Another eminent domain twist; ESDC seeks access to properties not yet taken for railyard work; FCR exec warns dispute could delay arena

It turns out that Forest City Ratner's money-saving desire--ratified by the Empire State Development Corporation (ESDC)--to have properties in the Atlantic Yards footprint condemned in phases, rather than all at once, has led to an unforeseen, yet unresolved complication, one that raises the specter--however unlikely--of a delay in the planned opening of the arena.

Last week, the ESDC went to state court to force owners of two properties on Atlantic Avenue between Sixth and Carlton avenues to allow access to a Forest City Ratner affiliate working on a new permanent railyard adjacent to those properties.

Given that excavation will take place at or near the property lines of those adjacent properties, the company known as Atlantic Rail Yards (ARY) wants to install vibration monitors in the basements of the buildings for the duration of the work (expected to be completed no later than 12/31/12); to install tie-backs to another a support-of-excavation wall on the MTA/LIRR property (for no longer than six years); and to install monitoring points on the exterior walls of those properties.

The owners of Storage Mart, a storage company, and Global Exhibition Services, a museum exhibits builder, resisted, arguing that the request went beyond the scope of the law.

More jousting coming

Supreme Court Justice Wayne Saitta agreed to adjourn the matter to June 30 to allow for additional submissions.

One option is partial condemnation. "ESD will seek to condemn only such access easement as is necessary to shore and install tie-backs under the property at issue," ESDC spokeswoman Elizabeth Mitchell told me. "These actions are being taken for the benefit and protection of the adjoining property owners."

The larger context

According to the ESDC's legal petition, filed by the firm Berger & Webb, "access is critical because of the interrelated and interdependent nature of the different elements of the Project." If access were denied, the new railyard would be delayed, and ARY could face damage claims from its contractors.

Also, this could delay the completion of the Carlton Avenue Bridge, thus depriving the public of access and subjecting ARY to damage claims from the city. (The bridge was supposed to take two years, but can take five years.)

Arena delay?

The petition sets out an even more dire scenario, one that seems unlikely:

Moreover, because the completion of the Carlton Avenue Bridge is a precondition to the opening of the Barclays Center Arena, delay in completion of work would also prevent the Arena opening, which, among other things, would require cancellation of events already scheduled for the Arena in fall 2012. All income from such events would be lost, leaving this venue, financed by PILOT (payment-in-lieu-of taxes) bonds issued by ESDC's local development corporation, Brooklyn Arena Local Development Corporation ("BALDC"), without event income. The parties to numerous suite licensing and sponsorship agreements would be entitled to rescind their agreements, which would deprive FCRC's Arena affiliate of many millions of dollars of revenues that are needed to make PILOT payments, which will be used by BALDC to pay the indebtedness on the tax-exempt bonds for the Arena. In turn, this lack of income would place the bondholders at risk.

At issue

The ESDC argues that, according to state eminent domain law, a condemner or its agents/contractors can enter any property to make surveys or other investigations, and for temporary occupancy during construction.

A Forest City Ratner executive states in an affidavit that he tried, via visits, letters, and calls, to reach the property owners but no agreement for access had been reached.

However, there's a dispute about the details. As the respondents, represented by the firm Goldstein, Rikon, & Rikon, say in legal papers:

An initial access request [to one property] was tentatively granted subject to it being memorialized in a license agreement. Access was later denied when the proposed license agreement surreptitiously include a provision that required the Respondents to agree to a request for a permanent encroachment….

Such an encroachment exceeds the scope of what's permissible under state law, they argue.

If the court does grant FCR's application, it should order the developer and its affiliate to post a bond, provide liability insurance, pay for any damages, and pay legal and engineering fees.

To me, that suggests that the dispute is one over the details and assignment of costs.

Jobs?

The Forest City executive, Thomas Bonacuso, describes the impact on employment:

A delay in completion of the Stage 2 Work would also cause enormous harm to the many union construction workers now employed at the job site, hundreds working off-site, and all of their dependents. Under the current schedule for Stage 2 Work, there are approximately 40 union workers on the Work Site. This number is expected to increase dramatically, beginning in July of 2011, and will rise to about 150 or more when construction activities reach their peak. There are also many other workers employed on the Stage 2 Work at locations away from the Work Site, such as factory workers fabricating materials and equipment to be used in the Stage 2 Work.

The Stage 2 Work refers to work at the railyard, not the overall AY site, where there are additional workers. Still, an increase from 40 to 150 workers is far less dramatic than the numbers of construction jobs--15,000 and 17,000--long used by proponents.