Tuesday, August 16, 2016

Mosley & electeds warn of "serious breach of public trust" regarding AY/PP, get brush-off from state agency; oversight hearing in future?

In a forceful, wide-ranging letter to the head of New York State's economic development agency, four Brooklyn elected officials have expressed "grave concerns" about agreements involving Barclays Center and the Atlantic Yards/Pacific Park Brooklyn project, suggesting a "serious breach of public trust."

Issues raised include vague plans for promised affordable rental units, silence on plans for affordable condos, and the inadequate monitoring of project impacts and MWBE contracting.

Several of those issues have been raised previously, if not answered. One new issue: a complaint by some minority shareholders in the project that they were misled by developer Forest City Ratner.

Walter Mosley
The letter, sent to Empire State Development (ESD) CEO Howard Zemsky June 14 on the letterhead of Assemblymember Walter Mosley, was signed by Assembly colleagues Jim Brennan and Jo Anne Simon and state Senator Velmanette Montgomery.

In mid-July, Zemsky sent a brush-off response, essentially saying that it was too soon to talk about certain issues and others were outside ESD's ambit--and there remain many opportunities for public input regarding the project. (See copies of letters at bottom.)

His letter contained 0% nostra culpa, concluding: "I am excited about this progress, and look forward to working with you to ensure the successful completion of the Atlantic Yards Project."

Next steps

"I'm not surprised with this response," Mosley told me in a recent interview, citing Zemsky's similar brush-off when legislators last December raised questions about whether the state could intervene in Forest City Ratner's sale of its shares in the Barclays Center operating company and Brooklyn Nets.

"What we had to do was put him in a position to put him on record, not to say he wasn't aware of our concerns," Mosley said. Indeed, surely ESD's past performance would have predicted Zemsky's response.

Beyond making the exchange public, Mosley said the legislators are considering holding an Assembly oversight hearing. "Anyone could be called," he said, including the state agency and also the developer. He said he'd met with representatives of developer Greenland Forest City Partners and alerted them to the pending concerns.

Howard Zemsky
Given that Brennan, who's retiring, chairs the Corporations, Authorities, and Commissions Committee, the time to do it would be 2016. (Yes, the legislative session ended in June, but the Assembly has held public hearings before the next session began.)

Uphill battle, but new options

Given the staunch support of Atlantic Yards/Pacific Park from Gov. Andrew Cuomo--to whom Zemsky and ESD report--as well as the developer's promotional powers, it's a uphill battle for legislators.

Several of the issues issues do deserve ventilation, even if some, indeed, are beyond ESD's ambit.

And if  legislators do hold a hearing, some other issues might be aired: if the state will save Russian oligarch Mikhail Prokhorov millions in the refinancing of tax-exempt bonds to pay off the arena, why didn't it request additional fees from the arena operator? Did the developer pay anything for streetbeds in the project? What about mold testing at the modular tower?

Need for transparency on plans for office space and affordable rentals

In the June letter, the legislators reminded Zemsky that they were told last year by ESD there was no need or process for public review of the new ownership agreement for the arena operating company, transferred from Forest City to Prokhorov's Onexim. They noted that only a threatened lawsuit established a new 2025 timetable for project affordable housing.

The legislators cited--as I've since written about in greater detail--developer Greenland Forest City Partners' pending the plan to shift the density from the B1 tower over the arena plaza to Site 5, across Flatbush Avenue, and to change the B4 tower, at the northeast corner of the arena block, from housing to office space.

They repeated the question, raised most prominently in public venues by affordable housing advocate Gib Veconi, about how the developer will comply with an agreement to ensure a 35% share of affordable housing until 1050 affordable units are done, given the lack of any stated destination for the 275 affordable rental units previously destined for B4.

Zemsky responded that it's premature to discuss such plans, since they have not been formally presented. And while he said "no such modification would alter the developer's commitment to building 2,250 units of affordable housing on a timely basis," he didn't suggest where the 275 units would go.

Are affordable condos coming?

The legislators asked the stated plan for "200 units of affordable condominiums which are supposed to be located off-site of the Pacific Park project."

Actually, that's not quite the plan. Though the affordable condos were not in the 2009 Modified General Project Plan, the Development Agreement (see p. 22) references at least 600 for-sale affordable units, with 200 on-site.
From the Development Agreement; click to enlarge

Note that, while the obligation to build 200 on-site is that of Greenland Forest City Partners, the additional 400 units are Forest City Ratner's responsibility, as I wrote in May 2015.

Zemsky ignored the issue of the affordable condos.

MWBE contracting, local hiring, CBA

In their letter, the legislators pointed to promises about MWBE contracting (minority- and women-owned business enterprises) and local hiring:
This project could not have begun, let alone be completed without significant subsidies from the State and City. Because such public monies were used, it is the right of all New Yorkers to know what new arrangements have been made, and to know that the legally required public benefits going forward are memorialized and will be enforced. Simply put, MWBE contracting and local hiring from our historically underserved communities were paramount concerns and the developer’s agreement to those terms constituted the consideration without which the CBA [Community Benefits Agreement] signatories would not have supported the project. We must know that these agreements are still in place and enforceable.
Zemsky responded was that ESD was not party to the CBA. True, but the state has its own goals. As Arana Hankin, Director, Atlantic Yards Project for ESD, explained in 2012:
ESD and the Atlantic Yards Project have a certified MWBE utilization contract goal of 20%. Firms must use “best efforts” to meet that goal. If they have not met the goal they must show that they have used their best efforts to retain MWBE firms through outreach and solicitation.
Indeed, the state has not provided regular reports, though it has very occasionally reported statistics--and in 2102 the developer was behind, both according to its own metrics and the state's different metrics. Local hiring? We've gotten occasional reports but nothing definitive.

The developer never hired the Independent Compliance Monitor required by the CBA, though it has indicated that would happen.

Mosley said legislators would like to learn more about the developer's role in the Community Benefits Agreement. He said legislators have learned that the committee overseeing the CBA is dissolving, as some members are stepping down.

"We're concerned that the limited teeth in the CBA are going to be removed," he said. "If so, we as legislators have to do our part making sure they are being true and honest to the CBA." Well, given that the CBA expressly excluded a governmental role, the legislators have only rhetorical power, which has not been used much.

Greenland's role

The legislators wrote:
The addition of a Chinese government controlled development entity, Greenland Holdings, buying 70% percent of the shares in the Pacific Park development project nearly two years ago raises more concerns. The current status of the Chinese market coupled with ongoing anti-corruption investigation by Chinese government officials into top real estate developers in the United States puts the life and sustainability of the project in question.
Greenland is now plurality owned by the government of Shanghai; that surely means some control, but maybe not full control. But it is curious that a foreign government-controlled or -influenced entity is steering this project, and is reaping profits by marketing green cards for low-cost financing under the EB-5 immigrant investor program.

if New York taxpayers and legislators don't have any say in this partnership, the limits in the project contracts surely deserve further examination.

Zemsky, in his letter, referenced previous comments regarding the December 2015 regarding the transfer of the arena lease to Onexim, but didn't address the transfer to Greenland.

Minority shareholders

The most intriguing section of the letter refers to "Accountability to Minority Shareholders":
In 2004 as this project was in its conceptual phase, FCR approached members of our community to invest their money in a “neighborhood project that will create thousands of job opportunities for local residents.”  Roughly 22-24 “class A” investors invested between $1 million - $1.5 million and became minority shareholders in the housing and arena projects.
This is interesting, because I thought most local investors had put money into the Nets, as the Brooklyn Paper once reported. The legislators wrote that such investors "were persuaded" because of the involvement of New York State but later, during the financial crisis, were told they could sell at a loss or see their shares lose value. A similar downgrade came with the sale to Greenland.

While I understand why the legislators might go to bat for constituents, this strikes me as an issue of contract law more than anything else. Zemsky responded that ESD is not party to "investment agreements between GLFCP and its shareholders." Perhaps question could be asked of the developer if its representatives ever testify.

More oversight?

In the final section of their letter, the elected officials seemed to channel concerns of the project's closest neighbors, saying the information gathered does not add up to true oversight:
Over the long history of the Atlantic Yards/Pacific Park project, ESD executives have detailed oversight regimes to the public of one form or the other, and then either failed to implement the regimes meaningfully or worked to undermine what in theory could work if it were engaged in good faith. Consistently the lack of transparency neuters the ability of the public to monitor and scrutinize ESD’s activities, while in turn overstating the job it performs. In reality the State relies on the developer, GFCP, for most information, and what information it does collect independently it often channels through the developer with the result that the developer is given the agency to maximize its flexibility and its interests while minimizing those of the public.
Zemsky responded by saying "Atlantic Yards is one of the most monitored development projects in the State," with various documents governing enforcement, bi-weekly construction alerts, Quality of Life (aka Community Update meetings) every two months, and meetings of the Atlantic Yards Community Development Corporation at least quarterly.

Indeed, there's much seeming public process, but the level of transparency is low--for example, see the lack of candor about the Site 5 project--and many problems persist, as amply documented on Instagram.

Mosley said he hoped for a new effort in which the various involved entities work with legislators and address the outstanding issues cited in the letter,

What's under construction?

I'm not sure five sites are under construction, as Zemsky responded, unless you count the railyard. (See slide below from a developer presentation.) Despite what Zemsky wrote, the school is not due by 2018 anymore but by 2019, according to the School Construction Authority, and more likely 2020.
From January 2016 presentation by Greenland Forest City Partners to Department of City Planning

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