Showing posts with label Chuck Ratner. Show all posts
Showing posts with label Chuck Ratner. Show all posts

Sunday, June 27, 2010

In softball interview with hometown paper, Forest City Enterprises CEO Chuck Ratner stresses integrity, openness, and candor

The Cleveland Plain Dealer, hometown paper of Forest City Enterprises, today offers a Q&A headlined Charles Ratner, president and CEO of Forest City Enterprises Inc.: Talk With the Boss.

The relevant section for Atlantic Yards watchers, is this:
The Question: What other key lessons have you learned?

The Answer: Perhaps the lessons that I've learned are best described by the core values that we have worked to develop and celebrate at our company. First among those is integrity. I guess what I've learned, as much as anything, is what goes around comes around, as they say. It's extremely important to conduct yourself with a sense of your own integrity, and then make sure that there's organizational integrity, institutional integrity.

The second is openness and candor. I think much of what we've seen recently, in the world both of public and private enterprise, is that that openness is often compromised. People are afraid to deliver bad news. There are always challenges there, and you need to know about them if you hope to deal with them.

Earlier this week, in a friendly profile in the New York Times, his cousin Bruce Ratner sounded a little more defensive:
“There’s a bittersweet feeling in having a majority owner in Brooklyn not be us,” he said, acknowledging his many critics will scoff because “when a developer speaks it’s not always believed.”
Maybe there's good reason for that, as I wrote.

As for openness and candor, there's DDDB's list of 20 times Forest City Ratner chose the opposite tack.

Thursday, March 11, 2010

"We still need more" subsidy, Forest City CEO said in April 2008, and they got it

Looking back, one of the most telling episodes in the Atlantic Yards saga came in a 4/2/08 earnings conference call that Forest City Enterprises (FCE) held with investment analysis.

As I wrote, in response to a question from analyst Rich Moore, FCE Chuck Ratner expressed satisfaction in the developer’s relationship with local government, and said he expects more subsidy.

Forest City Ratner, FCE's New York subsidiary, had gained $105 million in subsidy on top of the initial pledged $200 million, at the time of the call. Since then, FCR gained (beyond other stated subsidies and tax breaks):
  • a speed-up in delivery of pledged state and city subsidies
  • an additional $31 million for land purchase (allegedly from infrastructure funds)
  • a revised deal with the Metropolitan Transportation Authority for the Vanderbilt Yard, with only $20 million down (instead of $100 million), a smaller permanent yard, and a generous 6.5% interest rate
  • a Development Agreement with gentle penalties and generous deadlines (12 years for Phase 1, 25 years for Phase 2)
Upcoming--and hinted at in the call--is the developer's effort to corral scarce subsidies for affordable housing.

From the call

RM: You work very closely with the cities, they’ve always been a source of financing, in part…what are you hearing from them, in this whole thing, is there less desire to participate, or more desire—how do they look at it?

CR: That’s a very provocative question. We talked about it quite a bit at our last board meeting.. look at what [Forest City Ratner's] Joanne [Minieri] just shared with you, just in these past six or eight months, we got the various governmental agencies, state, city, borough, in New York, to increase their commitments to Atlantic Yards by 105 million dollars on top of the 200 [million] they committed. We still need more. So you look at New York and you realize it’s a huge city, with, obviously, huge challenges and issues, but there’s very few major things that are happening, that are gonna happen. We’re one of the few in these places that continue to offer opportunities for development, in these major urban markets. They clearly have the resources to support them and I think they’ll put them toward these projects. We found that to be true in MetroTech, over the 20 years we did it… so while they’ll have revenue challenges and tax-[inaudible] challenges, I think they have access to the capital to support development, where they think they need it. I think we represent places where they need it.

(Emphasis added)

Actually, it was just the city that upped its contribution. And it was hardly true that Forest City Ratner alone is offering "opportunities for development." Consider the number of bids for the West Side Yards in Manhattan, or for Willets Point, or Coney Island.

Minieri chimed in: With respect to New York, the city and the state, they really put an emphasis on affordable housing program… a project like Atlantic Yards, of such significance really furthers their commitment to the housing program. So as I said… we work very closely with them, because it’s a public private partnership that will enable us to all come together.

Wednesday, February 10, 2010

Brutally weird: Forest City's fantasy of 8000 AY jobs comes from 2006, the ESDC offers backup (despite lower 2009 figures) & the WashPost takes a pass

The estimates of permanent jobs at the Atlantic Yards project have always been fantasies.

Remember the estimate of 10,000 jobs--the one that "enervated" Sen. Charles Schumer? It was bogus from the start. There was no market for that many office jobs. Forest City Ratner overstated the number of jobs that could fit in the four office towers projected to ring the arena. And it neglected to explain that most of the jobs would not be new but transferred from Manhattan. (Graphic from 2004 FCR flier. Click on all graphics to enlarge.)

But the latest projection of 8000 jobs (below), from Forest City Ratner and parent Forest City Enterprises (press release, letter to the Washington Post), is even more outrageous.

First, it's double the current official estimate (which itself is questionable) from the Empire State Development Corporation (ESDC). Also, it's based on 2006 data--which even back then was doubtful--regarding two or three more office towers than the one currently contemplated.

And, to make it brutally weird, Forest City Ratner in legal papers relies on the 2009 data.

The Post punts

Dismayingly, the Washington Post, after several exchanges with me after my request for a correction, decided to let the claim from Forest City Enterprises CEO Chuck Ratner stand as his "opinion."

Ratner wrote a 1/12/10 letter to the Post in response to a column by George Will on eminent domain for Atlantic Yards:
Mr. Will also did not mention that nearly 40 percent of the site is a submerged rail yard, long a scar dividing this area of Brooklyn, and that the project will create nearly 17,000 construction jobs, 8,000 permanent jobs and 2,250 affordable apartment units.
(Emphases added.)

I'd think that more recent estimates would trump ones more than three years old, but the Post, not unlike the judicial system, is willing to defer to a dated official statement that, upon examination, seems unmoored from reality.

Echoes of Poletown

Inflated claims about jobs are not unusual when developments are being sold to the public. Indeed, the ratio in this case echoes aspects of the notorious Poletown eminent domain case, where the city of Detroit, thanks to a 1981 state court ruling, razed an entire neighborhood for the promise of 6000 jobs in a General Motors factory.

While GM and most in the press promoted the promise of 6000 jobs, as noted in the book Poletown: A Community Betrayed, that figure reflected only the capacity at full employment, while GM committed to hire only 3000 workers, half the publicly stated number. (Also see Gideon Kanner's eminent domain blog regarding Poletown.)

Relying on the 2006 FEIS

I erred in crediting Forest City's numbers to a misreading of the latest estimates. Rather, the developer is relying on the Final Environmental Impact Statement (FEIS), issued in November 2006.

What if we relied on the FEIS regarding other aspects of the project?

Well, the arena would be open by now (see construction schedule at right), the Carlton Avenue Bridge would be open after two years of reconstruction, and the project would be designed by architect Frank Gehry, who's gone.

Untangling the numbers

Remember, an 9/17/09 ESDC board memo from Chairman Dennis Mullen that estimated 3998 jobs in New York City and 4277 jobs in New York State, inclusive of New York City. (Rather than add up to 8000 jobs, the total is about half that.)

And Forest City Ratner did rely on those recent figures in an 11/12/09 legal memo (p. 34 of this PDF) in the pending case challenging the ESDC's approval of the project.

But no.

After Chuck Ratner's letter, I sent a correction request to the Washington Post, including a link to the ESDC's 9/17/09 board memo with the updated figures. (Later I pointed to the Modified General Project Plan.)

A Washington Post editor asked Forest City Enterprises for the source of its figures.

This is more responsible than the New York Times, which, for example, has allowed a spokesman for the New York City Economic Development Corporation to lie that Atlantic Yards is "a site that is now an open railyard without any public benefit."

Forest City's response

Forest City sent back page 4-72 of the 2006 FEIS (from the chapter Socioeconomic Conditions), which includes Table 4-22 (right), referring to the Commercial Mixed-Use Variation of the project, which would include 1.6 million square feet of office space and 8560 jobs.

No one in 2006 was talking seriously about that scenario, which would involve three or four office towers, and no one is even mentioning it now. The same chapter, on p. 4-96, also includes Table 4-32 (below left), which addresses the far more likely Residential Mixed-Use Variation of the project, which would have one office tower and 3600 jobs.

The residential variation has long (since before 12/06 approval) been the version publicly discussed, because of the lack of an office market.

That's confirmed by the ESDC itself. At the time AY was first approved, in December 2006, the ESDC promised in a press release (no longer available, but excerpted below right) 5000 permanent jobs.

That's an overestimate (if you consider the projection of 3600 jobs), but clearly less than 8560 jobs.

Moreover, the ESDC's 2009 Modified General Project Plan (GPP) on p. 33 estimates somewhat more jobs but nothing near 8000:
ESDC has projected that the Project will have the following impacts during construction and for the first 30 years of operations:
...(iv) Operations at the Arena and mixed-use development will support an annual average of 4,538 new jobs in New York City (direct, indirect, and induced) and an annual average of 5,065 jobs (direct, indirect, and induced) in New York State, (inclusive of New York City).
Two reasons to doubts current projection

Even the ESDC's current projection of some 4000 jobs is likely a fantasy for the foreseeable future. After all, it depends on the construction of an office tower for which there is no market, as the developer acknowledged last November, in an interview with Crain's New York Business:
Initially, the project called for four office towers, but by early this year, only one was on the drawing boards. Asked when it will go up, Mr. Ratner responds with a question: “Can you tell me when we are going to need a new office tower?”
And even if there are 4000 jobs, about a third (1340) would be office jobs--and the New York City Economic Development Corporation, in a 6/27/05 report, estimated that only 30% of office jobs would be new, rather than relocated. So that would eliminate 938 jobs--nearly a quarter of the total.

So the claim that 8000 jobs would be created doesn't sound like much adherence to the values professed by Forest City Enterprises.

Under the heading "Integrity and Openness," the company states:
In all our dealings with all stakeholders, we will uphold the highest possible standards of ethical behavior. Our interactions will be characterized by an attitude of openness, candor and honesty.

The Bloomberg echo

Mayor Mike Bloomberg's office has unquestioningly reproduced Forest City Ratner's figure of 8000 jobs, as I noted 12/1/09.

The Post punts

After I queried the Washington Post, I had several off-the-record exchanges, which were quite cordial (in contrast to some of my exchanges with the New York Times). I cited the documents above: the ESDC board memo, the ESDC's GPP, and Forest City Ratner's legal memo.

Mike Larrabee, Post Letters and Local Opinions Editor, ultimately sent me the paper's conclusion:
Here is the comment given to me by Elizabeth Mitchell, a press person at the Empire State Development Corp., on Feb. 3. She had already told me that ESDC still thinks 8,000 jobs is a reasonable estimate, and her statement below was in response to my follow-up question asking her to square that with the language in Dennis Mullin's Sept. 17 memo, which you cited in arguing that 8,000 jobs was wrong.
"The Atlantic Yards Project FEIS and GPP allow for the developer to build one of two scenarios: one primarily residential and the other a commercial mixed use scenario. An excerpt from the FEIS: Once constructed, the annual operation of the completed project would support approximately 6,200 to 16,300 direct and indirect FTE jobs in New York City, and approximately 7,500 to 19,800 direct and indirect FTE jobs overall in New York State—with the first number in each case being that of the residential mixed-use variation and the second the commercial mixed-use variation. FCRC has always believed that as many as 8,000 jobs or more can result from this project, a number which was substantiated in the original project documents and which is not necessarily contradicted by any element of the project presently being developed."
We've looked into your concern. Your request for a correction is complicated by the fact that we're dealing with a jobs estimate, not a firm, knowable fact. There can be legitimate difference of opinion on this number, and you may be right that fewer jobs would result from the project. But given that Forest City is standing by the estimate in Mr. Ratner's letter, and that ESDC agrees it's a reasonable figure, I don't see how The Post can go on the record to state with certainty that Mr. Ratner's estimate is inaccurate. In the context in which is was presented, as his opinion, we've decided to let it stand.
(I added italics to Mitchell's letter, which, given the punctuation as conveyed by Larabee, could have left the impression that the FEIS contains the words "FCRC has always believed...")

Looking more closely

Well, Ratner wrote "will create... 8,000 permanent jobs," not "might create," and not "might create, based on 2006 estimates." In his letter, he chided Will for ignoring the jobs projection. But he didn't present the projection as his opinion; he presented it as a certainty.

Mitchell quoted from the 2006 FEIS. Shouldn't that information be superseded by more recent estimates in the the 2009 GPP and the board memo? Shouldn't the ESDC do its best to come clean with the public rather than back up Ratner's statement as a "reasonable figure"?

The ESDC and Forest City Ratner/Forest City Enterprises are relying on the same strategy they've used in court--that, if an estimate appears somewhere in a document created by a consultant, it's valid.

That strategy has been successful, because the legal standard is merely a "rational basis," and there's no opportunity for cross-examination or expert rebuttal.

But stating that the project "will create... 8,000 permanent jobs" misleads the reader.

What if a Washington Post reporter, in preparing a news article, tried to assess the claims for jobs at the project? Wouldn't that reporter consider that the most recent evidence was more reliable?

Letters and corrections

What's the standard for correcting errors in letters? Maybe the editor of a Letters page can't be expected to do rigorous factchecking. The Post's corrections policy does not address errors in letters--though surely the Post would avoid printing blatant errors.

The New York Times's corrections policy also does not address errors in letters, but such errors are periodically corrected.

In his 9/2/05 Web Journal criticizing New York Times columnists for not being forthright about corrections, then Public Editor Byron Calame wrote:
Opinions expressed on the editorial and Op-Ed pages of The New York Times aren’t part of the public editor’s mandate. But the facts are. And so are corrections of any misstatements.

So I'll contact the Washington Post Ombudsman to see what he thinks.

Master Closing Press Release

For Consideration September 17, 2009

ModifiedGPP2009

Tuesday, January 19, 2010

In the Washington Post's Letters section, DDDB's Goldstein rebuts Chuck Ratner

After Chuck Ratner responded to George Will in the Washington Post, Develop Don't Destroy Brooklyn spokesman Daniel Goldstein gets a rebuttal letter in today's Post.

It's longer and more substantive than the only letter Goldstein's seen published in the New York Times, which, rather than print a correction, let Goldstein on 4/12/07 explain that "[o]ur organization does not merely oppose the scale of the plan."

In the Washington Post

The headline is Seeking N.Y. land, developer twisted meaning of 'blight':
George F. Will's Jan. 3 column on eminent domain for the Brooklyn Atlantic Yards Project, "In N.Y., government's eminent arrogance," focused on the perversion of "public use" to include "blight" removal and the perversion of "blight" to mean whatever land-hungry developers and their political partners want it to mean.

Developer Charles Ratner responded to the column with a misleading letter ["N.Y. project: Beyond eminent domain," Jan. 12]. Tellingly, his letter ignored the blight issue.

Mr. Ratner pretends the Atlantic Yards project site is little more than a rail yard, warehouses and empty lots. This is false. Before his firm, Forest City Enterprises, came along with its eminent domain and demolition plans, it was a gentrifying but mixed-income, mixed-use home to about 400 residents and 35 businesses.

Forest City would like everyone to think it tried to avoid using eminent domain and would use it only as a "last resort." But eminent domain was purposely a first resort -- it was the threat of eminent domain used as a gun to the heads of property owners and tenants that allows Mr. Ratner to think -- delusionally -- that he hasn't actually used eminent domain. The threat and the use are precisely the same, equally insidious and achieve the same result.

Daniel E. Goldstein, New York

The writer is co-founder and spokesman for Develop Don't Destroy Brooklyn.

Tuesday, January 12, 2010

Today's news quiz: "Atlantic Yards project was not properly presented"

The headline "Atlantic Yards project was not properly presented" refers to:

1) the Empire State Development Corporation's failure to have consultant AKRF do a market study (as contracted) of the Atlantic Yards footprint and environs and the failure to do a study of neighborhood conditions

2) Columnist George Will's scathing (if flawed) criticism (which made New York magazine's approval matrix) of the Empire State Development Corporation's finding of blight in the pursuit of eminent domain for Atlantic Yards

3) Forest City Enterprises CEO Chuck Ratner's complaint that columnist George Will didn't check with the company or elected officials before criticizing Atlantic Yards.

4) the Washington Post's willingness to print Ratner's letter without factchecking on jobs or other issues.

Answer: 3.

What's in, what's out

Chuck Ratner wrote:

Mr. Will never contacted the developer -- my company -- or supporters of the project, who include the governor, the mayor and the Brooklyn borough president. Yet he concluded that a "politically connected developer" is the recipient of largesse because the state agency leading the development can use eminent domain to obtain the remaining properties of individuals who refuse to sell. And he failed to note that my company controls 85 percent of the 22-acre site. Mr. Will also did not mention that nearly 40 percent of the site is a submerged rail yard, long a scar dividing this area of Brooklyn, and that the project will create nearly 17,000 construction jobs, 8,000 permanent jobs and 2,250 affordable apartment units.

Well, Will's column was about the state's dubious finding of blight. And, as NoLandGrab's Lumi Rolley pointed out, Forest City Ratner acquired the property it owns under the threat of eminent domain--and, I'd add, thanks to city subsidies.

As for the jobs figures, the construction jobs are in job-years and the figure for permanent jobs is about double the state's estimate. The project wouldn't "create" 2250 affordable apartment units; rather, the construction of those apartments depends on the availability of subsidies, and a good slice would be at or above market rates.

At least, unlike Seth Pinsky of the New York City Economic Development Corporation, Ratner doesn't think the railyard occupies the "vast majority" of the site.

In conclusion

Ratner concludes:

New York's unemployment rate is above 10 percent. Construction has all but halted there. We need to look to build in a way that can improve communities by creating mixed-income housing, jobs and vibrant centers that will attract visitors and residents.

Well, all construction creates short-term jobs. The question in Will's column was whether blight was a justification. Ratner ignored it. When the project was announced, the state's unemployment rate was much lower, so Ratner's company had to offer broader justifications; remember "Jobs, Housing, and Hoops"?

Saturday, January 02, 2010

Syndicated columnist George Will calls for Court of Appeals to reconsider Atlantic Yards eminent domain case

Syndicated columnist George Will, a conservative who played a key role in bringing the controversial Kelo v. New London eminent domain case to national attention, has weighed in on Atlantic Yards, but his timing is different: he wrote about Kelo in September 2004, before the U.S. Supreme Court had even decided to take the case.

By contrast, the challenge to eminent domain for Atlantic Yards has been dismissed in both federal court and state court, except for a longshot effort to reopen the latter case in light of a seemingly contradictory lower court ruling on eminent domain regarding the Columbia University expansion.

The Will column

The first sighting of the Will column, headlined A blight grows in Brooklyn, comes from the Merced Sun-Star, but his column is syndicated in more than 450 newspapers, so it should appear tomorrow in the Washington Post and elsewhere.

[Here's the Washington Post version, headlined Avaricious developers and governments twist the meaning of 'blight'; there are numerous comments.]

He likens the Revolutionary War's Battle of Brooklyn to today's "battle of Prospect Heights," is being fought. Americans' liberty is again under assault, but this time by overbearing American governments.

He writes:
The fight involves an especially egregious example of today's eminent domain racket. The issue is a form of government theft that the Supreme Court encouraged with its worst decision of the last decade -- one that probably will be radically revised in this one.

The Atlantic Yards site, where 10 subway lines and one railway line converge, is the center of the bustling Prospect Heights neighborhood of mostly small businesses and middle-class residences. Its energy and gentrification are reasons why 22 acres of this area -- the World Trade Center site is only 16 acres -- are coveted by Bruce Ratner, a politically connected developer collaborating with the avaricious city and state governments.
Actually, the site is in the northwest segment of Prospect Heights, near the bustling neighborhoods of Fort Greene, Park Slope, and Boerum Hill.

The blight dodge

Will writes:
To seize the acres for Ratner's use, government must claim that the area -- which is desirable because it is vibrant -- is "blighted." The cognitive dissonance would embarrass Ratner and his collaborating politicians, had their cupidity not extinguished their sense of the absurd.

The condo of Daniel Goldstein, his wife and year-old daughter, which cost Goldstein $590,000 in 2003, is on part of the land where Ratner's $4.9 billion project would be built -- with the assistance of more than $1 billion in corporate welfare from the state and city governments, which are drowning in red ink. The Goldsteins' building would not seem blighted to anyone not paid to see blight for the convenience of the payers. Which is of constitutional significance.
Indeed, the area is desirable--Forest City Enterprises CEO Chuck Ratner famously called it a "great piece of real estate." However, the Goldsteins' building was not deemed blighted; rather, judges are reluctant to interfere with the decision by condemnors to include non-blighted properties.

More importantly, the renovated building (Block 1127, Lot 27) is counter-evidence to the charge that the adjacent railyard, part of the blighted Atlantic Terminal Urban Renewal Area (ATURA), had a blighting effect on adjacent blocks, as Develop Don't Destroy Brooklyn's response (article, PDF) to the Empire State Development Corporation's Blight Study pointed out.

The impact of Kelo

Will points to the need for blight to be found so the state could deliver the properties Bruce Ratner sought. And while the decision was upheld by the Court of Appeals, an intermediate court found "mere sophistry" in the Columbia case, with a Blight Study written by the same firm used in Brooklyn.

Will concludes:
The Atlantic Yards nonsense was compounded when Ratner, to bolster his balance sheet after the real estate collapse, sold the Nets to a Russian billionaire, who stands to benefit from Ratner's government-subsidized seizure of other people's property. Those people can only hope that New York's highest court will grant their appeal for reconsideration on the grounds that Ratner's argument is about as good as the Nets are. Through Friday, their record was 3-29.
That's a longshot, but the issues are important. Can "underutilization" really be used as a "blight characteristic," given that applies to enormous sections of the city?

Perhaps the Court of Appeals will take a closer look. And we'll see what comes out of public hearings and new legislation promised by state Senator Bill Perkins.

Will's background on eminent domain

Will has long been sympathetic to is a member of the board of the MacArthur Foundation, which provides some funding for the Institute for Justice (IJ), the libertarian law firm that led the Kelo fight and has lobbied nationally for changes in eminent domain laws. (The MacArthur Foundation tells me that information on the Washington Post web site regarding Will's board membership is incorrect. Will is a member of the board of the Bradley Foundation, which supports the IJ.)

He wrote in August 2009 about how the subject of a book on eminent domain, Bulldozed, has sued both the writer as well as an endorser, suggesting that the charge "ignores long-established criteria of defamation law."

The Kelo column

According to Jeff Benedict's account of the Kelo case, Little Pink House, after the IJ filed its appeal with the Supreme Court, it sent a copy to Will, who had previously championed the organization's cases.

Benedict writes:
His column caused a major stir and touched off a slew of stories on national television and radio programs. There were so many requests to talk to the Fort Trumbull homeowners that the institute's John Kramer had to pick and choose which ones the plaintiffs would meet.
Will's September 2004 column, headlined Despotism in New London, began:
The question is: Does the Constitution empower governments to seize a person's most precious property -- a home, a business -- and give it to more wealthy interests so that the government can reap, in taxes, ancillary benefits of that wealth? Connecticut's court says yes, which turns the Fifth Amendment from a protection of the individual against overbearing government into a license for government to coerce indi- viduals on behalf of society's strongest interests. Henceforth, what home or business will be safe from grasping governments pursuing their own convenience?
Will acknowledged that the Supreme Court had expanded the notion of "public use" to mean "public purpose," notably in a case clearing slum conditions in Washington, DC. He wrote:
But the Fort Trumbull neighborhood -- what remains of it; many residents have been bullied into moving -- is middle class. That is the "problem": Residents are not rich enough to pay the sort of taxes that can be extracted from the wealthy interests to which New London's government wants to give other people's property.
What's blight?

While the case in New London ostensibly involved economic development, not the removal of blight, the deployment in New York of blight criteria like underutilization essentially merges the two.

And the lingering question remains: can "blight characteristics" add up to blight, especially when the state fails to do a market study of rents and sales around the Atlantic Yards site?

Or does blight mean, in the words of urban planner Lynne Sagalyn, “when the fabric of a community is shot to hell.”

Thursday, December 10, 2009

FCE executives say Atlantic Yards is on schedule, bond details, sale next week

In a conference call today (webcast) with investment analysts, Chuck Ratner, CEO of Forest City Enterprises, parent of Forest City Ratner, expressed optimism about the Atlantic Yards project and said more details on the terms for the arena bonds would emerge “by the end of next week.” Another executive said bonds would be sold by early next week.

“In summary, we have several things yet to accomplish, and we fully expect to close this project by the end of the year,” Ratner said. “We are in a position to close because we have achieved some major milestones. The first was a letter of intent with an affiliate of Onexim Group, an affiliate of an international private investment fund, to create a strategic partnership for the ownership of the Nets and the development of the Barclays Center arena. This influx of new global capital is strong sign that others also see a value creation opportunity that we see in this great project.”

Others might say that Russian tycoon Mikhail Prokhorov—a big basketball fan--got a very good deal.

“The second major milestone is the favorable ruling by New York State Court of Appeals rejecting a challenge to the state’s use of eminent domain, clearing a major legal hurdle for the project,” Ratner added. “Then, early last week, the major rating agencies issued investment grade ratings on 500 million dollars of tax-exempt bonds to finance part of the construction of the Barclays Center arena. As some of you may know, we’re out marketing the bonds at this point and we’ll have a picture of the specifics of the bond terms by the end of next week. In summary, we fully expect to close by the end of the year."

Capital investment

FCE CFO Bob O’Brien at one point acknowledged that there is a significant investment that needs to go into Atlantic Yards as it goes forward.

An analyst asked, "Can you give an update on the arena... and expectations of capital investment in the project?"

Forest City Ratner President Joanne Minieri responded, “As Chuck mentioned, we are anticipating to close on the Atlantic Yards and the Brooklyn arena by the end of this year. We had always anticipated the necessary equity, which would in the neighborhood of around 200 million dollars, primarily in connection of the land and infrastructure… I think, overall, all of our targets are being met, and we continue to proceed accordingly for the year-end close. We’re out in the market, as you probably heard, on the bonds… and we expect to have them sold early next week. So, with that, I think, overall, the project is pretty much moving as we planned.”

"So the 200 is what you expect to invest or is that what's been invested to date?" she was asked.

"It’s what we expect to invest," Minieri responded. "It's what's in the company's sources and uses for the project."

She was asked if FCR would put in 55% of that, given its 55% ownership in the company running the arena.

"That is Forest City's expected share," she responded. "Our partners will put in their share in accordance with the sale we announced with respect to the sale to Mr. Prokhorov of 80% of the team and 45% of the arena."

Delayed mortgage payment

Forest City officials were asked why they had delayed a $5 million payment on a loan for land in the Atlantic Yards footprint: “I’m wondering what your negotiations are with the lender. Are you trying to get a lower interest rate? Are you trying to get them reduce the size of the mortgage? And how does that impact the potential close of the project?”

Ratner said they didn’t want to discuss a specific negotiation

Minieri added, “The lender group on our land loan has been very supportive and has been working with us in connection with making sure that this project occurs as planned.”

Is that supportive or is that in a weak negotiating position?

Naming rights

They were asked if the Barclays Center naming rights situation is secure.

“That is secure,” Minieri responded. “Barclays remains committed. We've fulfilled with the requirements that allowed for passage of the termination date."

Were those requirements cutting the value of the deal from $20 million a year to $10 million and change?

Sunday, November 22, 2009

On Forest City Ratner's monopolies and "the next great site in Brooklyn"

To Michael White's very interesting Noticing New York piece on Forest City Ratner's efforts to corner a monopoly on prime Brooklyn land, let me remind readers that Chuck Ratner, CEO of parent Forest City Enterprises, on 9/9/05 told investment analysts:
"I will confess that it was less than two or three years ago we were sitting around in New York wondering where the next deals were going to come from. We had finished a whole bunch of office and we completed MetroTech and we didn't have the next great site in Brooklyn. That was one of the reasons we got so aggressive and creative, Bruce and his team did in this Atlantic Yards project. We saw that land sitting there for this last 10 years, realizing it would be a great opportunity if somebody could turn it on."

Friday, June 12, 2009

What could $20 million buy? Apparently a smaller plot in Sheepshead Bay

Forest City Ratner reportedly wants to pay just $20 million to the Metropolitan Transportation Authority for the portion of the Vanderbilt Yard it needs to build the Atlantic Yards arena. It initially promised to pay $100 million for the whole railyard. This series attempts to add some context.

In November 2007, according to the Real Deal:
White Plains-based developer Arcadia Realty Trust bought a two-acre site in Sheepshead Bay last November for $20 million with plans to build a mixed-use project with 300,000 square feet of retail space.

More development at AY site

Meanwhile, the 2.27-acre railyard segment (Block 1119, Lot 7) would seem to occupy at least 40% of the arena block--at least the of the arena block would seem to be at least 40%--at least the part east of 5th Avenue. 

And the arena would be some 800,000 square feet, with towers and retail on the arena block eventually totaling 1.5 million square feet--the smallest amount that could be built without penalty, according to the City Funding Agreement.

Is this "great piece of real estate," to quote Forest City Enterprises CEO Chuck Ratner, really worth less per acre than a couple of acres in Sheepshead Bay where a much smaller project is destined?

Friday, June 05, 2009

DDDB’s Goldstein goes to annual meeting in Cleveland, publicly asks Forest City questions, gets shrugged off

Corrected 4:50 pm to identify speakers and updated 6/6 with Goldstein's comments

Well, it sounded like a plan. Develop Don’t Destroy Brooklyn spokesman Daniel Goldstein, a shareholder in Forest City Enterprises, parent company of Atlantic Yards developer Forest City Ratner, went to the company’s annual meeting in Cleveland today to ask management some questions about the project. (It was webcast and will be re-broadcast.)

The meeting, held at the Tower City Center began at 2 pm, and it took an hour—after business presentations and reflections on the economy from the company’s patriarch, Sam Miller—before the floor was opened to questions.

[When does Goldstein speak? Depending on your player, I'm told, it's at either 59:11 or 1:33:18.]

Goldstein’s chance

Goldstein was the first and only questioner. He spoke respectfully but his words were not those of a happy investor but of a company critic. (Had he been speaking at last Friday’s oversight hearing, supporters orchestrated by Forest City Ratner would have quickly shouted him down.)

“My name is Daniel Goldstein. I am shareholder. Thank you for allowing me to speak,” he said, noting he’d have a comment and then some questions. [Goldstein bought a few shares earlier this year to be able to attend.]

Forest City, he noted, is losing some $30 million a year owning the New Jersey Nets. The AY project is being redesigned, faces new political approvals, and faces a “staunch and widespread opposition.” (Well, it also has a lot of political juice.)

He cited ongoing litigation, diminished political support, and an “extremely challenging economic environment for an $800 million arena and 6400 housing units.”

Yesterday, he noted, it became official that architect Frank Gehry was no longer designing the arena, thus raising questions about the $400 million naming-rights deal with Barclays and thus the arena revenue model.

Forest City doesn’t own the land it needs or have the financing it needs to start the arena, he pointed out. “Yet the company claims it will finance the project, break ground and open the arena in 2011,” Goldstein said, suggesting that losses will continue to mount.

The questions

Forest City has an end of year deadline for tax-exempt arena bonds that would save the developer at least $150 million, Goldstein said, then offering questions:

  • Given all of these challenges, can you let Forest City shareholders know what contingencies you have if you can’t break ground in 2009 and can’t open the arena in 2011?
  • And why has Forest City chosen this particular project, “fraught with so many major obstacles,” as the only development to begin vertical construction this year?
FCE Co-Chairman Albert Ratner, on the webcast, seemed nonplused. “The company does believe that it will start the project during this year,” he said. Then, he calmly evaded the rest of the questions by claiming that ongoing litigation precludes further discussion of the issue.

Of course ongoing litigation did not deter an announcement about Gehry yesterday.

Even if construction begins in this calendar year, Forest City can’t open the arena in 2011—Ellerbe Becket arenas take 27+ months to build—so that’s a question that should be asked again and again of those promoting the project.

Goldstein reflects

Goldstein adds (6/6):
I did not go to the meeting expecting answers to questions. Forest City does not answer questions. I went to the meeting to raise the issues I raised with shareholders and board members based in Cleveland and those listening to the webcast. I went to challenge Forest City Ratner's assertions about their ability to start the arena construction in 2009, and open it in 2011. I did not expect any answers. And the answer given, that they don't discuss litigation, made no sense as I did not raise litigation as an issue.

"Hope" or "intend" to start AY?

Earlier in the meeting, Forest City Enterprises CEO Chuck Ratner used somewhat contrasting language regarding Atlantic Yards, calling it both “the major start we hope to accomplish in the near future” and something “we fully intend to start.”

Good relationships?

In his closing remarks, almost certainly prepared without knowledge that Goldstein would attend, Albert Ratner noted that many of the company’s projects around the country had faced past opposition.

“We retain wonderful relationship,” he said, “even with the people who, over the years, thought they were not worthwhile projects.”

In Brooklyn, however, the jury's out.

The official transcript

DANIEL GOLDSTEIN, SHAREHOLDER, DEVELOP DON'T DESTROY: Hello, my name is Daniel Goldstein, I am a shareholder and thank you for allowing me to speak at today's meeting. I have a comment that will take two minutes and a few questions following the comment. My question is about the Atlantic Yards project in Brooklyn.

Forest City is losing $30 million a year, while the Nets stay in New Jersey, the project is being redesigned and faces on the new political approval process, staunch and widespread community opposition, ongoing and potential new litigation, diminished political support, and an extremely challenging economic environment in which to finance an $800 million arena and 5,400 housing units.

And just yesterday, it became official that architect Frank Gary will no longer be project's architect, which raises questions about Forest City's $400 million naming rights deal with Barclays Bank and the entire arena revenue model. Forest City doesn't own the land it needs or have the financing it needs to construct the arena, or the rest of the project, yet the Company claims that it will finance the project, break ground this year, and open the arena in 2011, which is already an impossibility.

This means that the losses from keeping the team in New Jersey in the Meadowlands will continue to mount. Forest City also has a looming end of the year IRS deadline to issue the taxes arena bond, and missing this deadline would cause Forest City an estimated $150 million to $190 million, which could be a big problem for the project.

Here are the questions; given all of these challenges, can you let the Forest City Enterprises shareholders know what contingency plans the management in Cleveland has, if and when you don't break ground in 2009 and can't open the arena in Brooklyn in 2011? And finally, the other question is, why has Forest City chosen this particular project, fraught with so many major obstacles to be the only vertical development as the Company transforms itself for now into a management company? Thank you.

ALBERT RATNER: Just two comments. The first comment is that the Company does believe that it will start the project during this year. The second comment is, we don't want to have a long discussion on the subject, because we do not discuss litigation issues. And since we still have litigation issues outstanding, it is not a discussion we want to have. If you want to talk to some of the people after the meeting, they will be happy to talk to you. Thank you for coming, and thanks for the questions.

ALBERT RATNER: Okay, anybody else have a question or comment that they want to make? All right. If not, I'm going to make a few comments and then we are ready to close the meeting.

A few weeks ago, I was thinking about the growing economic situation. And I was reflecting on the earliest years of Forest City and I suddenly realized that I am the only living institutional memory of Forest City. It used to be my mother and father and my aunts and uncles. My dad came to this country with my uncle, Harry, Bruce's father and the rest of the family by about 1920. And I was born in 1927 and from the time I was maybe four years old, I would go to the lumber yard with my mom and dad. And I suddenly realized that for that period until maybe 1945, I am the only person who remembers what happens.

And it really becomes relevant because of what they lived through and what happened today. In a way I feel like somebody who is at the airport listening to somebody complain about United Airlines, and remembering some people went from New York to Los Angeles in covered wagons -- very different kind of feeling in a very different kind of life. As a corporation, we are celebrating either our 80th anniversary or our 88th anniversary, depending on whether you listen to Max or Leonard as to when the business started; we're not sure who's right.

Over these 88 years, we have been through many cycles and while each cycle has been different, we have come through them because we have been consistent in three beliefs in three areas. The first one is our belief that we are a relationship company, that our business is built on relationships. The second is, that over that period of time, we have been very creative. We have been able to figure out what comes next. And, the third one is that we understand and have an ability to develop great real estate.

I learned about relationships in life very early at the lumber yard, when people came in and traded pickles and pastry and jell-o to get lumber because there wasn't a lot of money around. And, if somebody needed a door or window, they came in with whatever they had and we would exchange it.

My uncle Max was a lawyer, and part of the way we survived he had a law office in front of the lumber yard and he would give people free legal advice. He always said it was worth what they paid for it, but it is one of the services that we carried out. In those days, there wasn't a lot of business, so when it snowed, we would take the truck and run it through the lumber yard once, so it looked like the truck had been out on a job.

So they were some tracks within the lumber yard. In 1935, there were five houses built in all of [Tahoga] County. There were five mortgages given and we gave two of those mortgages; we had 40% of the mortgage business. And the way we did it was, a builder came to us and said, I know a fellow who has a lot, I'm a carpenter, your lumber doesn't do any good in the lumber yard. Give us your lumber, we will put it on his lot, I'll build the house and some day we will sell it, and that was the beginning of this Company.

For over 50 years, we have employees that have been with us, we have been partners with people for over 50 years, we have been at cities for over 50 years. As our business has grown, we got into larger projects, we began to deal with governments. It is very interesting, because of the question that was asked earlier. In almost every major project that we have been involved.

In urban areas, which has a lot of concentration of people we have found that we have had people who had objections and legitimate objections; people have every right to object to what you're doing. We've had at it MIT, we've had at MetroTech, we have had it at San Francisco Center. All are examples of wonderful projects in which came about despite the fact that there was opposition, but succeeded because of the importance of these projects to these communities.

And we retain wonderful relationships, yes even with the people who over the years thought that these were not worthwhile projects and shouldn't go ahead. We have partnered with cities, with states, with banks, our tenants. While real estate is a transaction business, our success is not on the individual transactions, but on our partnership relationships; as long as we remember that, we will always succeed.

We have been successful in this area savior because of three beliefs we have in this Company. We do not let others determine our behavior. We behave in what we think is a proper manner and no matter what others do to us, will continue to behave in that manner. Two, we don't always get to choose what happens to us, but we always get to choose how we will act when these things happen to us. And finally, we try to treat people fairly. As long as we conduct ourselves in this manner, we will continue to be successful.

We have always been creative, we have always been able to figure out what is next. Creativity comes from people and we have very creative people. We started out as garage builders, then we went under contract and retail lumber business. When World War II happened and you had no lumber to sell, we made boxes for munitions. We made triggers for rifles for the United States Army. When Sam came into the business, we went into the land business. When I joined the business, we became more active in the shopping center business.

In recent years, we have built biotech buildings, building systems, senior citizen's housing, military housing. Today, as we look to our future, there are opportunities in government and private sector services, energy, medical, and biomedical stuff. We believe in creativity and we're going to find out what happens next. You do not need all of your creativity in-house. You can go out and hire the best people in the world, but the great thing about creativity, it grows on itself. So, the combination of what we have in-house and what we get outside is what gives us the energy to do what we need to do.

And lastly, we basically are retail and our gift is development. And I know development today is a four-letter word. I would agree for the present and maybe for a little longer than present, there will be fewer new development projects that take place. But, what we have to do is take a look at the buildings we own that we have created, the MITs, MetroTechs, New York Times, San Francisco Center, Bayside Apartments, military housing, Sky55 -- wonderful buildings in great cities.

While our buildings under construction have the problems of the day and some of them were pointed out, none of them are simple, all of them are complicated. We take great pride in the fact that we're building Gulfstream and the Oakland Apartments and will be building Atlantic Yards, because they have a great future.

Finally, the thing that excites me the most about the projects that we're building are the ones that are yet to come -- the ones that are going to be expanded. The time is not today, but the Yards in Washington DC Central station, whether Chicago gets the Olympics, which if it does, is the best piece of land anywhere in the world, without it is still a great piece of land. Staple in Denver, Mesa Del Sol are here for the present as well as the future. We do know the real estate business, we have the best people in the business to execute the plans.

As I reflect on our future, I, like Sam and Chuck believe, that the best years for our company are ahead, and I base that on the fact that that I believe the best years of our country are ahead. We will grow 83 million more people, or have 83 million more people in this country over 30 years. Population drives development and above all, we are great developers. If we continue to understand the importance of our relationships, continue to be creative and continue to use our real estate knowledge, we have a bright future.

I want to tell you a story -- close by telling you a story of my uncle Max. When I started in the business, we started to do business out of town, and when I would come back, my uncle Max was always anxious to sit down with me to find out if we made a deal with a tenant. But the first question that he always asked me was not whether we did the deal. He would ask me, what did the person we met, that I met with, think of the Company?

And I would say, uncle Max, why do you ask what the person who we met with thinks of the Company? He said, because if they think we are a good company, we will do business with them. As long as we remember where we came from, we will always know where we're going.

I want to thank all of you for joining us today, and I now adjourn this meeting. Thank you very much.

Monday, February 23, 2009

Missing from Chuck Ratner's Atlantic Yards claim: blight--and hoops

On February 13, after Gramercy Capital Corporation offered Forest City Ratner a crucial extension on a loan, Chuck Ratner, CEO of parent Forest City Enterprises told the New York Times, “This is a key step in our strategy of proactively managing our debt maturities. By working closely with Gramercy to secure this extension, we have put Atlantic Yards in a position to achieve the vision of economic revitalization, job creation and affordable housing for the future of Brooklyn.”
(Emphasis added)

What's missing from that statement?

First, the original Forest City Ratner slogan of "Jobs, Housing, and Hoops," one which by 2006 had already begun to downplay basketball for an emphasis on affordable housing. Now, the twin promises of economic revitalization" and "job creation" seem calibrated to the current zeitgeist.

Second, the primary (but not exclusive) official government goal of the Atlantic Yards project: blight removal.

FCR on blight

Though Forest City Ratner has never emphasized an intention to remove blight--that's the goal of the Empire State Development Corporation (ESDC)--it surely has been on the mind of the developer.

Former AY point man Jim Stuckey, said, according to an 11/3/05 episode of the Newshour, "There might be a need for eminent domain; there might be a need for condemnation... I think the state will make its decision, unlike [the] ‘Kelo’ [case in New London, CT] based on whether or not they believe this is a blighted area."

In federal court 2/7/07, FCR attorney Jeffrey Braun asserted, “I don’t think the fact that, you know, Forest City Ratner allegedly initiated this has any relevance. I mean, frankly, this is not the crossroads of the world, Times Square, where many developers would like to have an opportunity to build. I mean, this an extremely derelict stretch—no, we’re talking about the Vanderbilt Yards—which is an open trench that’s what we’re talking about.”

However, a month later, Chuck Ratner called the Atlantic Yards site “a great piece of real estate.” That doesn't sound much like blight.

But a lot of people (including some judges) looking at Atlantic Yards don't really believe the site is blighted. The issue is important, because blight claims are key to the eminent domain case being heard today.

The GPP on blight

The Atlantic Yards General Project Plan (GPP), issued by the ESDC, asserts that blight is the fundamental problem (all emphases below are added):
The principal goal of the Atlantic Yards Land Use Improvement and Civic Project is to transform an area that is blighted and underutilized into a vibrant, mixed-use, mixed-income community that capitalizes on the tremendous mass transit service available at this unique location. In addition to eliminating the blighting influence of the below-grade Yard and the blighted conditions of the area, the Project aims, through this comprehensive and cohesive plan, to provide for the following public uses and purposes:
[List below is truncated]
• a publicly owned state-of-the-art arena
• thousands of critically needed rental housing units
• first-class office space and possibly a hotel
• publicly accessible open space
• new ground level retail spaces
• community facility spaces
• a state-of-the-art rail storage, cleaning and inspection facility
• a subway connection on the south side of Atlantic Avenue
• sustainability and green design
• environmental remediation

Land Use Improvement Project
The ESDC had to find that Atlantic Yards qualifies as a Land Use Improvement Project, which also depends on blight.

The official text:
That the area in which the Project is to be located is a substandard or insanitary area, or is in danger of becoming a substandard or insanitary area and tends to impair or arrest the sound growth and development of the municipality.

Is it believable?

St. John's University law professor Philip Weinberg doesn't buy it, according to testimony at an 11/4/05 Assembly hearing on reforming eminent domain laws.

“I think eliminating blight such as was done in Times Square by the City of New York was commendable because there the blight really amounted to the danger of crime where people simply didn’t want to go to Times Square,” testified Weinberg, who practiced for twenty years in the New York State Attorney General's Office and was Assistant Attorney General in Charge of the Environmental Protection Bureau.

“That’s very different from going into the middle of Brooklyn and using eminent domain to build a sports stadium and some high rise buildings which will mostly be market rate housing and the rest," he said. "To me it’s easy to differentiate. There’s always a problem in the middle, sure. But it’s easy to differentiate between those two situations.”

Tuesday, January 06, 2009

"I don’t know... how long we could delay": A look forward at Atlantic Yards in 2009

After a tumultuous 2008, Atlantic Yards faces multiple uncertainties.

The developer is closemouthed, the public is under-informed, and no one in government seems particularly up to speed. In his resignation letter yesterday, Empire State Development Corporation (ESDC) Downstate President Avi Schick notably declined to say anything about Atlantic Yards progress.

Sometime this year, the fate of the Atlantic Yards arena, at least, should be more clear.

(Graphic from AYR via NLG.)

Advantages, FCR

In New York magazine's "Reasons To Love New York 2008" package, in a short article headlined Because Sometimes Immense, Gratuitous, Noncontextual Acts of Real-estate Ego Don’t Pan Out…, writer Robert Kolker concluded that "At the moment, the old neighborhood is winning."

Well, the plan is stalled, but hardly dead, and political backers haven't publicly wavered.

Developer Forest City Ratner still has some significant advantages, including generous deadlines with gentle penalties, grandfathered-in rules for tax-exempt bonds, and the recommitment (without a dollar figure) by Barclays for the arena naming rights agreement.

(Update: A reader reminds me that bonds for the project must be issued on or before December 31, 2009--a deadline that might not be met, but also might be extended.)

So Develop Don't Destroy Brooklyn's claim that Victory is in Sight in 2009 should be taken with a grain of salt.

The disadvantage of delay

Then again, while parent Forest City Enterprises has a history of patience with its development projects, this time it can't wait forever. Beyond the carrying cost of the properties in Brooklyn, FCE has suspended its dividend to save $30 million, even as its share of Nets losses approaches $22.4 million a year.

Without those Nets losses, the company could pay its dividend and try to restore investor confidence. So Atlantic Yards must be a priority, as the developer, negotiating with public agencies, tries to increase cash coming in and stall cash going out.

Meanwhile, the Nets are something of an albatross. Some New Jersey fans are soured on the long goodbye and Nets CEO Brett Yormark resorts to ever more creative ways to distribute tickets. But a shiny new arena could raise the value of the team immensely, so it's worth hanging on.

Legal resolution this year?

How long can the developer wait? Forest City may be hoping everything will be resolved in 2009, before the parent company suffers even more in the stock market.

That remains possible. The two major legal cases, funded and organized by DDDB, may be resolved. A decision in the case challenging the environmental review should come within the next month or two. A hearing in the eminent domain case should be held in the next month or two, with a decision coming mid-year.

The state and the developer have to be considered favorites to prevail and, in neither case is an appeal automatic (unless the losing side gets two votes in the EIS case). Additional cases filed by attorney George Locker might also snag the schedule.

In normal times, victory in court would presage the sale of perhaps $800 million in tax-exempt arena bonds. But these are not normal times, and Forest City says only that it would lead to a re-evaluation of the project.

Funding questions

A victory in court would make it easier to sell a piece of the Nets and/or project to outside investors. But the credit crunch has cast a pall on all projects, at least in the short term.

The towers depend on scarce tax-exempt bonds for affordable housing. While there's little chance that there'd be enough bonds to build the housing in the promised ten-year timetable, the buildings could be spaced far more slowly.

City and state housing finance agencies, controlled by Atlantic Yards supporters, can set priorities for disposition of scarce resources that favor the project.

Governmental oversight?

A recent Simpsons episode, apparently inspired in part by Atlantic Yards, show pop culture skeptical of sports facility projects: "Welcome to the American dream: a billionaire using public funds, to construct a private playground for the rich and powerful."

Will that carry over to official skepticism about Atlantic Yards? The likely re-election of AY supporter Mayor Mike Bloomberg has to be a boost for the project. The likely re-election of Borough President Marty Markowitz ensures additional cheerleading.

Most elected officials wary of Atlantic Yards have not joined the opposition camp but prefer the "mend-it-don't-end-it" banner of the for-now quiet BrooklynSpeaks; the organization's call for an oversight structure could get new momentum in the legislature this year.

Atlantic Yards will be debated in a couple of the City Council races, though no major citywide candidate has yet emerged as an AY critic. (City Council Member Tony Avella is a long shot for mayor.)

State and city officials could have a much bigger impact if they push for oversight hearings regarding the project, or even an audit, as the Council of Brooklyn Neighborhoods requested last month. But there's no political momentum to do so, even though someone, for example, should be grilled about the fate of the Carlton Avenue bridge.

Assemblyman Richard Brodsky, who has slammed the new Yankee Stadium, has not yet turned his attention to AY. (Is it that Assembly Speaker Sheldon Silver has such a cozy relationship with the developer? Or that the legislature, according to a new report from the Brennan Center for Justice, remains stunningly dysfunctional and needlessly opaque?)

Rep. Dennis Kucinich has AY on his radar screen, but has so far concentrated on the Yankees.

Blight, at least

The demolition of buildings for empty lots in the AY footprint, to some, will be an argument to "build it now," while others are pointing out that a project aimed to remove blight has created it.

(Photo by Tracy Collins; graphic from NLG.)

Wild cards

The federal response is a wild card. A Democratic Congress, with the help of ex-HPD head Shaun Donovan as Secretary of Housing and Urban Development, and ex-Bronx Borough President Adolfo Carrion as White House advisor on urban affairs, would be more sympathetic to urban aid, some of which could help Atlantic Yards, as well as increased volume cap to distribute housing bonds.

While the announced tab on the arena has risen significantly, the cost of construction materials likely have declined, and unions may be willing to compromise on work rules to lower costs. Union pension funds likely would want to spread their investment around several projects, but Atlantic Yards likely would be high on their list.

A move to Newark?

What about a Nets move to Newark, if only temporarily? So far that's been blocked.

If New Jersey Gov. Jon Corzine gets re-elected this year, he may be willing to spend the political capital to get the New Jersey Sports & Exposition Authority to relent on penalties imposed if the Nets move to the Prudential Center. But, as reported, that requires a permanent move, not a temporary one.

Final donnybrook?

[Update: The State Funding Agreement sets a decision date of December 19, 2009--but it looks like it can be extended.]

Should the Atlantic Yards arena get over the aforementioned humps, the final donnybrook may involve the city Department of Finance's attempt to value the land under the arena high enough to ensure that PILOTs (payments in lieu of foregone taxes) are high enough to pay off arena bonds.

After scrutiny of such machinations in the Yankee Stadium deal, it will be interesting to see how the city and state finesse the issue.

Michael D.D. White offers numerous suggestions as to how government officials might pull the plug on AY; the role of bond counsel in the abovementioned PILOTs scheme will deserve scrutiny.

Arena over the hump?

If forced to bet, I'd say the arena, if not the project as a whole, is more likely than not to get built, though its chances have been declining. But there's counter-evidence; for example, a Nets official told columnist Ian O'Connor that the arena was dead because of funding problems. And other variables may emerge.

Delays in building the arena--the official opening date is 2011, but 2012 is a more likely best-case scenario--make it tougher for the Nets to attract top free agents in the class of 2010, notably superstar LeBron James. That would lower the value of the team and the expected revenue.

Pressure rising

Indeed, the longer the project lingers, the more the Nets losses mount, and pressure on Forest City to take dramatic action--sell the team/project, sacrifice shares to outside investors, or pull the plug--increases. (Update: After all, there's that Gramercy Capital loan that must be renegotiated by February.)

"[H]ow long can you delay that project if you needed to and what’s the extra cost of carrying that?" an investment analyst asked FCE CEO Chuck Ratner in a conference call December 10.

"I don’t know the answer specifically to how long we could delay," Ratner responded. "It’s not a question of entitlements, it’s a question of the marketplace."

He didn't answer the question of extra cost, however. So far, the developer's been willing to absorb losses. At some point, if bailout funds of some kind don't emerge, that willingness declines.

Wednesday, December 24, 2008

Who's in control? Forest City and the indirect subsidy value of its "entitlements"

Even though the Atlantic Yards project may be in question, the toughest month for developer Forest City Ratner had to have been December 2006, when the project received two crucial approval votes.

First, the board of the Empire State Development Corporation (ESDC), controlled by AY supporter Gov. George Pataki, approved the project; that was expected, though the need to revise the Final Environmental Impact Statement meant that consultant AKRF--paid for by FCR, actually--had to work through Thanksgiving to get it all done before Pataki's administration left office.

Then the Public Authorities Control Board (PACB)--the "three men in a room"--had to approve the project, and there was some (unfounded) suspense over whether Assembly Speaker Sheldon Silver, who scotched the West Side Stadium, might vote no.

Carrying costs & "entitlement"

After that, Forest City Ratner gained its "entitlement," a word favored by Forest City Enterprises CEO Chuck Ratner, a word that indicates that the developer controls the pace, a phrase used last month at a real estate industry conference (right).

Chuck Ratner, speaking to investment analysts on December 10, said, "Despite the slow-down, we retain our core development capacity, as well as a reservoir of entitled opportunities where we can re-start additional vertical development, largely on our schedule, with modest carrying costs. When conditions improve, we will be able to take advantage of these opportunities."
(Emphasis added)

The size of the Atlantic Yards carrying costs is another question. In April 2007, then-executive Jim Stuckey estimated $4.15 million a month, while in January 2008, his successor MaryAnne Gilmartin claimed $6 million a month, both attempting to impress on a court the pain of delay.

It's unclear why the numbers jumped and, thus, whether the figures were accurate.

Maintaining entitlement

Ratner continued, "I need to emphasize here again that we remain committed to our projects under construction and we will meet our obligations and maintain our entitlements, including at our large multi-phase, mixed-use projects, such as Stapleton in Denver, Mesa del Sol in Albuquerque, Central Station in Chicago, the Yards and Waterfront Station in Washington, and of course, to Atlantic Yards in Brooklyn, where we continue make progress and remain committed to the project, despite hurdles that we still need to overcome."

As I wrote, the obligations, as so far expressed in the City and State Funding Agreements, give Forest City Ratner a long leash. The developer has 6 years after the delivery of property via eminent domain to build the arena and 12 years to build Phase 1--and can get away with building 44% less square footage than approved.

The penalties for a delayed arena for Phase 1 are quite modest. There's no timetable for Phase 2.

So the City and State Funding Agreements might be considered another form of indirect subsidy--a benefit to the developer without an actual outlay of government funds.

Presumably, public officials could, in revising and updating funding agreements and other contracts, strike a tougher deal. When the project was approved, it gained public and political backing because of promises regarding the content and timetable.

Were those promises supposed to be meaningful? Does Atlantic Yards "exist"? Is there any oversight?

More subsidies

Lets not forget that, in March 2007, Chuck Ratner told investment analysts, "We also have a public entitlement in this process. There’s a public subsidy, it’s been announced, $200 million. There’s an affordable housing requirement in this, a moderate housing requirement in this, and we’re still negotiating with the public authorities as to how that will come out."

That $200 million has risen more than 50%, to $305 million, and we don't know anything about those affordable housing subsidies yet.