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AY doomed? New lawsuit targets ESDC over unrealistic project timetable, failure to issue SEIS, and failure to address renegotiated MTA deal

Twenty community groups, led by Develop Don't Destroy Brooklyn (DDDB) and the Council of Brooklyn Neighborhoods (CBN), today filed suit in state court against the Empire State Development Corporation (ESDC) and Forest City Ratner (FCR), aiming to annul the ESDC's 9/17/09 approval of the 2009 Modified General Project Plan (MGPP) for what is formally called the Atlantic Yards Land Use Improvement and Civic Project.

In essence, the lawsuit charges that the state agency, rather than take a "hard look"--as required by state law--and delay its approval process, instead bowed to the developer's timetable to move the project forward so tax-exempt arena bonds could be issued by a crucial end-of-year deadline.

While I and others have suggested that the pending eminent domain lawsuit is the only case that could formally stop the project, DDDB asserts this lawsuit could doom the project, given that it would reverse the ESDC's approval of the project--and, presumably, that the ESDC could not, in light of the charges, revise its approval in a timely and legitimate fashion.

Minor changes?

"In reviewing and approving the MGPP in September 2009, the ESDC understated the significance of the changes to the Project and characterized the changes as minor," the suit claims, "In reality the Project has undergone significant changes that are inconsistent with ESDC’s determination that Atlantic Yards is a Land Use Improvement Project ('LUIP') under the UDCA [Urban Development Corporation Act]."

Notably, the suit charges that, while the sole justification of the Land Use Improvement Project is to remove blight, with an official ten-year construction timetable, the project--likely to last decades--portends the perpetuation of blight.

Why? The suit charges that the ESDC did not evaluate the impact of FCR's revised deal with the Metropolitan Transportation Authority (MTA) for the 8.5-acre Vanderbilt Yard, which immediately conveys only an initial parcel needed for the arena block (for $20 million) and allows the developer "to extend the full acquisition of the balance of the MTA property beyond 2030" and to abandon the project "with virtually no penalty."

In fact, the suit charges, the ESDC Board was "never officially informed about the changed financial terms with MTA or the consequences of that change."

"By choosing the artificial date of 2019 as the project completion date, ESDC was able to minimize the potential adverse impacts that would be caused by the project," the suit charges.

Facts or opinions?

Courts generally defer to the "rational" judgment of agencies like the ESDC, but the suit argues that the ESDC was not acting rationally.

"The issue of the applicable completion date is not a matter of speculation, nor is it a matter of opinion presented by project critics," states a memorandum of law. "The basis for the 2030 completion date is FCRC’s own agreement with MTA."

The memorandum of law notes that an abstract of project leases allows 25 years for construction. "Therefore, by ESDC’s own terms, FCRC would have until at least 2035 to complete the buildings in Phase II. Having agreed to these basic terms, it is incomprehensible how ESDC can claim that it is reasonable to expect the project to be completed in 2019."

According to an affirmation by DDDB attorney Jeff Baker, ESDC Senior Counsel Steve Matlin "admitted to the press that the Project would take decades to complete." The affirmation cites a video on this blog.

Failure to issue SEIS

Given the extended time frame, the suit charges, a Supplemental Environmental Impact Statement (SEIS) was required "to consider the extended construction period impacts, changes in community character and increased traffic impacts."

The ESDC, however, dismissed concerns about such impacts "in a conclusory fashion," the suit charges, given that it didn't address the fact that the developer "would not be contractually obligated to MTA to complete acquisition before 2030 and simply stated, without explanation, that there would be unspecified financial assurances that the project would be built."

MTA and ESDC board votes

When, on 6/23/09, the ESDC board granted preliminary approval to the 2009 MGPP, the document contained no mention of the terms of the new MTA agreement, nor was there any discussion of it, according to the suit.

Before the ESDC board's final vote in September, according to the suit, numerous comment argued that a SEIS was required, "because of substantial changes to the project and the new information relating to its likely completion date well beyond the 2019 projected completion."

The Kahr analysis

Among those comments was a report by real estate consultant Joshua Kahr, who argued that "that completion of the project by 2019 was simply impossible and that the actual time frame would likely be an additional 20 years."

When the ESDC board voted, according to the suit, ESDC staffers cited a KPMG analysis "that purportedly determined that there was sufficient demand for residential and commercial space to support the projected 2019 project completion date."

In an affidavit, Kahr states, "In my opinion the KPMG report does not provide a reasonable basis to arrive at that conclusion.... While the report does provide a relatively detailed long term demographic analysis of Brooklyn, it does not deal directly with any specific supply or demand issues a development of this size and scope will face."

"According to data that we obtained from Miller and Samuel, a leading source of market data for residential condominium sales, in no quarter from 4th quarter 2006 to 2nd quarter 2009 did the average $/SF price for residential condominium units in Brooklyn exceed $600/SF," Kahr states. "This is substantially lower than the projected $/SF sales prices of $850/SF (2006 dollars) [in a 2006 KPMG report]. Moreover, it is completely unrealistic to assume that prices will increase to $1,220/SF within five years as relied upon by KPMG [in the current report]."

The KPMG report, he notes, does not acknowledge the 22-year funding timeline permitted by the MTA deal.

According to the suit, ESDC Senior Counsel Steve Matlin, speaking to reporters immediately after the ESDC Board vote on September 17, 2009, admitted that KPMG never directly responded to the Kahr report and "admitted the time line for completion of the project would be well beyond 10 years," but said incentives--yet to be negotiated--would "facilitate completion of the project in the 10-year time frame."

That information, according to the suit, was not presented to the ESDC board.


Besides DDDB and CBN, the petitioners include the Atlantic Avenue Betterment Association; Brooklyn Bears Community Gardens; Brooklyn Vision Foundation; Carlton Avenue Association; Central Brooklyn Independent Democrats; Crown Heights North Association; Dean Street Block Association (4th-5th Avenues); Democracy for New York City; East Pacific Block Association; Fort Greene Association; Fort Greene Park Conservancy; Friends and Residents of Greater Gowanus (FROGG); Park Slope Neighbors; Prospect Heights Action Coalition; Prospect Place of Brooklyn Block Association; Society for Clinton Hill; South Oxford Street Block Association; South Portland Block Association.

This mainly reprises the groups that challenged the ESDC over the initial environmental review, in a case still pending, with a request for review by the state's highest court, the Court of Appeals.

(A separate lawsuit, filed by groups including the Park Slope Civic Council and the Prospect Heights Neighborhood Development Council, is expected to raise similar questions about the lack of an SEIS.)

The MTA deal

While the MTA valued the planned railyard improvements at $147 million, it required Forest City to supply a letter of credit for only $86 million to complete the replacement yard, the suit says.

The new MTA agreement, which allows 22 years to pay for the railyard, not only delays project completion but allows Forest City "to abandon the project at virtually any time"--through 2016--"and mitigate its potential financial loss and limit its up front investment."

Because the 25-year term for the buildout was not revealed until the ESDC voted on September 17, there was no opportunity for commenters to address that issue, according to the suit.

Moreover, while the ESDC made "a conclusory statement that there would be assurances that FCRC would be obligated to complete the project," those obligations have not been identified, according to the suit.

Affordable housing

While the project is supposed to include no less than 2250 units of affordable housing, only in documents released September 17 was the necessity for affordable housing subsidies required.

The memorandum of law raises an issue previously discussed on this blog:
Third, throughout the MGPP, the FEIS, the Technical Memorandum and all other documents prepared by ESDC, there has never been any discussion that the affordable housing elements of the Project, a prime justification for its size and ESDC’s involvement, is contingent upon the availability of government subsidies. While there has been a recognition that FCRC would seek available subsidies, their availability was never a precondition to the provision of the affordable housing. If that had been a condition, the documents would have to consider the likelihood of their availability and potential impacts to the City and State if all or most of the available subsidies were dedicated to Atlantic Yards. Nor is there any analysis of delays to the Project while the developer waits for subsidies to be made available in part or at all.
In a press release, DDDB legal chair Candace Carponter states, "It is also a terrible shame that we have had to bring this lawsuit to expose the fact that ESDC has quietly made the ‘affordable' housing conditioned upon public subsidies, in contradiction with its approval document. Holding ESDC and Ratner accountable on the ‘affordable' housing is something that Ratner's partner ACORN should have been doing, but clearly hasn't been able to because it is financially in hock to the developer and contractually obliged to support his project."

Conclusory comments

An affirmation by DDDB attorney Baker states:
Moreover, the summary prepared by ESDC staff misrepresented many of the public comments. For instance, your affirmant’s comment letter noting that the delay in the project would actually increase blight rather than alleviate it was mischaracterized and dealt with in a conclusory fashion. The entire comment and response were presented as:

Comment 26: Without commitments to build Phase II, the Project fails to meet the basic elements of the findings necessary for a Land Use Improvement Project or a Civic Project.

Response: The Project documentation will obligate the developer to complete the entire Project in accordance with the MGPP.