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Ask Why: Enron, "the diffusion of responsibility," and the Atlantic Yards parallels (will anyone look at the Development Agreement?)

Alex Gibney’s 2005 documentary, Enron: The Smartest Guys in the Room, contains several memorable quotes, but the most apt one, at least for Atlantic Yards watchers, is not listed on the IMDB quotes page.

It comes from whistleblower Sherron Watkins, with only about five minutes left to go in the film:
“Enron should not be viewed as an aberration, something that can’t happen anywhere else. Because it’s all about the rationalization that you’re not doing anything wrong. We’ve involved [accountants] Arthur Andersen, we’ve involved the lawyers, the bankers know what we’re doing. There’s a sense--the diffusion of responsibility. Everyone was on the bandwagon. And it can happen again.”
So the message of the film is a reminder to take seriously Enron’s (ironic, in retrospect) slogan, "Ask Why."

And what about AY?

Atlantic Yards isn't Enron--right?--but who's responsible for taking responsibility and telling the truth?

Government agencies and courts have punted on numerous issues, most glaringly regarding the timetable implied in the belatedly-released Development Agreement, which contradicts earlier promises.

Remember, the release in January came six days after a hearing in a case challenging the Modified General Project Plan (MGPP) was heard in court. It was also about three weeks after the ESDC told me the documents would be made available.


Forest City Ratner promises 8000 permanent jobs, a figure that relies on 1) an unrealistic configuration of office space and 2) a full buildout of the project.

Do government agencies take them to task? No, Mayor Mike Bloomberg happily parroted the figure in a press release.

And the Empire State Development Corporation, though itself estimating a number about half that total, backed FCR's calculations in a dispute refereed gently by the Washington Post.


Consulting firm AKRF solemnly pronounced that the Atlantic Yards site is most likely the source of crime in Sector E of the 88th Precinct. They never questioned the police beyond looking at general statistics.

Questioned more directly, the cops blamed Forest City Ratner's malls. That's borne out by weekly crime statistics.

Housing market

Consulting firm KPMG offered glaring lies about the percentage of sales in several prominent condo developments and stretched the figures regarding price per square foot.

Arena events

The arena sponsors most recently predicted over 200 events a year at the Barclays Center; ratings agency Moody's said there'd be 225 events but wouldn't defend its methodology.

As we've known for years, the original projection of 225 events a year depended on the closing of the Meadowlands Arena, now the Izod Center, and no construction of an arena in Newark.

Passing the buck

On March 11, I cited state Supreme Court Justice Marcy Friedman's decision in the case challenging the Empire State Development Corporation's (ESDC) 2009 approval of the Atlantic Yards Modified General Project Plan:
At this late juncture, petitioners’ redress is a matter for the political will, and not for this court which is constrained, under the limited standard for SEQRA review, to reject petitioners’ challenge.
From Governor David Paterson's statement in response to a question March 9:
"Since the project was already in implementation when I came into office, I waited for the Court of Appeals to make a decision, and they ruled the way they did."
That makes it look like, once Atlantic Yards got started, it had inevitable momentum. But that's not so. After all, as I noted, it was a pretty "late juncture" when, last year, Forest City Ratner renegotiated deals with the ESDC and the Metropolitan Transportation Authority.

The Development Agreement

And Friedman has since punted a case challenging the eminent domain Determination & Findings to Brooklyn Supreme Court Justice Abraham Gerges, who previously dismissed a similar issue.

Gerges did not examine the belatedly-released Development Agreement. Friedman wouldn't add it to the record.

Nor did she allow it to be added to the record of the case challenging the ESDC's 2009 approval of the case. (She's been asked to revisit that case and add the Development Agreement to the record.)

What it means: 25 years

Let's be clear on what this means.

The June 2009 revised MTA deal for the Vanderbilt Yard gives Forest City Ratner 22 years to pay for the railyard, at a generous 6.5% interest rate, thus making it likely that the developer will take as long as possible.

According to the ESDC's 2009 MGPP, issued in June:
The build-out of the Project is likely to occur in two phases, with the Project elements on the Phase I Site and the Upgraded Yard (collectively, "Phase I") anticipated to be completed by 2014 and the Project elements on the Phase II Site (collectively, "Phase II") anticipated to be completed by 2019.

A public hearing notice issued in June just a few days after the MGPP announced a 25-year outside deadline for Phase 2 and, in an ESDC board memo distributed September 17, the interim leases for the arena block and Phase 2 were described as lasting up to 12 years and 25 years.

The ESDC says those are outside dates. In court in January, the ESDC argued that a separate Development Agreement requires Forest City Ratner to "use commercially reasonable efforts... to complete the entire Project by 2019."

Penalties and incentives

That Development Agreement wasn't released until nearly a week later. It poses penalties of less than $10 million for an arena that's up to three years late and $5 million for each of three buildings if they're late.

Otherwise, the ESDC asserted that a clause in the Development Agreement enforces a ten-year project buildout, with penalties of $10,000 a day.

However, non-monetary defaults are reduced to $1000 a day. That's why Forest City Ratner more cautiously asserted that damages would be up to $10,000 per day.

It remains in question whether these would be trumped by other clauses in the agreement, but the difference even between the two numbers is stark: $3.65 million (at $10,000/day) vs. $365,000 (at $1,000/day) over one year; $36.5 million vs. $3.65 million over ten years.

MGPP vs. Development Agreement

Keep in mind that, as I wrote 4/19/10, while the MGPP says each of the three buildings should start within six months of each other, the Development Agreement allows for two-year gaps.

The MGPP (above) included no timetable for the third tower, just "on or before a date certain."

(Click on graphics to enlarge)

However, the Development Agreement (excerpt right), however, says the third building doesn't have to start for ten years.

Remember, Atlantic Yards is supposed to have 16 towers.

If the third tower isn't commenced within ten years, it's impossible for the project to be finished in a decade.

Bottom line

The bottom line: the incentives for Forest City Ratner to use "commercially reasonable efforts... to complete the entire Project by 2019." seem very slight.

And no one official seems to care.

Ask Why.

Because it was a wired deal.


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