

The new modular technology used in the first Atlantic Yards tower, and the factory to build modules, add development risk, including pressure from unions:
We have partnered with a large international development and construction company to operate a facility for the fabrication of apartment modular units that will be used in the construction of B2 BKLYN,  a multi-family highrise in Brooklyn, New York, which is expected to be 32 stories and contain 363 apartment units.
In addition to risks inherent in construction projects generally, such as unanticipated site conditions, environmental, and force majeure issues, the following additional risks exist with setting up the modular facility and constructing B2 BKLYN using modular methodology:
• Facility start-up costs can be more than anticipated, which would require additional equity;
• The facility setup might take longer than anticipated, which would lead to the delay of the completion of B2 BKLYN;
 • High rise modular has not previously been done at the heights of B2 BKLYN ; therefore, the design may need to be revised and assembly may not occur as expected, each having the potential to cause project delays and additional construction costs;
• Our partner could experience financial difficulty and be unable to cover its share of cost overruns, which could impact the timely completion of the project or require us to infuse additional equity;
• Third party claims that any element of the design or construction methodology infringes on protected intellectual rights could delay the project and increase construction costs; and
• A plumbers' organization has requested the City Building Department to explain its issuance of permits and approvals for the production of modules at the facility where the modular units will be constructed, in light of New York City building code licensing requirements. Any claim or claims filed in connection with this request could delay the construction, and increase the construction costs, of B2 BKLYN.
I reported in January on the questions raised by unions and trade associations representing plumbers.

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