Skip to main content

If land value skyrockets and Forest City already (nearly) swore off new subsidies, what's the justification for them?

From one perspective, the issue at last Wednesday's hearing on the Draft Supplementary Environmental Impact Statement (Draft SEIS) focused on the need to build the promised affordable housing. From another, it concerned whether and how to enforce new oversight on both construction activities and the project at large.

Underlying all that was the question of trust: for Empire State Development, the state agency overseeing/shepherding the project, as well as other government agencies (NYC Mayor's Office, and housing agencies), and for developer Forest City Ratner, enmeshed in a joint venture, not quite approved, with the Chinese government-owned Greenland Group.

For many long watching Atlantic Yards, there's ample reason for distrust. That doesn't mean that government and the developer are always in lockstep; it just means there's a general commonality of interest, as well as regular lines of communication.

New subsidy push

As Mayor Bill de Blasio is expected to issue his affordable housing plan today, and an advocate close to him suggested that future Atlantic Yards towers will have more family-sized apartments, it's worth comparing the apparent new push for subsidies to past disavowals by Forest City.

The Times reported 4/19/14:
In recent days, [FCR CEO] Ms. [MaryAnne] Gilmartin has met with Alicia Glen, the deputy mayor for housing and economic development, to talk about the next three buildings and the possibility of additional housing subsidies for apartments for poor and working-class families.“We’re going to drive a tough but fair bargain so we can get this project moving,” Ms. Glen said. “We’re not happy about the pace of construction. But we think that modular is something we should continue to pursue across the city.”
That suggests some kind of boost specifically for modular, but if the next three buildings--as announced in the Times--will be built conventionally, perhaps for them as well.

One thing to watch is whether the additional subsidy will be designed for Atlantic Yards exclusively or whether it will be a new citywide policy--perhaps to ensure larger apartments--applicable to all developments.

In 2009, no more subsidy "expected"

At a July 2009 public Q&A session, Steve Matlin, then-counsel for the Empire State Development Corporation (now simply Empire State Development, or ESD), was asked, "Has Forest City Ratner asked the city and/or state for additional subsidies?"

Video by Jonathan Barkey

“I think on every project that ESDC has been involved in, the developer always asks for more, and there’s always a dialogue and always a negotiation," Matlin responded. The level of state commitment has remained the same; it’s a hundred million dollars.”

Moderator Craig Hammerman, District Manager of Community Board 6, followed up: “Does Forest City Ratner anticipate asking for more?”

A union member in the audience heckled, “If these guys keep holding the project up, up, they’ll need more.”

Gilmartin responded, “Forest City does not expect to ask for more subsidy.”

Reasons for skepticism

As I wrote at the time, there was reason to be skeptical: Forest City had said it expected to open the arena many years earlier than it actually occurred.

I've suggested that, in the Forest City lexicon, anticipate does not mean foresee, but rather "the placeholder date we don't believe but think we can get away with." Similarly, "does not expect to ask apparently meant "we don't think it's prudent now."

Yet the incentives may go in the opposition direction for subsidies. In 2009, the economy had just begun to rebound.

Forest City, however, calculated that it needed some 20% in savings by building the towers using modular technology, and invested to launch a new process and a new factory, and endured tough negotiations with construction unions.

Past subsidy push

In March 2011, Rafael Cestero, the departing Commissioner of the Department of Housing, Preservation, and Development (HPD), was asked about the report that HPD had declined Forest City Ratner's recent request for an additional $10 million in additional subsidies--beyond the $14 million for 150 units--for the first residential building. (This is separate from the tax-exempt bonds from the New York City Housing Development Corporation that also provide savings.)

"One is, we have a set of programs that we use across the city... that fall within certain subsidy parameters that make sense for taxpayers and make sense for the city," Cestero responded. "We felt that the additional subsidy that Forest City was requesting... didn't meet those parameters and, frankly, that we felt was not a good public investment to go beyond what we have already committed."

"We want to see housing built there. We're all deeply committed to seeing not just the arena built, but to see... the affordable housing built," he added, "but we think the parameters that we've laid out, the program that we've laid out, allows that project to go forward."

In November 2011, then CEO Bruce Ratner acknowledged he didn't expect additional subsidy from the administration of Mayor Mike Bloomberg.

The situation today

Today, the real estate market in Brooklyn is sizzling. Greenland has decided that building the next three towers using conventional construction is feasible.

As land values skyrocket in Brooklyn, the value of Forest City's investment does too.

So, why are subsidies needed? How will they compare to subsidies with other projects? How much of that is a result of the developer's tight relationship with de Blasio?

Forest City's fuzzy bottom line

This occurs even as Forest City has hedged its bets--and, to some, taken a paper loss.

Last August, aiming to offload some of the risk and get back some of of the $545 million it has invested, Forest City sought a new investor for the majority of Atlantic Yards, beyond the first tower and the Barclays Center.

Expecting $200 million from Greenland for 70% of that investment (which works out to $381.5 million), Forest City acknowledged an "impairment" of $242.4 million, or $148.4 million net of tax, which suggests a hit to the bottom line.

"We're disappointed," said CEO David LaRue last December, who had previously said Forest City was not aiming to get more than book value for the land. They didn't get book value.

"Basically, you take an impairment when the probability of future cash flows dictate it," CFO Bob O'Brien elaborated. "It’s clear that the costs incurred to date, plus the future costs, as we evaluate them with Greenland, result in the range of impairment that we’ve indicated in our filing. It is accounting driven, but it reflects market values..."

Then again, such calculations are invariably fuzzy. While assets held for sales are supposed to be written down to fair value less the cost of selling them, as "with most generally accepted accounting principles (GAAP), the definition of 'impairment' is in the eye of the beholder."

And Forest City has not exactly been the most trustworthy source. Remember how in 2007 then-CEO Chuck Ratner, cousin of Bruce, told investment analysts that Atlantic Yards would take 15 years, then backpedaled, claiming, “When I referred to the project taking 15 years to build I was referring to the total time, from the idea or conception of the development to completion of the final building... The actual construction of Atlantic Yards will take 10 years."

Also, as I've pointed out, the Forest City/Greenland partnership is set to make tens of millions of dollars--maybe more than $100 million--from $249 million in cheap financing though the federally-approved EB-5 program. Forest City still gets a development fee of 5%.

It's unclear whether Forest City thought it would take a loss in the long run on Atlantic Yards, or just would make a smaller profit than predicted. But it is likely that the parent company, Forest City Enterprises, decided it didn't want to take more risks, or pony up the capital to build a new railyard and start new towers without a partner.

Despite the impairment, I find it tough to believe that Forest City doesn't expect Atlantic Yards to work out reasonably well. And the capacity to gain future subsidies and other government benefits--including, perhaps, a revised railyard plan--shows that the deal continues to evolve, and any conclusions are premature.


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 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…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…