Tuesday, September 06, 2016

P.C. Richard was low-balled $15 million for its half of Site 5. A huge two-tower project might go there.

We all know that, in New York eminent domain cases, the condemnor often low-balls owners of the subject property--whether residential or commercial--as a way to nudge them into negotiation. Of course they might get more money after a trial, but some are less willing to wait.

A case in point: the astounding offer of $15.1 million that Empire State Development (ESD), the state authority overseeing/shepherding Atlantic Yards, made in February to P.C. Richard, which owns one of the two buildings at Site 5, across Flatbush Avenue from the Barclays Center. (I found the letter looking through the court file; I've had no contact with the parties.)

That's well below the value of stated development rights, much less what is currently permitted (or might be permitted in the future) on the property.
Western flank of Site 5, where taller of two-tower project would be, at Atlantic and Fourth Avenues
Looking at the math

From Forest City to A.J. Richard
Consider. The site is 25,000 square feet, according to the 1997 deed of sale (at right) from Site 5/Atlantic Terminal Urban Renewal Area developer Forest City Ratner to P.C. Richard's parent, which did not state a sale price.

(Fun fact: the building was constructed by Dolly Williams of A. Williams Construction, who left the City Planning Commission in 2007 after paying a fine for conflicts of interest, as she was an investor in the Atlantic Yards project while voting regarding a small piece of what became the project site.)

By the way, Forest City got the land from New York City for all of $1.47 million, according to the document at below right.

According to current C6-2 zoning (see graphic at left)--which would be in place were ESD not overriding city zoning--it has a Floor Area Ratio of 6, meaning the bulk could be six times the base.

So that means 150,000 buildable square feet. At $15.1 million, that's just about $100 per buildable square foot.

But wait. Forest City Ratner late last year got $255 per square foot for nearby 625 Fulton Street, aka Ten MetroTech (which has an FAR of 10).

Even if the price per square foot might be lower--say $200, the estimated midpoint of the price Greenland paid Forest City for its share of Atlantic Yards--that suggests the $15.1 million payment should be, at minimum, doubled to $30 million.

If it were $255/sf, the value would be $38.25 million. It could even be higher, since most transactions recently in nearby Downtown Brooklyn have been around $300 per square foot.

That money would come from the Greenland Forest City Partners joint venture.

As far as I know, that's the formula--the value of the property were the project not being built.
From NYC to Forest City

Property worth far more

But the P.C. Richard property is now way more valuable, and just compensation--at least in a system in which landowners get a share of the future value--conceivably could be much higher.

First, a building of nearly 440,000 square feet is already approved for Site 5. The P.C. Richard site would occupy about half of that new building.

That suggests that it bears 220,000 square feet of development rights: $22 million, at $100/sf, or $44 million, at $200/sf. (Or $56.1 million at $255/sf.)

What's planned now

But wait. That's not what Greenland Forest City Partners is planning now. They're planning a giant 1.1 million square foot two-tower project (though it hasn't been approved), aiming to shift the approved bulk from the unbuilt B1, aka Miss Brooklyn, from the arena block across the street.

That suggests that the P.C. Richard site bears 550,000 square feet of development rights, or $55 million, at $100/sf, or $110 million, at $200/sf. (Or $140.25 million at $255/sf.) Those are big numbers.

Of course, these numbers are all estimates, based on certain assumptions.When two sides go to trial, the value proposed by the claimant's appraiser may be ten times that of the state's appraiser, as in this Atlantic Yards-related case.

Currently the condemnation is snagged for other reasons--a purported guarantee from Forest City for P.C. Richard to gain comparable space in the replacement building. That presumably will be resolved by a monetary payment, though the case, as noted in a document below, faces a compliance conference next May.

So too will the transfer of the property. I'd bet it's valued well above $15.1 million. But that still leaves a lot of room for argument.

Another city giveaway

According to one version of the Atlantic Terminal Urban Renewal Area (ATURA) plan, excerpted at right from the second document below,  New York City as of 1997 (at least) was reserving all development rights beyond that occupied by the low-rise big box store P.C. Richard.

(I haven't checked the regs regarding Modell's, which was a tenant on land still owned by Forest City, but I presume the situation is similar.)

I haven't yet checked to see if the ATURA plan was updated regarding this. However, as Develop Don't Destroy Brooklyn discovered in August 2005, a second, secret Memorandum of Understanding (MOU) was signed in February 2005 by Forest City Ratner, the city, and the state, allowing the developer to move 328,272 square feet in unused development rights from the Atlantic Center mall to Site 5.

In retrospect, it was a remarkable coup. It would be even more of a coup to shift the bulk of the B1 tower across Flatbush to Site 5 and pay little for the privilege.

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