What about when their land purchase gets $100 million in subsidies, or is part of a below-market deal? (The other five 50/30/20 buildings, at least as recently contemplated--though not guaranteed--will be over the Vanderbilt Yard.)
A 10/7/15 Commercial Observer article, The Challenges of Financing 50/30/20s, begins with Forest City Ratner's modular building:
For the last three years, construction workers have been stacking unit on top of unit to create the block-wide, red and gray building that sits just behind the Barclays Center in Downtown Brooklyn. Forest City Ratner Companies’ B2 BKLYN building, which currently stands at 19 stories at 461 Dean Street, is not only meant to be the tallest modular building in the world upon completion, but it will also be structured as a 50/30/20—a development that falls under the mixed-income affordable housing program run by the New York City Housing Development Corporation.Such developments work better in "emerging neighborhoods," a developer says, because of thinner margins and cheaper land costs. A NYC HDC executive, Catherine Townsend, told the Commercial Observer that such projects are "a balancing act between the benefit of market rents—and cross-subsidy provided to low-income units—and the challenge of rising land costs."
...With increasing land and construction costs across the city driving competition to buy and build projects, developers have had mixed reactions to the 50/30/20 program, especially compared to the 80/20 program, which provides more market-rate units in established neighborhoods...
“If you’re developing an 80/20 project, you have 80 percent market-rate rents that you could actually leverage because you have more income to show when underwriting the project,” she said.Note that "currently being funded through equity" is kind of a big deal. Unmentioned are cost overruns that completely upend the rationale for the project--unless they're all recovered via the litigation with Skanska.
However, Ms. Yu noted that the B2 building was no more challenging to finance than any other affordable project. Bank of New York Mellon originally provided credit enhancements on the bonds that funded the B2 building, but the development is currently being funded through equity after financial and scheduling setbacks, including a leakage problem and a dispute with former partner Skanska.
“If you are buying a piece of dirt today, with rising construction costs in this market, it is very difficult to do affordable housing,” Ms. Yu said. “Where you see developers doing mixed-income projects, a lot of those times, the developer already owns a piece of dirt and they go before City Planning and either up-zone the site to add density or remove use restrictions.” Similarly, the project plan for Pacific Park was originally approved in 2006, though construction on B2 began in 2012.
“Private real estate investors financing outer-borough development projects ideally are seeking a 12.5 percent rate of return on investments,” one executive tells the Commercial Observer. “When looking at the 50/30/20 model, I don’t think there is enough cash flow to compute the kind of return a typical private investor is seeking.”
The article closes with Forest City's new party line about diversity:
Ms. Yu pointed to the importance of creating social, economic, racial and ethnic diversity when planning a development.
“I really think 50/30/20 is a great model because it covers the swath of social and economic diversity that actually exists in Brooklyn,” she noted. “There is something to be said for the gentry of Brooklyn, where people who have very strong roots in a community are being pushed out because of rising housing costs. To be able to deliver a building that has market-rate, middle-income and low-income reflects the diversity that really exists in Brooklyn.