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ESDC’s long leash on Phase 1 provokes lawsuit from tenants

The willingness of the Empire State Development Corporation (ESDC) to give developer Forest City Ratner 12+ years to build Phase 1 of Atlantic Yards has provoked a lawsuit charging that the agency is violating a provision of the Eminent Domain Procedure Law that requires disposition of properties within a decade.

It also argues that, given the expected delay in the promised public benefits, ESDC must hold another public hearing.

The lawsuit was filed yesterday in state Supreme Court on behalf of 13 tenants in two buildings, 624 Pacific Street and 473 Dean Street, in the planned arena block. It generated coverage in the New York Times, which previously had not written about the long leash granted by the ESDC in the State Funding Agreement, even though the document surfaced more than a month ago.

Third lawsuit for tenants

The tenants, who hold rent-stabilized leases, have filed two other lawsuits, both unsuccessful. A case arguing that the tenants are not condemnees under state law was dismissed at the trial court and appellate court levels, and another case contending that the state lacked a “feasible” relocation plan was dismissed by the appellate court, though attorney George Locker has asked the court to permit an appeal to the State Court of Appeals.

The new lawsuit cites the 3/21/08 disclosure of the State Funding Agreement as well as yesterday’s disclosure of a separate City Funding Agreement. It also cites CEO Bruce Ratner’s admission to the New York Times that the project was significantly delayed.

It points out that the ESDC in December 2006 approved the project, with a ten-year construction timeline for the whole project, but the Funding Agreement shows that ESDC allows 12 years from acquisition of the Project Site to complete Phase 1 and an unspecified time to build Phase 2, which contains “70% of the affordable housing units, 100% of the open space, and 75% of the construction job/years,” figures asserted on “information and belief.”

Should the developer fail to complete the balance of Phase 2 by the Final Deadline, ESDC can buy FCR’s interest in the undeveloped parcels.

Not allowed?

However, the suit contends, “New York Eminent Domain Procedure Law (“EDPL”), Article 4 section 406, requires a condemnor to materially improve property within 10 years from acquisition. After ten years, the condemnee has the right to reacquire the materially unimproved property."

So if FCR has more than a decade to build Phase 1 and can sell the property, that violates state law, Locker contends, though he acknowledged there’s no case law on the issue. “This is a case of first impression, based on a clear reading of the statute,” he acknowledged.

The statute: §406 Abandonment (A) If, after an acquisition in fee pursuant to the provisions of this chapter, the condemnor shall abandon the project for which the property was acquired, and the property has not been materially improved, the condemnor shall not dispose of the property or any portion thereof for private use within ten years of acquisition without first offering the former fee owner of record at the time of acquisition a right of first refusal to purchase the property at the amount of the fair market value of such property at the time of such offer.

Does the term "materially improve" give the state an out, as long as something is built on the site? Locker contended no, given that there's no timetable for Phase 2 and much of the site could be left fallow for more than a decade.

The Times article doesn't point out that, when the ESDC approved the project, it was expected to take a decade. That decade is as important a benchmark as the decade cited by Locker before a project must restore ownership rights.

Toss it out

The lawsuit asks that the court voids “so much of the Funding Agreement as purports to give respondent the right to permit acquired property, in Phase I or Phase II, to remain undeveloped for a period of greater than 10 years” and that it also voids the section that gives ESDC the option “and deprives petitioners of the right, to reacquire condemned property, in Phase I or Phase II, that is undeveloped 10 years from acquisition.”

Can the tenants reacquire property, given that they're renters in buildings now owned by Forest City Ratner? Even though Locker contended in an earlier case that the tenants were not condemnees under state law, he lost, and the ruling in that case is a key to the latest filing. “In the case of my clients, since they were declared condemnees,” he said, “they all have ownership rights and leases. As I read the law, if nothing is done in ten years, people have to be put back.”

New hearing

Given that “ESDC has substantially amended the Project that it approved in December 2006,” the project requires another public hearing, the lawsuit contends. “The amendments represent an enormous loss of the Project’s stated public benefits - most of the housing, open-space, and construction job/years - and portend decades of developer blight, vacant lots, and ever-mounting public costs.”

The lawsuit cites a 1989 case, Leichter v. New York State Urban Development Corporation (aka ESDC), which agreed that an additional public hearing "limited to the consideration of the amendments of the plan" could be held.

Whether this case is on point, however, will be determined in court. The ESDC has until May 28 to respond and it has defended all lawsuits vigorously.

Modest penalties

The article closes with a too-brief reference to a complex set of issues I raised yesterday:
Norman Oder, author of the Atlantic Yards Report blog and a critic of the project, noted that Forest City’s agreement with the state, and one with the city that he wrote about Wednesday after obtaining a copy through a Freedom of Information request, both appear to impose relatively minor penalties if Forest City starts missing its deadlines.

“It seems to me,” Mr. Oder said, “that Forest City has reason to be more concerned about losses from the Nets and from construction cost increases than from the penalties posed in these agreements.”

Bitter, told-you-so?

The article also states:
But Mr. Ratner’s recently conceded difficulties — he has indefinitely delayed the project’s signature skyscraper, known as Miss Brooklyn — have energized his opponents, in a particularly bitter, told-you-so way.

There's no specific reference and, while it's true that there was an angry edge, say, to the Brooklyn Museum demonstration last month, I don't think opponents and critics should be faulted for pointing out that the developer's promises shouldn't be trusted.

After all, last year executive Chuck Ratner seemed to acknowledge to investment analysts that the arena wouldn't be built until 2010, then backpedaled not too credibly to the official goal of 2009--only to be proven right the first time when Forest City Ratner quietly adjusted the timeline. Now 2010 is the official goal, though I think 2011 is more realistic.

A more interesting question is why project supporters like Borough President Marty Markowitz and ACORN's Bertha Lewis retain unshaken trust in the developer. They last issued statements on March 21, after Bruce Ratner admitted delays to the Times. What do they think, now that the City Funding Agreement has surfaced, about a project that could result in just 300 affordable units by 2020?