After all, Forest City in 2009 renegotiated a delayed payment schedule with gentle terms, and got the Metropolitan Transportation Authority to agree to a smaller railyard than promised.
|First Atlantic Yards EB-5|
It's a brilliant tactic to save money, since the EB-5 program rewards developers for "job creation," though no new jobs actually need be created. The immigrant investors park $500,000 and accept little interest because their main goal is green cards.
And it's another example of how, when it comes to selling Atlantic Yards to immigrant investors, Forest City Ratner and its associates always mislead.
Remember how the 2010 pitch for the first round (of three) of EB-5 funding deceptively suggested (above right) that Chinese investors were putting their money into a basketball arena?
|Second Atlantic Yards EB-5|
Both were misleading.
Such funding, which can save 5 percentage points a year compared to conventional financing (or $87 million over seven years, based on $249 million), won't be used for the arena, or the whole project.
Where the money will go
Instead, it will be used to pay the Metropolitan Transportation Authority for the already discounted railyard development rights, the new railyard to store and service Long Island Rail Road trains, the deck needed for vertical development over the railyard, and hard and soft construction costs for seven towers.
A September 2014 letter (bottom) from Empire State Development, the state agency overseeing/shepherding Atlantic Yards/Pacific Park, makes it clear:
I recently received the document via a Freedom of Information Law request.
The low-interest loan from 498 investors would go to some very specific targets: not just the railyard development parcels and deck, but also construction on the private property attached to the railyard parcel as well as the private property needed to build B15, the tower just east of Sixth Avenue between Sixth and Carlton Avenues.
In other words, all the development on Blocks 1120 and 1121--the two railyard blocks between Sixth and Vanderbilt Avenues--plus the B15 site on Block 1128, between Dean and Pacific streets just east of Sixth Avenue.
From the document
According to the 9/9/14 letter (below) titled "Atlantic Yards Land Use Improvement and Civic Project (the “Project”) and new EB-5 Loan," Forest City on 6/6/14 executed a mezzanine loan agreement, with pieces of the second phase serving as collateral.
The “Mezzanine Encumbered Properties” include three of the five private properties on Blocks 1120 and 1121 already purchased by Forest City at the time of letter, as well as four lots already purchased on Block 1128.
They also include the railyard site (Lot 1 on Block 1120, Lot 1 on Block 1121) and the remaining two private properties on Block 1120, as well as the remaining four private properties on Block 1128, which have been conveyed via eminent domain. As the map below indicates, those cover six tower sites on the railyard, and the B15 site below the railyard.
The public pays, but only indirectly
From the perspective of the developers--Forest City and new joint venture partner/overseer Greenland Holdings--it's a huge win.
From the perspective of the state and city, it must also be a win, since it costs them nothing--the burden is on the country as a whole, which could get much more for the public interest when selling visas.
Instead, the public pays, indirectly, by letting Forest City and Greenland market public property--immigrant investor visas--which surely would produce a more significant public benefit were the program reformed. (For example, visas could be auctioned off and/or the funds could go directly to the treasury.)
State agencies and the Ratner company haven't been blameless. We still don't know who will pay to create an expensive deck over the Vanderbilt railyards, the section of the project area where thousands of units of housing are supposed to be built.
The expected cost - as much as $200 million to $300 million by some estimates - may get picked up by Ratner, or the bill may get handed to the city or state a decade from now, long after human and institutional memories of the original deal have faded.
|Third Atlantic Yards EB-5 pitch|
And there's more: we don't yet know exactly how the third round of EB-5 funding, $100 million, will be used.
When they can sell
According to the document, neither the Borrower (an entity associated with the joint venture Greenland Forest City Partners) nor the Owner (again, the joint venture developer) can sell or transfer ownership of the seven development sites at issue if the balance of the loan or any other loans secured by the properties at issue is greater than 80% of the fair market value of their remaining interest in those properties.
To put it another way, they can sell the properties once they pay off more than 20% of the total represented by the EB-5 loan and other loans.
That may not be a huge lift.