Skip to main content

Revealed: how New York State helped Forest City Ratner get low-interest loan from Chinese investors, asked for nothing in return

The request by elected officials and community groups to tie approval of Forest City Ratner's planned joint venture with the Chinese government-owned Greenland Group--to sell 70% of the remaining 15 towers--to a new timetable should be seen in full context.

New York State seems far less interested in preserving the public interest than doing Forest City Rather's bidding. In a telling example, the Empire State Development Corporation (ESDC, or ESD) sent a top official to China in 2010 to help Forest City Raise cheap capital, asking for nothing in return.

According to documents I acquired, ESDC sent then-Executive Director Peter Davidson for a week to help Forest City raise $228 million from potential immigrant investors. That saved more than $100 million on conventional financing, by my calculation.

Under the federal government's EB-5 program, investors get green cards for themselves and their families if they invest in a purportedly job-creating enterprise.

Governmental involvement or endorsements--as represented by Davidson's presence--is key to convincing potential investors to choose one project over many competing ones.

Forest City also offered a misleading explanation for how the funds would be used, suggesting they would go to critical infrastructure rather than replacing a high-interest loan used to purchase land for the project.

Helping Forest City save

Forest City Ratner got a below-market loan to help replace that loan and (perhaps) pay for infrastructure. ESDC spent about $4,400 on Davidson's travel, plus the value of his time--and the goodwill/reputation of the state agency.

Davidson at left with  Hu Weihang of the Kunpeng
immigration consultancy; photo from firm's web site
Davidson was clearly valuable to the effort, mouthing misleading platitudes about Atlantic Yards and bestowing boilerplate certificates on Chinese immigration brokers (as in the photo at left). Those certificates were requested by the private firm managing the investment project.

However, ESD, documents suggest, didn't ask for anything in return, such as additional performance guarantees or a tighter timetable.

That suggests that the agency has no interest in tying the Greenland deal to a revised timetable. While Atlantic Yards was long promised to take ten years, the state relaxed deadlines in 2009 to 25 years.

While the Greenland deal has been touted as a way to speed construction, Forest City and allies like Bertha Lewis don't want to be forced to commit to a new timetable.

Working from the top down

The documents, acquired in June 2012 response to a Freedom of Information Law request I filed nearly 21 months earlier, suggest that, when Forest City made contact with the office of then-Gov. David Paterson, Davidson's role was set in place.

So much for Ratner's claim, in an August 2012 interview (video) with the Wall Street Journal, that "When you work with government, it's heavily on a staff level. It's really more about working on a staff level. On that level, we work in a very unpolitical way. We work just on the merits."

A misleading story

The documents show Forest City has made shifting claims about the intended use of the funds from the immigrant investors, who get green cards for themselves and their families if they invest $500,000 in a purportedly job-creating enterprise.

According to one document recently unearthed, Forest City told the ESDC that the money--initially, $249 million--would go to critical infrastructure, given that the arena was already funded.

To the press, however, Forest City was more coy. It told the Wall Street Journal and the New York Times that the funds would go for infrastructure (the new railyard) and also to replace a higher-interest loan used to purchase land.

Representatives of the New York City Regional Center (NYCRC), the private firm engaged to market the investment, told potential investors at public events and on webcasts in China that the money would go to an arena.

Just look at one promotional poster (right) for an event aimed to recruit investors.

However, as I reported, the arena was already funded. That's surely worthy of investigation for fraud.

Still, it's likely that contractual documents signed by the investors were more fuzzy regarding the arena. After all, they were buying into something vaguely titled "Brooklyn Arena Infrastructure and Transportation Improvement Fund." That string of words might suggest "Brooklyn Arena" as an entity, but more likely as a modifier.

Forest City more recently said the money is funding the new subway entrance, parking facilities, municipal water and sewer line upgrades and other work, according to Business Week.

However, evidence suggests, as I reported, that the money is also going to substitute for an existing high-interest land loan.

For each component of the $228 million, such as the $48 million used to secure the sites for B13 and B14 on the southeast block of the project site, city records indicate that an existing mortgage from Gramercy Capital--which specializes in high-interest financing--after a new mortgage was signed with the "Brooklyn Arena Infrastructure and Transportation Improvement Fund," representing the immigrant investors. See graphic at right, and right-click to enlarge.

Showing how a land loan was replaced
Such practices subvert the mission of the EB-5 program. As EB-5 analyst Michael Gibson told Business Week, when a project “substitutes EB-5 capital for more expensive bank financing or bond funding or even equity, that isn’t really creating new economic activity. It’s margin for the developer.”

That margin for the developer came with help from the government.

The process begins

As I reported, the process began on 2/17/10, when the New York City Economic Development Corporation (NYC EDC) proposed that Forest City Ratner meet with the NYCRC, the private investment pool authorized to recruit investors, to discuss a collaboration. The city agency knew that Forest City Ratner needed to raise more money to move the project forward and still achieve the margins it sought.

Neither the city nor state government was a formal partner with the NYCRC in the project, though that's what Chinese investors were told.

Though the project brochure, at left, used the city and state seals to suggest government involvement--as well as the NBA logo--each government entity had made previously-funded subsidy commitments.

In a 7/27/10 email, Forest City Executive VP MaryAnne Gilmartin broached the issue with Davidson: "Called Bruce [Ratner] on another matter. Bruce raised the Regional Center and the China Trip in October. Governor seemed interested. Wanted you to have a heads up."

The fundraising trip was to be coordinated with a trip by the Nets, as stated in an 8/4/10 NBA press release, Nets Selected to Play in NBA China Games 2010:
EAST RUTHERFORD, N.J.—NETS Basketball has been selected to play in NBA China Games 2010, in which it will participate in two preseason games against Chinese icon Yao Ming and the Houston Rockets in Beijing and Guangzhou this October.
The rationale: "critical infrastructure"

A 9/8/10 message from Gilmartin to Davidson explained the rationale for the fund-raising, calling it "critically important":
As I indicated to you and [Atlantic Yards Project Director] Arana [Hankin], our efforts through the Regional Center will assist us in raising critical financing proceeds for the Atlantic Yards Project. As Bruce discussed with the Governor, with the Barclay's [sic] Center financing secured and construction of the arena well underway, we have been focusing intensely on the capital needs for the critical infrastructure surrounding the arena which will allow for the development of the subsequent towers, including 2,250 units of affordable housing. In the current climate, conventional financing is simply not available so we are pursuing funds under the EB-5 program, which I have summarized in the attached memo.
(Emphasis added)

That's a bit of a dodge. "Conventional financing" is never available for infrastructure. It's available for investments that have a return.

How to fund infrastructure

By contrast, infrastructure is typically funded through other means, including bonds, the overage from other project elements, equity, or direct subsidies.

It's more complicated in this case: Forest City's low price for the Vanderblit Yard development rights--$100 million, later amended to $20 million down, with the rest paid off over 22 years--was predicated in part on its infrastructure investment (that new railyard), given that the rights were appraised at $214.5 million.

From the ESD's 2009 Modified General Project Plan
Indeed, there was an infrastructure gap, beyond the subsidies and tax-exempt bonds.

At one point it might have been filled by bonds issued by the Brooklyn Arena Local Development Corporation, but that plan was scotched.

A state spokeswoman said in December 2009, "any additional funding required will be made available by Forest City Ratner Companies."

Forest City apparently found that solution in China, with New York State's help.

The ambitious EB-5 plan

Gilmartin's letter explained the EB-5 connection:
As I have mentioned to you, Regional Centers exist around the U.S. and very often government officials (local municipalities and state representatives) are actively involved in the efforts. Our financing effort in China will be the largest attempted capital raise by any regional center in the national program. Toward this end, it's critical that we stand out among our competitors because the Chinese investors do have investment options from which to choose. And given the unprecedented nature of our effort, we won't know how successful we will be until we've completed our seminars in October. To ensure the highest likelihood of success, we respectfully ask that ESDC send a high level representative to join the Regional Center marketing effort from October 10th-17th. As you will note when I send the schedule of events and seminars, the week will be chock full of work for ESDC.
(Emphases added)

EB-5 background

The document explained the background on EB-5, and listed seven seminars planned to kick off the week the Nets were to be in China. Government presence is increasingly important, the memo stated, because:
  • Chinese investors have greater confidence in projects with government involvement. 
  • The NYCRC will be competing for investors with other regional center who are likely to bring government officials. We are likely to bring high level officials from the City and the State as well as Borough President Markowitz. 
  • The NYCRC will also be competing with investment opportunities in other countries, including Canada, the UK and Australia. 
The memo also noted that collateral marketing materials would include a promotional video on the arena "in which we would like to have [NBA] Commissioner [David] Stern speak."

Commissioner Stern, perhaps prudently, did not appear in the video. However, project promoters did manage to use the NBA logo in their marketing material.

No other high-level officials attended, though Markowitz and Mayor Mike Bloomberg appeared in a video, the latter offering boilerplate praise for Atlantic Yards, unrelated to the investment at hand.

Markowitz offered effusive praise for Forest City--The most important thing: they make a promise, they keep it"--and claimed Brooklyn was "1000 percent behind Atlantic Yards."

Following up

Two days after Gilmartin's message to Davidson, it was all in place.

In a 9/10/10 message, ESDC's Hankin wrote to Gilmartin:
Thanks for following up so quickly with the information that Peter had requested. [Secretary to the Governor] Larry [Schwartz] has approved Peter's travel to China, as has [ESD CEO] Dennis Mullen. We all understand the importance of having a State government official accompany the group. I wish you lots of success in China.
Gilmartin responded seven minutes later:
Terrific news.
Thanks for buttoning it up so expeditiously. We appreciate the effort.
China here we come!
The schedule

A schedule indicated eight seminars, including five at which Davidson was expected to appear, and for four which Markowitz was TBD [to be determined].

At each event was an "NBA legend," Otis Birdsong or Darryl Dawkins. They were selling basketball to the Chinese, not infrastructure.

NYCRC thanks and duties

Before the trip, NYCRC Principal Paul Levinsohn wrote to Davidson 9/21/10:
Please know how pleased we are that you will be joining us for our "project launch" in China the week of October 11th. Showing government support of an EB-5 project is critical and having someone of your stature present will provide a significant boost to our collective efforts.
Levinsohn also instructed Davidson on some key protocols, buttering up Chinese immigration firms with puffy proclamations:
Per our discussion, we need the Proclamations using the attached language to the immigration firms below. Each firm would receive their own Proclamation. You will present the Proclamation to the Head of the firm at each seminar.
Official proclamations

The message then listed the names of six immigration firms. The message was misleadingly vague:
The $249 million of EB-5 investment capital is vital to the initial stages of one of the most important public/private development initiatives in New York City today and one of the largest job-creating projects in over a decade...
Click to enlarge
Not only will the Atlantic Yards Project provide a state-of-the-art, multi-purpose sports arena needed to bring a professional sports team back to Brooklyn. It will also provide critical infrastructure work necessary to allow the construction and operation of the arena and, over the course of the next decade, the construction of thousands of affordable and market-rate housing units.
This is a historic project that will continue to energize the borough of Brooklyn. While a new hometown team will give all of us something to cheer for, it's the jobs and housing that will have the greatest last impact on the borough and the people of Brooklyn. The Atlantic Yards development is not just about constructing buildings, it is about building a stronger future for this great City and State. This is why the State of New York has already spent $100 million of capital to prepare for this development.
None of that offered any indication that the immigrant investors would get their green cards or get their money back.

What happened

The itinerary began with an arrival at the PNY Center on 10/10/10, a bus to Newark airport, and a flight to Beijing.

The trip involved a "Champagne Welcome for Nets Travel Party" and a "tailor to measure for suits." The visit included two Nets games, various tours, and a departure, in the evening on 10/16/10, arriving the next morning.

Davidson and Forest City got fairly chummy. For example, at one point, Gilmartin wrote: "Bruce and I would love to have you join us for some site [sic] seeing while we are in China."

Davidson assented on a trip to the Great Wall, and then reciprocally invited Gilmartin and Ratner to a site "being worked on by the World Monuments Fund, whose board I am on."

A 10/16/10 email from Gilmartin to Davidson with the heading "davidson takes china," attached a photo of Davidson speaking in China.

What they said

In an NYCRC project video presented in China to potential investors, the narrator states, "The New York City Regional Center is pleased to offer EB-5 investors another secure, job-creating project in conjunction with the government of both the state of New York and the city of New York."

The words "in conjunction with" could have left the impression that the city and state were part of the EB-5 offering. They weren't. They were part of the over all "job-creating project."

Davidson, at an event for prospective investors in Beijing, was at times vague in his remarks, but claimed Atlantic Yards would "be the largest job-creating project in New York City in the last 20 years.”

“The government of New York State and the governor of New York State knows what a major decision it is you are about to take, and that is why I am here tonight,” he stated.

“So I'd like to make three points about this project. The first is that the Atlantic Yards project is a very important development project for our government,” Davidson said. He added some boilerplate, and declared that “the Atlantic Yards project is one of the most important projects we have had over the last ten years.”

That may well be, but that ignores the issues faced by the prospective investors: would this project create the jobs needed to justify their green cards? Would they get their money back?

“The second point I'd like to make is that the government has invested millions of dollars in this project,” Davidson said, providing numbers that had been repeated several times to the audience.

The key issue, of course, is the definition of "project." The government has invested in the arena, and infrastructure. The NYCRC and FCR were trying to attach funding for a refinanced land loan and infrastructure to an already funded arena and infrastructure project.

Davidson helped them make their case.

Davidson noted that the city of New York had, as of then, contributed $131 million and the state of New York has contributed $100 million. “In addition, and very importantly,” he said, “the state has helped with the issuance of over $500 million in bonds to fund the construction.” (Well, the state-authorized Brooklyn Arena Local Development Corporation issued bonds that will be privately repaid.)

Job creation
ESDC proclamation from promotional video

“The third point is that this project and your participation will definitely create jobs,” Davidson declared. “The Atlantic Yards project will create thousands of jobs, both in construction and in permanent jobs that follow construction. And as a result, there will be billions of dollars generated in taxes that will be paid to the city of New York and the state of New York.”

Whether there will be billions of dollars of taxes is questionable, but Davidson's answer dodged the issue of job creation.

The "project" as pitched to investors includes the arena, infrastructure, and railyard. So the investors would have nothing to do with what Davidson described as "permanent jobs that follow construction."

Not included in this "project" as pitched to the investors, would be construction of housing, office, or retail structures. Nor would billions of dollars be generated in taxes from this "project."

Then Davidson, perhaps feeling expansive, asserted, “This project will be the largest job-creating project in New York City in the last 20 years." (Go to 4:40 of the audio.) “And one of the largest development projects of any type in New York City.”

That first claim is untrue. Also, the investors were never told they'd be putting money into the full "Atlantic Yards" project.

But the smoke and mirrors worked.


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…

No, security guards can't ban photos. Questions remain about visibility of ID/sticker system.

The bi-monthly Atlantic Yards/Pacific Park Community Update meeting June 14, held at 55 Hanson Place, addressed multiple issues, including delays in the project, a new detente with project neighbors,concerns about traffic congestion, upcoming sewer work and demolitions, and an explanation of how high winds caused debris to fly off the under-construction 38 Sixth Avenue building. I'll have more coverage.
Security issues came up several times at the meeting.
Wayne Bailey, a resident who regularly takes photos and videos (that I often use) of construction/operations issues that impact residents, asked representatives of Tishman Construction if the security guard at the sites they're building works for them.
After Tishman Senior VP Eric Reid said yes, Bailey asked why a guard told him not to shoot video of the site, even though he was on a public street.

"I will address it with principals for that security firm," Reid said.
Forest City Ratner executive Ashley Cotton, the …

Atlantic Yards/Pacific Park graphic: what's built/what might be coming + FAQ (post-dated pinned post)

This graphic, posted in January 2018, is post-dated to stay at the top of the blog. It will be updated as announced configurations change and buildings launch. Note the unbuilt B1 and the proposed shift in bulk to the unbuilt Site 5.

The August 2014 tentative configurations proposed by developer Greenland Forest City Partners will change. The project is already well behind that tentative timetable.

How many people are expected?

Atlantic Yards/Pacific Park has a projected 6,430 apartments housing 2.1 persons per unit (as per Chapter 4 of the 2006 Final Environmental Impact Statement), which would mean 13,503 new residents, with 1,890 among them in low-income affordable rentals, and 2,835 in moderate- and middle-income affordable rentals.

That leaves 8,778 people in market-rate rentals and condos, though let's call it 8,358 after subtracting 420 who may live in 200 promised below-market condos. So that's 5,145 in below-market units, though many of them won't be so cheap.

As …

The passing of David Sheets, Dean Street renter, former Freddy's bartender, eminent domain plaintiff, and singular personality

David Sheets, longtime Dean Street renter, Freddy's bartender, eminent domain plaintiff, and singular personality, died 1/17/18 in HCA Greenview Hospital in Bowling Green, KY. He was 56.

There are obituary notices in the Bowling Green Daily News and the Wichita Eagle, which state:
He was born in Wichita, KS where he attended public Schools and Wichita State University. He lived for many years in Brooklyn, NY, and was employed as a legal assistant. David's hobby was cartography and had an avid interest in Mass Transit Systems of the world. David was predeceased by his father, Kenneth E. Sheets. He is survived by his mother, Wilma Smith, step-brother, Billy Ray Smith and his wife, Jane all of Bowling Green; step-sister, Ellen Smith Alexander and her husband, Jerry of Bella Vista, AR; several cousins and step-nieces and step-nephews also survive. Memorial Services will be on Monday, January 22, 2018 at 1:00 pm with visitation from 10:00 am to 1:00 pm Monday at Johnson-Vaughn-Phe…

Some skepticism on Belmont hockey deal: lease value seems far below Aqueduct racino; unclear (but large?) cost for LIRR service

As I wrote for The Bridge 12/20/1, The Islanders Say Bye to Brooklyn, But Where Next?, the press conference announcing a new arena at Belmont Park for the New York Islanders was "long on pomp... but short on specifics."

Notably, a lease valued at $40 million "upfront to lease up to 43 acres over 49 years... seems like a good deal on rent for the state-controlled property." Also, the Long Island Rail Road will expand service to Belmont.

That indicates public support for an arena widely described as "privately financed," but how much? We don't know yet, but some more details--or at least questions--have emerged.

An Aqueduct comparable?

Well, we don't know what the other bid was, and there aren't exactly parcels that large offering direct comparables.

But consider: Genting New York LLC in September 2010 was granted a franchise to operate a video lottery terminal under a 30 year lease on 67 acres at Aqueduct Park (as noted by Gov. Andrew Cuomo).


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 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…