Skip to main content

ESDC claims arm's-length negotiation of damages for AY default, but relationship with FCR has been cozy (and developer has 25 years to build project)

A fundamental question in the Atlantic Yards controversy is whether the Empire State Development Corporation (ESDC) is an enabler of projects and developers or, rather, an independent representative of the public interest.

The evidence favors the former--indeed, an ESDC lawyer once said so in court. However, in a key section of the Atlantic Yards development agreement, signed by Forest City Ratner affiliates and the ESDC, a passage improbably claims that the state and the developer have been negotiating at arm's length.

Such a claim seems aimed at dampening any questions about the damages facing the developer in case of default on various obligations associated with the project. The document essentially says that the damages would be significant but impossible to calculate, so "reasonable" damages have been negotiated.

(The agreement emerged as part of the Atlantic Yards master closing documents, first made available yesterday.)

How reasonable?

Are the damages reasonable? In a post tomorrow, I'll look in detail, but consider the outline: the transaction allegedly negotiated at arm's-length allows the developer 12 years to complete Phase 1 and 25 years to complete the entire project, with significant opportunities for extensions--even as the state and developer claim in legal papers that the project would take just a decade.

Just tonight, Forest City Ratner Senior VP Jane Marshall, speaking at a meeting of the 78th Precinct Community Council in Park Slope, said that "the construction schedule is ten years," a careful locution that avoids promising that the project would actually get built in that time.



The passage at issue

BALLC, AYDC AND INTERIM DEVELOPER EACH AGREE THAT (I) THE AMOUNT OF ACTUAL DAMAGES TO BE SUSTAINED BY ESDC AND THE CITY UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT DESCRIBED IN THIS SECTION 17.2(a)(ii) WOULD BE MATERIAL, BUT INCAPABLE OF PRECISE CALCULATION AND NOT READILY ASCERTAINABLE, (II) THE AMOUNTS SET FORTH IN SCHEDULE 3 ARE REASONABLE IN PROPORTION TO THE PROBABLY DAMAGES LIKELY TO BE SUSTAINED BY ESDC AND/OR THE CITY, (III) BALLC, AYDC AND INTERIM DEVELOPER EACH HAVE HAD THE ADVICE OF COUNSEL OF ITS OWN SELECTION WHO REVIEWED THE PROVISION FOR THE PAYMENT OF THE AMOUNTS SET FORTH IN SCHEDULE 3 IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS AGREEMENT, (IV) THE TERMS OF THIS AGREEMENT WERE NEGOTIATED AT ARMS LENGTH, AND (V) THE AMOUNTS SET FORTH IN SCHEDULE 3 ARE NOT INTENDED TO, AND DO NOT, CONSTITUTE A PENALTY OR PUNITIVE DAMAGES FOR ANY PURPOSES.

(Emphasis added)

Definition: arm’s length

According to a legal dictionary, arm's length means:
adj. the description of an agreement made by two parties freely and independently of each other, and without some special relationship, such as being a relative, having another deal on the side or one party having complete control of the other. It becomes important to determine if an agreement was freely entered into to show that the price, requirements, and other conditions were fair and real. Example: if a man sells property to his son the value set may not be the true value since it may not have been an "arm's length" transaction.
FCR and ESDC

If Forest City Ratner pays for the ESDC’s lawyers and consultants like AKRF, how can it truly be an arm’s-length transaction? Isn't there a special relationship, or another deal on the side?

Consider clause 9 in the 2/18/05 Memorandum of Understanding between FCR, ESDC and the city, in which the developer agreed to pay for all the major consultants hired by the public parties:
Whether the transaction described herein shall be consummated or not FCRC shall reimburse the Public Parties within thirty (30) days of demand from time to time, for the following costs and expenses relating to the transaction contemplated by this MOU, including but not limited to the costs and expenses described in the letter dated February 18, 2004 from James Stuckey of FCRC to Chairman Charles A. Gargano of ESDC: (a) the cost of all environmental analysis performed by the Public Parties with respect to the Project; (b) the cost of consultants acting on behalf of the Public Parties; (c) third party legal fees and third-party fees incurred by the Public Parties pursuant to the Public Parties’ customary fee structure for outside lawyers, (d) third party fees associated with the public approval process, including, without limitation, those arising from public hearings and notices, and (e) fees and expenses associated with the condemnation process. FCRC further agrees to defend and indemnify the Public Parties from and against all liabilities (statutory or otherwise), obligations, claims, demands, penalties, causes of action, third party costs and expenses (including third party attorney’s fees and expenses pursuant to the Public Parties’ customary fee structure for outside lawyers), losses and injuries in any manner relating to or arising in connection with the Project described herein, including any enforcement of any such indemnity by the Public Parties.
(Emphases added)

In court, a question of collaboration

The issue came up in court in February 2006, when Develop Don't Destroy Brooklyn filed suit to block the ESDC's use of environmental counsel David Paget, who had worked on Atlantic Yards for Forest City Rater. (The judge kicked him off the case but was reversed when an appellate court said initial claim was that his representation was not simultaneous but consecutive.)

ESDC lawyer Douglas Kraus cited the underlying statute that establishes the state agency, "to undertake projects that promote economic development... There's nothing in the statute that says it's collaborative, but it's the way the process works."

Lawyers for the ESDC and Forest City Ratner said the process was not adversarial, but collaborative, since both the developer and agency wanted the project to move forward.

Jeff Baker, an attorney for DDDB, instead characterized it as "an arm's-length transaction."

Now, in a different context, the ESDC is embracing the concept of an arm's-length transaction. But it sure looks a lot more collaborative.

Also in February 2006, I analyzed the ESDC's record and suggested that its relationship with businesses was hardly adversarial and may not merely be collaborative, but instead positively embracing.

Comments

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…

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 Matzav.com 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…

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Not quite the pattern: Greenland selling development sites, not completed condos

Real Estate Weekly, reporting on trends in Chinese investment in New York City, on 11/18/15 quoted Jim Costello, a senior vice president at research firm Real Capital Analytics:
“They’re typically building high-end condos, build it and sell it. Capital return is in a few years. That’s something that is ingrained in the companies that have been coming here because that’s how they’ve grown in the last 35 years. It’s always been a development game for them. So they’re just repeating their business model here,” he said. When I read that last November, I didn't think it necessarily applied to Atlantic Yards/Pacific Park, now 70% owned (outside of the Barclays Center and B2 modular apartment tower), by the Greenland Group, owned significantly by the Shanghai government.
A majority of the buildings will be rentals, some 100% market, some 100% affordable, and several--the last several built--are supposed to be 50% market/50% subsidized. (See tentative timetable below.)

Selling development …

For Atlantic Yards Quality of Life meeting Sept. 19, another bare-bones agenda (green wall?)

A message from Empire State Development (ESD) reminds us that the next Atlantic Yards/Pacific Park Quality of Life Meeting--which aims to update community members on construction and other issues--will be held:
Tuesday, September 19, 2017 @ 6 pm
Shirley Chisholm State Office Building
55 Hanson Place
1st Floor Conference Room
Brooklyn, NY 11217 The typically bare-bones, agenda, below, tells us nothing about the content of the presentation. One thing to look for is any hint of plans to start a new building on the southeast block of the project by the end of the year.

If not, ESD is supposed to re-evaluate a longstanding request from project neighbors to move back a giant wall encroaching on part of Dean Street between Carlton and Vanderbilt avenues. It's said to enclose construction activity, but, in recent months, has significantly served to protect worker parking.

Also, by the way, if you search for Atlantic Yards on Google or the ESD website, it leads to this page for the Atlantic Ya…