State Comptroller's audit slams MTA's real estate stewardship, omits Vanderbilt Yard; MTA claims success in AY deal, Barclays station naming rights
Curiously enough, the audit (embedded below) omits any mention of the controversial 2005 deal to sell the Vanderbilt Yard to Forest City Ratner, which had such an inside track all but one other bidder was deterred (though that bidder offered more in cash).
Nor is there mention of renegotiation of the Vanderbilt Yard deal in 2009, with the MTA leaving $80 million of the originally pledged $100 million to instead be paid over 22 years, and accepting a replacement railyard smaller than promised and worth $100 million less.
(Could there be any connection to a campaign contribution from Bruce Ratner to DiNapoli?)
Meanwhile, in its response to DiNapoli (p. 33 of the report), the MTA proudly (but misleadingly) cites efforts to "upzone those [industrial] properties to unlock their full value, as we have successfully done with the Atlantic Yards and the West Side Yards to allow us to capture $1 billion for the MTA's capital program."
Hold on. There was a city rezoning for the West Side Yards/Hudson Yards, but no such rezoning for the Vanderbilt Yard. (Instead, there's a state override of zoning to accommodate this particular project.) Rather, the report confirms that, as with the Vanderbilt Yard, the MTA habitually makes no attempt to market some valuable properties.
And that would be $100 million captured over a potential 22 years (if ever) for the Vanderbilt Yard--not "Atlantic Yards." And the rest of the $900 million is kind of iffy as well.
The MTA also says it's exploring corporate sponsorship and naming rights opportunities "along the lines of our landmark deal with Barclays for the naming rights to the subway station adjoining the site of the new Nets/Barclays Center arena in Brooklyn, which will generate $4 million in addition to payment for the site itself."
Hold on. A landmark deal? Philadelphia's SEPTA seems to drive a harder bargain.
The press release was headlined DiNapoli: MTA Not Maximizing Potential Of Real Estate Portfolio Audit Finds Lax Record-Keeping, Hundreds of Vacancies at MTA-owned Properties.
The New York Post had an exclusive yesterday summarizing the report, headlined
Strapped MTA's sad real estate of affairs.
The MTA issued an extensive response cited in the report, and also yesterday said, according to NY1, "Our ongoing financial issues demand that we think creatively and do more. We are trying new technology to increase advertising revenues, working to change regulations that limit our ability to develop our assets and better utilizing space as we downsize."
Excerpts from the press release
From the press release:
The Metropolitan Transportation Agency (MTA) is missing significant opportunities to save money and generate greater revenues through its vast real estate portfolio, according to an audit New York State Comptroller Thomas P. DiNapoli released today. DiNapoli’s audit found the MTA routinely spends more than $25 million a year on rent without assessing whether some of its vacant properties can meet its office space needs. The MTA also did not have a strategic plan for marketing its real estate holdings, and had not met the Public Authorities Law reporting requirements to publish a list of the holdings until June 2010.Recommendations
“Millions of New Yorkers rely on the MTA,” DiNapoli said. “Those New Yorkers can’t afford to pay more while the MTA ignores potential cost savings. But that’s exactly what has happened here.
“Before making drastic service cuts and talking about fare hikes, the MTA has to maximize the value of its real estate holdings by advertising their availability and ensuring that it’s receiving market-rate rents for prime properties. The MTA should also publish a full list of its real estate holdings as required by law and let New Yorkers know how it’s going to capitalize on these assets.”
The audit, which covered the period between January 1, 2005 and August 31, 2009, is the latest DiNapoli effort to identify cost-saving opportunities for the MTA, which this week implemented a series of service cuts that are disruptive to the commuting public.
From the press release:
From the audit
DiNapoli recommends that the MTA:
- Create a single MTA real estate portfolio management system that comprises information from all five existing databases;
- Develop a strategic marketing plan to properly advertise its available spaces; and
- Improve rent collection by charging interest and late fees.
The MTA called DiNapoli’s audit a timely one, and agreed that the agency must explore new ways to generate revenue through its real estate holdings.
The audit cites a failure to simply report on property available and sold:
According to Section 2896 of the New York State Public Authorities Law, each public authority is to publish, at least annually, a report listing (1) all its real property and (2) all the real property disposed of during the reporting period, with the sale price and name of the purchaser for each property.
We examined whether the MTA was complying with this requirement and found that it was not. While the MTA had published a report on property disposals for 2005, 2006, 2007 and 2008, it had not published a report listing the real property under its control for any of these four years. As a result, the MTA’s vast real estate holdings have not been subject to the intended level of public accountability and transparency. MTA officials told us that they were not aware of this reporting requirement. We recommend the MTA comply with this requirement in the future.
During our audit field work, the Real Estate Department attempted to provide us with a complete and accurate listing of the MTA’s real estate holdings, but was unable to do so.
The audit cites an inability to value MTA properties--another issue in the Vanderbilt Yard deal:
We also note that the Real Estate Department (RED) does not record the value of the MTA’s real estate holdings on the YARDI database. MTA officials stated they do not always attempt to estimate the value of their property, and do not attach much importance to any estimates that are developed, because the true value of the property is only what is actually offered by an interested party at the time it is put up for sale. Another method that could be used is an assessment of its property by the New York City Department of Finance. We acknowledge the uncertainty of property appraisals and other such estimates, but note that they are an accepted practice and, if done properly, provide a reasonable indication of a property’s value.
Marketing real estate
The audit cites a failure to market real estate:
A strategic marketing plan would help the Real Estate Department ensure that such actions were appropriately considered and any impediments to a rental unit’s marketability were addressed. However, the MTA has not developed a strategic marketing plan for its real estate portfolio.We recommend the MTA develop such a plan, ensure that the plan contains provisions for removing impediments to rental units’ marketability, and ensure that adequate efforts are made to market all vacant units. At the closing conference, MTA officials indicated that the current real estate market is proving a challenge to their mission. We believe a strategic marketing plan would help the MTA meet this challenge.
And it criticizes three of 12 deals during the period covered by the audit:
Two of the properties were “sold” for $0, as they were transferred, for free, to other government entities.
...While the two properties are being used for public, and not private, purposes, we question whether they should have been transferred for free. Such transactions could give rise to an appearance of favoritism and are not in the financial interest of the MTA. We recommend the MTA charge a reasonable sale price for such properties.
...The third property (a portion of the West Side Yard) was valued at $487 million in an appraisal. After negotiating with New York City, the MTA sold a 50 percent interest in this property to the City, for use in an economic development project. However, rather than selling this 50 percent interest for half the appraised value of the property ($243 million), the MTA accepted a price of $200 million, plus additional compensation if the City sells the development rights to a private developer for more than $200 million. While the MTA may eventually realize the additional $43 million, if the eventual sale price is high enough, it is also possible that it may not. We question whether the MTA “ensure[d] the greatest level of revenue generation” for itself in this transaction and recommend that properties that are to be sold to private interests not be sold for significantly less than their appraised value.
Now the MTA sold Forest City Ratner the Vanderbilt Yard for less than half the appraised value, though the developer contended--and the courts haven't disagreed--that the bid was worth much more.
Still, DiNapoli could just as easily have cited that deal, especially since the bidders for the West Side Yard all began at the same starting place, as opposed to Brooklyn, where FCR had the inside track.
8. Maximize the revenue from the disposal of property by:The MTA response:
• charging a reasonable sale price for property that is transferred to another government entity for public use, ensuring that the sale contract includes a clause requiring the reversion of the title to the MTA should the purchaser use the property for a purpose other than that specified in the contract, and following up to ensure that the property is being used for the public purpose originally specified; and
• ensuring that properties that are to be sold to private interests are not sold for significantly less than their appraised value.
(MTA officials replied to our draft audit report that from time to time, as contemplated by Section 2897 of the Public Authorities Law, the MTA disposes of property, not required for its corporate purposes, to municipalities or other public agencies for the benefit of the public. They restated their position that the transfer of two of the three properties at no cost to the municipalities was justified and that the $90,000 value ascribed to one property was theoretical. They agree that appropriate deed restrictions, should and under the Public Authorities Law, as amended, must be employed where sales to public entities are predicated on agreements that they will only be used for public purposes. However, they do not believe that they have to police such deed restrictions. Regarding the West Side Yards property they stand behind the decision because of the financial benefit to the City.)The Auditor's response:
Auditor’s Comments: We reiterate that, according to the MTA’s Policies and Procedures, the Real Estate Department’s marketing objective is to ensure the greatest level of revenue generation and other potential benefits to the MTA. We question how the disposal of the two properties in question for no monetary consideration is consistent with this objective. Also, it is interesting to note that the MTA would refer to an appraisal that it paid for as “theoretical” simply because the property was deemed not developable unless combined with a parking lot which, as a matter of fact, was already owned by the acquiring municipality. Again, as stated in the audit report, we also question how the transaction for the sale of the West Side Yard property for less than the appraised value with contingencies for additional revenue based on the sale of the property by the City of New York to a private developer is fully consistent with the specified Policies and Procedures objective.
The audit states:
We also determined that the MTA has taken no action to realize potentially significant sale revenue from its air rights (the space above certain of its properties; e.g., platforms may be constructed over railroad tracks, and commercial buildings may be built on those platforms). A consultant hired by the MTA in 2006 to find potential revenue-generating real estate disposals identified 72 MTA-owned parcels in New York City with air rights valued at $12.2 million (Additional air rights were also identified outside New York City.) However, the MTA has made no attempt to sell these rights. Real Estate Department officials indicated that there would not be a market for the air rights in the current economy, but they have neither documented this determination nor set a date when they will revisit the opportunity to sell the air rights.
9. Formally evaluate the marketability of the MTA’s air rights. If the air rights are found to be marketable, promptly act to market the rights. If the rights are found to be unmarketable at the present time, document the reasons for this determination and set a date to re- evaluate their marketability.The MTA response:
(MTA officials replied to our draft audit report they have evaluated and will re-evaluate from time to time, the marketability of air rights associated with its properties and when market conditions are favorable the MTA will aggressively market air rights that it believes to be marketable. They noted several conditions and circumstances that impact on the marketability of air rights. Also, they commented that the $12 million of aggregate value that the consultant ascribed to development rights proved speculative, as the consultant was unable to generate any interest whatsoever.)The Auditor's response:
Auditor’s Comments: We note that no information regarding the evaluation of air rights was provided during our audit. Also, the consultant’s “green light” to market the air rights expired in 2007. Particularly as the economy emerges, we urge the MTA to be expeditious in its efforts to re-evaluate the marketability of air rights.