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.

Comments

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).

As…

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 Matzav.com 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…