Skip to main content

Three pages of mystery: FCR's cash flow documents leave questions unanswered

Assemblyman Jim Brennan’s effort to get the Empire State Development Corporation (ESDC) to release the Atlantic Yards business plan provided by developer Forest City Ratner reaped some results yesterday, but not nearly enough to evaluate the project.

The ESDC released three pages dated 10/10/06 and 10/11/06, but with no explanation for the assumptions behind the numbers. I showed them to David A. Smith, an affordable housing expert in Boston, who’s paid close attention to the Atlantic Yards plan.

"These cash flow schedules are like a Japanese landscape watercolor; fascinating and evocative in their own right but only lightly drawn,” he wrote in response. “They make one hungry for more detail, without which it is impossible to have a properly informed opinion about either the expected profit the developer may make relative to the risk, or whether the public is receiving fair public benefit for the public resources contributed."

Thus, the documents would not help Brennan evaluate whether Atlantic Yards could be downsized without harming the financial viability of the project.

Brennan told the New York Sun, in an article today headlined Critics Deem Atlantic Yards Documents Insufficient, "We will deal with our attorneys, and not silly superfluous dribs and drabs that come through fax machines after press inquiries."

He said the document was not the complete business plan he'd sought through a Freedom of Information Law request. He and State Senator Velmanette Montgomery filed suit to get that document.

(The New York Post, in an article incorrectly dubbed an exclusive, oddly ignored all criticism of the documents. Metro acknowledged the controversy in a paragraph. The New York Daily News and the New York Times passed on the story.)

Paying for the arena/Nets

The documents do offer some tantalizing details, for example pegging revenue from suites in the suite-intensive arena at $38 million a year (beginning in 2009-10), with an annual increase of $1 million, slated within five years to surpass the annual arena debt service of $43.8 million. In other words, the suites alone could, as I’d predicted, pay for the arena, the most expensive ever in the country, at $637.2 million.

They also show that the new arena would easily pay for its operations; as sponsorship revenue, starting at $31.2 million annually, would nearly cover operating expenses. (That revenue would include $20 million a year from the Barclays Center naming rights deal.)

Thus, non-basketball events, ticket surcharges, and other revenue would help offset heavy losses currently experienced by the Nets. Develop Don’t Destroy Brooklyn called it “a publicly subsidized golden parachute.”

Beyond that, the documents seem to lowball the developer's revenues. There is no figure assigned to non-box/loge tickets to Nets games--seemingly a significant source of admission revenues. [Update: a reader suggests that that number would be subsumed into cash flow figures, so, while it may be missing information, it doesn't lowball revenues.]


DDDB questioned whether the “ESDC has analyzed and verified the projections released today, or if they simply rubberstamped this submission, just as they have every other aspect” of the project. I asked if the agency analyzed or endorsed the documents. "FCR gave this to us and we released it as is," responded spokeswoman Jessica Copen.

DDDB spokeswoman Candace Carponter suggested that, “Given the vast public subsidies that this project is slated to receive, the public has the right to expect some assurance from the government that the developer's numbers are comprehensive and based upon valid business assumptions.”

IRR isn’t profit

While the total “investment internal rate of return” (IRR) was pegged at 8.4%, that doesn’t mean that Forest City Ratner’s profit would remain, as a percentage, below two figures, since we don’t know how much of the money the developer would put up.

Indeed, as I wrote yesterday, the documents released differ greatly from the financing plan that the Metropolitan Transportation Authority required from bidders for the Vanderbilt Yard, and which Develop Don't Destroy Brooklyn and other organizations tried in vain to see.

The MTA required a 20-year analysis, not little more than a decade—which ends just as the revenues start climbing. (Indeed, even project landscape architect Laurie Olin says it would take 20 years to build.) The MTA also required the developer to account for "sources and uses" of funds.

Smith confirmed that: “The schedules omit nearly all of the financing and operating assumptions. They omit any sketch as to how the equity will be raised from five different legal and financial entities (team/arena, condo, rental, hotel, and office), without which one cannot tell what is the cost of external capital versus developer capital. They omit a sources and uses of funds, without which it is impossible to tell what fees (however proper they might be!) the developer and its affiliates may be charging the venture ('off the top', as it were). They do not tell us where the $230 million (and counting) of equity that has already been contributed came from, nor at what current or future cost."

Why fees are important

Smith likened the issue of fees to affiliates—and Forest City has created several corporate entities for this project—to the financing for Hollywood films, where the net revenues are significantly lower than the gross revenues because of fees charged by the studio. “Knowing the net cash flows without knowing the fees is like learning that the Nets scored 89 points last night, without knowing who they were playing, what the other team's score was, and whether they won or lost,” he said.

Smith said that the record-setting recent deal for Stuyvesant Town/Peter Cooper Village was equivalent to a 5% IRR if it's presumed that the net operating income (NOI) won’t rise. Obviously, that NOI will rise, he said, “but I doubt that the unvarnished Stuy Town IRR (before considering debt financing) would be as high as 9.6%.”

A long process

In other words, Atlantic Yards might offer dramatic returns—and for good reason. “At the same time, large-scale investors may well find a project like Atlantic Yards more risky, so the premium over a safe rate that they would demand could well be higher,” Smith said. “In short, I don't know whether 9.6% is a rich or poor rate even for the raw equity capital considered in the abstract, much less what equity could be raised from outside, nor how the deal pencils for the sponsor.”

Forest City Ratner has already invested $230 million. "The $230 million of capital already invested is a jaw-dropping sum, especially since we are four years into the transaction and it has not closed,” Smith observed. “Very few entities could put up that much capital for that long. Setting aside whether one likes or dislikes the process or the property, no one should underestimate how few sponsors could attempt it, nor how many fewer would attempt it.”

(The city and state have pledged at least $305 million in direct subsidies for infrastructure and other costs, and the state has agreed to override zoning and take property by eminent domain, significant boosts for the developer.)

Smith called the lag between first outflow of capital, in 2004, to net inflow, in 2013, a dramatic one. “A tremendous amount is riding on expected residual value in a decade,” he said. “I cannot imagine the developer will not have tried to lay a large portion of that off on outside capital sources."

Affordable units faster?

The documents also show that the developer expects $1.15 billion in subsidized loans, via the New York City Housing Development Corporation (HDC), for the rental housing, in accordance with HDC’s 50/30/20 plan: 50% market rate, 30% moderate/middle income, and 20% low income. And the developer expects $1.04 billion in condominium construction loans.

The first housing units built, in 2009, would be 551 condos. In the next year, another 312 condos would open, along with 1658 rental apartments. If half of the rentals are affordable as pledged, that suggests 829 affordable units in Phase 1, a significantly larger number than the 550 cited in a letter from the City Planning Commission last September.

Given that there has been no public promise of 829 affordable units, the numbers seem, as stated at the bottom of the Combined Returns Summary released yesterday, “For discussion purposes only. Actual results may vary.”

Unexplained gaps

There are several unexplained gaps in the documents. For example, there’s no cost and value assigned to the retail space developed. Nor are there numbers for the hotel. Smith speculated that the hotel might be “fully net-leased to an outside party,” but noted the absence of any terms explaining that.

Also, there’s no revenue assigned to parking until the 2012-13 season, even though the arena is expected to open three years earlier. Even if the interim surface parking, rather than underground garages, would supply parking over that stretch, surely there would be revenues. The projected revenue of $238,000 for the 2012-13 year is paltry. Smith conjectured that it might come from a contemplated lease/operator agreement.


Popular posts from this blog

Barclays Center/Levy Restaurants hit with suit charging discrimination on disability, race; supervisors said to use vicious slurs, pursue retaliation

The Daily News has an article today, Barclays Center hit with $5M suit claiming discrimination against disabled, while the New York Post headlined its article Barclays Center sued over taunting disabled employees.

While that's part of the lawsuit, more prominent are claims of racial discrimination and retaliation, with black employees claiming repeated abuse by white supervisors, preferential treatment toward Hispanic colleagues, and retaliation in response to complaints.

Two individual supervisors, for example, are charged with  referring to black employees as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”

Two have referred to an employee blind in one eye as “cyclops,” and “the one-eyed guy,” and an employee with a nose disorder as “the nose guy.”

There's been no official response yet though arena spokesman Barry Baum told the Daily News they, but take “allegations of this kind very seriously” and have "a zero tolerance policy for…

Behind the "empty railyards": 40 years of ATURA, Baruch's plan, and the city's diffidence

To supporters of Forest City Ratner's Atlantic Yards project, it's a long-awaited plan for long-overlooked land. "The Atlantic Yards area has been available for any developer in America for over 100 years,” declared Borough President Marty Markowitz at a 5/26/05 City Council hearing.

Charles Gargano, chairman of the Empire State Development Corporation, mused on 11/15/05 to WNYC's Brian Lehrer, “Isn’t it interesting that these railyards have sat for decades and decades and decades, and no one has done a thing about them.” Forest City Ratner spokesman Joe DePlasco, in a 12/19/04 New York Times article ("In a War of Words, One Has the Power to Wound") described the railyards as "an empty scar dividing the community."

But why exactly has the Metropolitan Transportation Authority’s Vanderbilt Yard never been developed? Do public officials have some responsibility?

At a hearing yesterday of the Brooklyn Borough Board Atlantic Yards Committee, Kate Suisma…

No, security guards can't ban photos. Questions remain about visibility of ID/sticker system.

The bi-monthly Atlantic Yards/Pacific Park Community Update meeting June 14, held at 55 Hanson Place, addressed multiple issues, including delays in the project, a new detente with project neighbors,concerns about traffic congestion, upcoming sewer work and demolitions, and an explanation of how high winds caused debris to fly off the under-construction 38 Sixth Avenue building. I'll have more coverage.
Security issues came up several times at the meeting.
Wayne Bailey, a resident who regularly takes photos and videos (that I often use) of construction/operations issues that impact residents, asked representatives of Tishman Construction if the security guard at the sites they're building works for them.
After Tishman Senior VP Eric Reid said yes, Bailey asked why a guard told him not to shoot video of the site, even though he was on a public street.

"I will address it with principals for that security firm," Reid said.
Forest City Ratner executive Ashley Cotton, the …

Atlantic Yards/Pacific Park graphic: what's built/what might be coming (post-dated pinned post)

This graphic, posted in November 2017, is post-dated to stay at the top of the blog. It will be updated as announced configurations change and buildings launch. Note the unbuilt B1 and the proposed shift in bulk to the unbuilt Site 5.

The August 2014 tentative configurations proposed by developer Greenland Forest City Partners will change. The project is already well behind that tentative timetable.

How many people are expected?

Atlantic Yards/Pacific Park has a projected 6,430 apartments housing 2.1 persons per unit (as per Chapter 4 of the 2006 Final Environmental Impact Statement), which would mean 13,503 new residents, with 1,890 among them in low-income affordable rentals, and 2,835 in moderate- and middle-income affordable rentals.

That leaves 8,778 people in market-rate rentals and condos, though let's call it 8,358 after subtracting 420 who may live in 200 promised below-market condos. So that's 5,145 in below-market units, though many of them won't be so cheap.


Barclays Center event June 11 to protest plans to expand Israeli draft; questions about logistics

At right is a photo of a poster spotted in Hasidic Williamsburg right. Clearly there's an event scheduled at the Barclays Center aimed at the Haredi Jewish community (strict Orthodox Jews who reject secular culture), but the lack of English text makes it cryptic.

The website explains, Protest Against Israeli Draft of Bnei Yeshiva Rescheduled for Barclays Center:
A large asifa to protest the drafting of bnei yeshiva in Eretz Yisroel into the Israeli army that had been set to take place this month will instead be held on Sunday, 17 Sivan/June 11, at the Barclays Center in Downtown Brooklyn, NY. So attendees at a big gathering will protest an apparent change of policy that will make it much more difficult for traditional Orthodox Jewish students--both Hasidic (who follow a rebbe) and non-Hasidic (who don't)--to get deferments from the draft. Comments on the Yeshiva World website explain some of the debate.

The logistical questions

What's unclear is how large the ev…

Atlanta's Atlantic Yards moves ahead

First mentioned in April, the Atlantic Yards project in Atlanta is moving ahead--and has the potential to nudge Atlantic Yards in Brooklyn further down in Google searches.

According to a 5/30/17 press release, Hines and Invesco Real Estate Announce T3 West Midtown and Atlantic Yards:
Hines, the international real estate firm, and Invesco Real Estate, a global real estate investment manager, today announced a joint venture on behalf of one of Invesco Real Estate’s institutional clients to develop two progressive office projects in Atlanta totalling 700,000 square feet. T3 West Midtown will be a 200,000-square-foot heavy timber office development and Atlantic Yards will consist of 500,000 square feet of progressive office space in two buildings. Both projects are located on sites within Atlantic Station in the flourishing Midtown submarket.
Hines will work with Hartshorne Plunkard Architecture (HPA) as the design architect for both T3 West Midtown and Atlantic Yards. DLR Group will be t…

Atlantic Yards/Pacific Park in 2017: no new towers, unfilled affordable units, Islanders prepare to leave, project timetable fuzzy

My 2018 preview.

It was another wait-and-see year for Atlantic Yards/Pacific Park, with one big twist--the beginning of a slow goodbye for the New York Islanders--but continued delays for towers, a lost (mostly) 421-a subsidy for condos, and new skepticism about unfilled not-so-affordable housing units.

So ongoing questions linger regarding the project's pace, affordability, and even future ownership.

In my 2017 preview, I predicted--not exactly going out on a limb--that two and likely three more towers would open, though it would be unclear how fast they'd lease up and sell.

Indeed, we've learned that the middle-income below-market units at 461 Dean (which opened in 2016) and 535 Carlton have leased very slowly, while it's too soon to assess progress for commensurate units at 38 Sixth. (At 535 Carlton and 38 Sixth, middle-income units make up half the "100% affordable" buildings.) Meanwhile, many apartments are up for rent at the 550 Vanderbilt condo buildin…