Thursday, May 29, 2014

Reality warp: judge in eminent domain case agrees Atlantic Yards site would've been upzoned; ESD claimed there'd be no changes without project

Remember how the Empire State Development Corporation (aka Empire State Development, or ESD), in the 2006 Atlantic Yards environmental review, claimed the project site would not "experience substantial change in the future without the proposed project... due to the existence of the open rail yard and the low-density industrial zoning regulations."

When the very reasonable possibility of a rezoning was raised, the state authority stonewalled, claiming, "While the City, if it desired, could rezone the project site, it has not."

Via Google Maps; note more capacious perspective here
before railyard excavation and also photos here
I called it one of the state authority's "least credible statements," and a judge recently confirmed that observation, denying ESD's claim that there would have been no rezoning.

In a case resolved this month regarding the value of a condemned property within the Atlantic Yards site, Kings County Supreme Court Justice Wayne Saitta agreed with the property owner's argument that the site, without the project, could have become a 12-story hotel, concluding, "Most probably, the entire M1-1 [one-story manufacturing] district in the Atlantic Yards footprint would have been upzoned."

730 Equity Corp. v New York State Urban Dev. Corp. involved an empty lot on Block 1120, Lot 35, at 730-740 Atlantic Avenue just west of Carlton Avenue. It juts into the below-grade Vanderbilt Yard.

Following that conclusion, Saitta rejected the state's claim that the property was barely worth $2 million as a gas station, and instead valued it at nearly $9.2 million, far less than the $20.6 million that the owner sought but still a major gain. (It's touted as a victory by attorney Michael Rikon of  Goldstein, Rikon, Rikon & Houghton.)

That's one layer of irony.

But developer Forest City Ratner, which pays for the land, likely still got a good deal.

On the piece of land just west of Carlton Avenue--as well as a platform yet to be built over the railyard--it plans Building 7, a 460-foot tower with 733,810 square feet. That's six times larger in bulk than the hotel, albeit over a plot that's likely twice as large and requiring an infrastructure investment, as well as payment to the MTA for the site.



The history

ESDC took title on 3/1/10, the vesting date. The court viewed the property on 9/8/11 and a non-jury trial was held on eight days in January and February, 2013. The decision was rendered 5/7/14, and reported in the New York Law Journal on 5/28/14. (Both the Brooklyn Eagle and especially the Real Deal got the story wrong, suggesting that a hotel could actually be developed.)

The sites is an irregularly shaped lot of 20,738 square feet, with a 275 foot frontage on Atlantic Avenue. At the time of vesting, the property was zoned as M1-1 and vacant. A gas station on the site had been demolished in 2001, though the owner had in June of 2001 entered into a 15-year lease--with a five-year extension--with Amoco Oil Company to operate a gas station on the site.

Competing claims

As Saitta wrote, the claimant contended that the highest and best use of the property would have been as a 12-story budget hotel, that "there is a reasonable probability that the subject property would have been rezoned from M1-1 to C6-2A absent the project." (Such zoning has a Floor Area Ratio of 6, which means a 12-story hotel could occupy half the lot.)

The condemnor, ESDC, contended that there was no reasonable probability that the property would be rezoned, and that the property could best be a gas station, parking lot, or garage. However, the condemnor's appraiser undermined that argument: the three sales she used as comparables were purchased, not for auto related uses, but to develop as hotels.

Head-spinning arguments

Saitta evaluated whether it was reasonably probable that the property would have been rezoned. He noted that the M1-1 district covers the three blocks between Atlantic and Pacific Streets, running from Fifth Avenue to Vanderbilt Avenue, as well as the block directly south of the property.

Nearby blocks are mostly zoned residential. The claimant's expert, Richard Bass, cited the city's pattern of rezoning underutilized, industrial areas, and said he believed this was not rezoned because of the announcement of the Atlantic Yards project in 2003. (Duh.)

The rezonings nearby were both upzonings, such as at the 470 Vanderbilt site across Atlantic Avenue, as well as downzonings to ensure future construction would maintain the scale of residential blocks.

Here's the most head-spinning passage:
Bass also relied on the findings in an Environmental Impact Statement that had been submitted in connection with the Atlantic Yards project, as evidence that a density as high as an FAR of 8.6 would be appropriate on the site.
In other words, the state's override of zoning--rationalized in part because a rezoning would never have happened--was used as evidence that a rezoning would have occurred.

The condemnor's zoning consultant, Michael Kwartler,  "testified that it is unlikely that the site would have been rezoned to C6-2A and that such zoning would not be appropriate for the site because the property is not in a central business district and would result in several existing uses becoming non conforming."

In other words, the ESD's own consultant, said increased bulk--as the Atlantic Yards project allows--would have been inappropriate. Bizarre.

Kwartler also cited the 2001 rezoning of the north side of Atlantic Avenue, between South Oxford Street and Clermont Avenue from commercial to residential, which demonstrated that "the City was not interested in upzoning the area around the subject property."

The judge's conclusion

Saitta wrote:
Weighing the opinions of both zoning experts, the evidence presented demonstrates that there is a reasonable probability that absent the project, the subject property would have been upzoned from M1-1 to C6-2A.
Although there remained some industrial uses such as storage facilities, gas stations, and auto repair shops, the area no longer contains significant manufacturing uses.The Environmental Impact Statement submitted as part of the Atlantic Yards project describes the site as containing "long blocks that contain mainly underutilized industrial buildings". (ex 1 tab 4, p 3-7)
Though the M1-1 district was once predominately industrial, many of the buildings have been converted to commercial and residential use. It is an area of underutilized industrial sites surrounded by the residential neighborhoods of Prospect Heights, Fort Greene and Park Slope, that has become more residential over time.
The City's policy under the Bloomberg administration was to rezone underutilized industrial sites to allow for commercial or residential development. There is little reason to keep this underutilized district zoned for manufacturing when its it has been becoming more residential and commercial on its own.
He called the C6-2A zoning proposed by Bass "appropriate for this property," noting that several properties nearby, along the Atlantic Avenue corridor from Fourth Avenue to Vanderbilt Avenue, had been rezoned to C6.

He noted that, in an earlier case, he'd found "no reasonable probability" of a rezoning to C6-2A, but that case involved a property on Pacific Street between Carlton and Vanderbilt avenues, a block "more integrally a part of Prospect Heights than Atlantic Avenue."

Adjusting the value

Though Saitta found "that absent the project, the property would have most probably been rezoned to C6-2A," he made several adjustments to the value proposed by the claimant, including an adjustment for location, extraordinary development costs, plus a discount to reflect the costs, delay and risk associated with a rezoning

That led to a valuation of $9,186,000.

In another case, the state won

In a 6/21/13 decision, Saitta found in favor of the state in Heron Realty vs. New York State Urban Dev. Corp. The site 514-522 Vanderbilt Avenue at the corner of Atlantic Avenue, is Block 1121 Lot 42, at the northeast corner of the site.

On the date of vesting, there was a gas station with a one story building and six pumps, over 11,500 square feet. The property was encumbered by a 3,506 square foot subterranean easement in favor of the Long Island Railroad and a deed restriction that limited development of the area over the easement to two stories.

The owner (via Rikon's firm) claimed a 12-story mixed use residential and commercial building could have been built, with a rezoning to C6-2A. Thus the claimant's appraiser valued the property at $10,500,000. The state said the existing use as a gas station was the highest and best use of the property, valued at $4,300,000.

While typically the judge would analyze whether a rezoning was possible, he first concluded that the deed restrictions precluded such a 12-story building. He then made a few adjustments to the condemnor's evaluation and found a value of $5,000,000.

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