Skip to main content

Margin for the developer: Forest City says EB-5 funds used for infrastructure; evidence suggests $228M used to retire high-interest loan

Also see coverage today regarding Forest City Ratner's new plans to raise EB-5 funds and two federal reports critical of EB-5.

In a new video, Forest City Ratner CEO MaryAnne Gilmartin tells potential new immigrant investors, who'd offer a low-interest loan in exchange for green cards for themselves and their families, "Several years back, we utilized EB-5 funds to execute other infrastructure improvements in and around the Barclays Center."

It is, at best, a partial truth, for Gilmartin to claim that the $228 million Forest City raised beginning in 2010--likely saving more than $100 million over conventional financing--was used for infrastructure.

Claimed value of collateral
Documentary evidence from the New York City Department of Finance, as well as Forest City's own statements, suggests the money was used, in large portion, to replace a high-interest land loan from Gramercy Capital.

That subverts the intent, if not the letter of the law, which justifies the green cards because each $500,000 investment is supposed to create ten jobs.

After all, as EB-5 analyst Michael Gibson told Business Week, when a project “substitutes EB-5 capital for more expensive bank financing or bond funding or even equity, that isn’t really creating new economic activity. It’s margin for the developer.”

Shifting claims

According to a document published here earlier this week, Forest City told the Empire State Development Corporation (ESDC, or ESD, the state agency overseeing the project) the immigrant investors' money--initially, $249 million--would go to critical infrastructure, given that the arena was already funded.

To the press, however, Forest City was more coy. Officials told the Wall Street Journal and the New York Times that the funds would go for infrastructure (the new railyard) and also to replace that high-interest land loan.

Representatives of the New York City Regional Center (NYCRC), the private firm engaged to market the investment, told potential investors at public events and on webcasts in China that the money would go to an arena.

Just look at one promotional poster (right) for an event aimed to recruit investors.

However, as I reported, the arena was already funded, and the marketing effort raised questions about fraud.

Forest City in March 2012 told Business Week the new money would fund the project's new subway entrance, parking facilities, water and sewer line upgrades and other work.

However, evidence suggests, as I reported, that the money is also going to substitute for an existing high-interest land loan.

For four of the five mortgages within the $228 million, city records indicate that an existing mortgage from Gramercy Capital--which specializes in high-interest financing--was "satisfied" around the time a new mortgage was signed with the "Brooklyn Arena Infrastructure and Transportation Improvement Fund," representing the immigrant investors.

Looking more closely

Let's look more closely at each of the development sites used as collateral for the loan given by the "Brooklyn Arena Infrastructure and Transportation Improvement Fund," the entity set up by the NYCRC.

Six of the seven development sites listed in the graphic at right, which was part of marketing materials in China, were used as collateral.

In other words, if the immigrant investors don't get their money back, they would then own development rights at those sites.

(They couldn't use any of the sites they didn't yet control, including the six parcels that would be built over the railyard north of Pacific Street.)

On Block 1129, the southeast block currently used as interim surface parking, there are four development sites. (Here's the block and lot map.)

Parcel B-11

The site for the B-11 tower, as indicated on the screenshot below, has a $26.9 million mortgage. The document was created 2/28/12. Four days before, on 2/24/12, the Gramercy mortgage was satisfied. This, like the other Gramercy mortgages, links to a mortgage pool once valued at $117 million.

But Forest City owed Gramercy $153.9 million in December 2009. It's not clear how much Forest City owed Gramercy when it got the $228 million. But it does seem clear the money helped clear the Gramercy debt.
$26.9M for Parcel B-11, Block 1129
Parcel B-12

The site for the B-12 tower, as indicated on the screenshot below, has a $24.7 million mortgage. That document was created 7/27/11. On 2/24/12, the Gramercy mortgage was declared satisfied. Note the sequence, linking back to the previously mentioned mortgage pool.

$24.7M, for Parcel B-12 on Block 1129
Parcels B-13/14

The site for the B-13 and B-14 towers, as indicated on the screenshot below, has a $48 million mortgage. That document was created 2/28/12. Again, on 2/24/12, the Gramercy mortgage was declared satisfied. This also links back to the previously mentioned mortgage pool.
$47.995M, for Parcels B-13/14 on Block 1129
Parcel B-1

The site for the B-1 office tower, over the arena plaza,, as indicated on the screenshot below, has a $68 million mortgage. That document was created 2/28/12. Again, on 2/24/12, the Gramercy mortgage was declared satisfied. This also links back to the previously mentioned mortgage pool.
$68M, for Parcel B-1 on Blocks 1118/1119
Parcel B-4

The site for the B-4 residential tower, at the northeast corner of the arena block, as indicated on the screenshot below, has a $60.3 million mortgage. That document was created 4/23/12. 

This does not link to the satisfaction of a Gramercy mortgage, though it links back to the previously mentioned mortgage pool. So perhaps this sum of money was indeed used for infrastructure.
$60.3M, for Parcel B44 on Block 1119

Adding up a mystery

The rounded-off sums--$26.9M+$24.7M+$48M+$68M+$60.3M--add up to just about $228 million.

It's not clear why Forest City did not raise the $249 million originally sought. But since they raised less money, the didn't have to use the B-3 site as collateral.

Comments

Popular posts from this blog

Barclays Center/Levy Restaurants hit with suit charging discrimination on disability, race; supervisors said to use vicious slurs, pursue retaliation

The Daily News has an article today, Barclays Center hit with $5M suit claiming discrimination against disabled, while the New York Post headlined its article Barclays Center sued over taunting disabled employees.

While that's part of the lawsuit, more prominent are claims of racial discrimination and retaliation, with black employees claiming repeated abuse by white supervisors, preferential treatment toward Hispanic colleagues, and retaliation in response to complaints.

Two individual supervisors, for example, are charged with  referring to black employees as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”

Two have referred to an employee blind in one eye as “cyclops,” and “the one-eyed guy,” and an employee with a nose disorder as “the nose guy.”

There's been no official response yet though arena spokesman Barry Baum told the Daily News they, but take “allegations of this kind very seriously” and have "a zero tolerance policy for…

Behind the "empty railyards": 40 years of ATURA, Baruch's plan, and the city's diffidence

To supporters of Forest City Ratner's Atlantic Yards project, it's a long-awaited plan for long-overlooked land. "The Atlantic Yards area has been available for any developer in America for over 100 years,” declared Borough President Marty Markowitz at a 5/26/05 City Council hearing.

Charles Gargano, chairman of the Empire State Development Corporation, mused on 11/15/05 to WNYC's Brian Lehrer, “Isn’t it interesting that these railyards have sat for decades and decades and decades, and no one has done a thing about them.” Forest City Ratner spokesman Joe DePlasco, in a 12/19/04 New York Times article ("In a War of Words, One Has the Power to Wound") described the railyards as "an empty scar dividing the community."

But why exactly has the Metropolitan Transportation Authority’s Vanderbilt Yard never been developed? Do public officials have some responsibility?

At a hearing yesterday of the Brooklyn Borough Board Atlantic Yards Committee, Kate Suisma…

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…

So, Forest City has some property subject to the future Gowanus rezoning

Writing yesterday, MAP: Who Owns All the Property Along the Gowanus Canal, DNAinfo's Leslie Albrecht lays out the positioning of various real estate players along the Gowanus Canal, a Superfund site:
As the city considers whether to rezone Gowanus and, perhaps, morph the gritty low-rise industrial area into a hot new neighborhood of residential towers (albeit at a fraction of the height of Manhattan's supertall buildings), DNAinfo reviewed property records along the canal to find out who stands to benefit most from the changes.
Investors have poured at least $440 million into buying land on the polluted waterway and more than a third of the properties have changed hands in the past decade, according to an examination of records for the nearly 130 properties along the 1.8-mile canal. While the single largest landowner is developer Property Markets Group, other landowners include Kushner Companies, Alloy Development, Two Trees, and Forest City New York.

Forest City's plans unc…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…