Saturday, June 28, 2014

Reports on $5M fines for delayed towers obscure switch; Forest City can slow construction on arena block while green roof is built

Like a game of Telephone, an un-analytical New York Times report yesterday on the $5 million fines faced by Forest City Ratner for delay on the next two towers tumbled around the journalistic food chain, suggesting that somehow the fines are new and meaningful.

They're new only in part, and not so meaningful.

In fact, the revised formula allows Forest City to delay building a second tower (B3) on the arena block until 2015, providing crucial wiggle room while it pursues unanticipated construction of a green roof over the Barclays Center.

And the formula allows Forest City to evade building a third tower on the arena block promptly. Instead, it can fulfill its obligation by building where construction is less complicated.

It does require Forest City to start two towers within a year, rather than one by December 2014 and another by December 2016. But that schedule conforms to what Forest City had already public pledged.

(Far more meaningful are other penalties negotiated, notably a $2,000/month penalty for each affordable housing unit delayed past May 2025.)

A report cascades

The Times reported yesterday, in Plan Expedited for Affordable Housing Near Barclays Center in Brooklyn:
Under the agreement, the next two residential buildings — a total of 600 units — will be entirely affordable housing. If the developer fails to begin construction within the next year, it must pay what would essentially be a fine of up to $5 million.
That cascaded around. Capital New York offered:
Under the new agreement, the development authority will have the ability to levy large fines again Forest City for not staying on schedule. For example, the authority could impose a fine of up to $5 million if the developer doesn’t begin construction within the next year.
Newsday reported:
The developer, Forest City Ratner, has agreed that if construction doesn't begin in the time frame, it would cost the company a penalty of as much as $5 million.
Brownstoner summarized it:
State officials, the de Blasio administration and local community groups have wrangled a deal with Forest City Ratner to accelerate the delivery of affordable housing at Atlantic Yards or pay a fine as high as $5 million, The New York Times reported.
Curbed re-blogged it as:
Specifically, 11 years after the whole project kicked off, Forest City Ratner has formally—like, in an actual agreement with the state, with the risk of a $5 million fine if they don't follow it—agreed to speed up construction.
I noted in passing that the incentives were already present for the second tower to begin two years after the first tower, but were accelerated by 18 months to June 2015 for the third tower. But I didn't drill down.

Looking more closely

From the Empire State Development Board materials and letter:
Second, ESD will require that two affordable buildings, totaling not less than 590 units of affordable housing, be built in the next phase of Project development: Building 14 (B14) will be commenced by December 31, 2014 and Building 3 (B3) will be commenced by June 30, 2015. ESD will utilize existing enforcement mechanisms to require prompt completion of these two buildings. The existing Liquidated Damages in the Development Agreement for failure to commence the first three buildings on the Arena Block (i.e., $5M each over a 12 month period) will apply to B2 (as currently contemplated) as the first Required Building, B14 as the second Project Building, and B3 as the third Project Building... For the purposes of Development Agreement Section 8.6(d)(i), the “Second Commencement Deadline” and the “Third Commencement Deadline” will be December 31, 2014 and June 30, 2015, respectively.
(Emphases added)
According to the Development Agreement, the first tower was required to start within three years from the project Effective Date, which was in May 2010. It launched in December 2012.

The second tower on the arena block was supposed to start two years after the first tower, or by December 2014, with the penalty $5 million over the course of the year.

That's not happening.

Shifting obligations

Rather, by December 2014, Forest City plans to start B14, which is on the southeast block now used as a surface parking lot.

The state has allowed Forest City to shift its obligation from the arena block to the southeast block, which is terra firma (unlike the railyard, which requires a deck) and is not the subject of separate construction (as with the green roof).

Now Forest City is supposed to start B3, at the southeast corner of the arena--once the cranes for the green roof are gone--by June 2015, though the Times said it would start in March.,

In other words, the revised agreement would penalize Forest City $5 million if it doesn't do what it already plans to do.

Note that, by substituting B14 for a building on the arena block, the agreement excludes B4, the tower at the northeast corner of the arena block, from the lockstep formula of construction two years after its predecessor.

Without the change, Forest City would have had to start B3 by December 2014 and B4 by December 2016.

The original fine





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