A revelation from Doctoroff: despite his public enthusiasm, he thought Atlantic Yards was a "crazy risk" (but considers it transformative)
As I write in Gotham Gazette, former Deputy Mayor Dan Doctoroff, in his Greater Than Ever: New York's Big Comeback, adds some new insights about Atlantic Yards, but his triumphant narrative ignores some countervailing evidence.
While Doctoroff gets wrong the location of the project, the amount of subsidies, and the fact that the city's money paid for land rather than infrastructure, and he looks rosily at the arena without acknowledging problems for neighbors, he makes one interesting revelation, and one shocking one, which I expand on below.
(He also says, dubiously, that Bruce Ratner first wanted to buy the New Jersey Devils, not the New Jersey Nets, while evidence suggests only that it was once a package deal.)
The shocking revelation: Atlantic Yards too risky from the start?
As I write in Gotham Gazette:
While Doctoroff gets wrong the location of the project, the amount of subsidies, and the fact that the city's money paid for land rather than infrastructure, and he looks rosily at the arena without acknowledging problems for neighbors, he makes one interesting revelation, and one shocking one, which I expand on below.
(He also says, dubiously, that Bruce Ratner first wanted to buy the New Jersey Devils, not the New Jersey Nets, while evidence suggests only that it was once a package deal.)
The shocking revelation: Atlantic Yards too risky from the start?
As I write in Gotham Gazette:
A more important revelation from Doctoroff is that, while he and the Bloomberg administration were public cheerleaders for Atlantic Yards--“My role in this was to be as supportive and reassuring as possible,” he writes--from the start in 2003 he questioned whether such a complex project would work.Well, remember this quote? "We did not require a lot of convincing as to the conceptual merits of Bruce's plan," Doctoroff told New York magazine's Chris Smith in 2006. "The mayor was always very intrigued by the design. He's in favor of big statements. What you've got now is an opportunity to have an independent economy in Brooklyn."
Not only was that "independent economy" line a clear overstatement, we now know Doctoroff had his doubts. As I write in Gotham Gazette:
We know today that Forest City Enterprises/Forest City Realty Trust, parent of Brooklyn-based Forest City Ratner (now Forest City New York), has taken significant "impairments" (write-downs of value, essentially losses) on Atlantic Yards/Pacific Park, including the project as a whole, and the modular building, B2, aka 461 Dean.
As I wrote this past January, after a second hedge fund targeted the parent company for losses, the math: the B2 impairment was $146 million, while Atlantic Yards/Pacific Park impairments were $299.3 million and $242.4 million, all before taxes (which lowered the hit). That adds up to $687.7 million. (Maybe there's more.)
The bigger picture
That doesn't mean there isn't money to be made going forward by Greenland Forest City Partners, especially Greenland USA, and especially if terms change regarding public obligations. But it does mean that Forest City's early big investment hasn't worked out at all.
Doctoroff, by the way, suggests it was worth it on the city's end, though he doesn't grapple with predictions from the Independent Budget Office that Atlantic Yards would be a money-loser for the city.
He acknowledges that "I don't think we will ever know" whether Ratner will ever make money, but says the developer's "vision, commitment, and tenacity made the transformative project possible."
That raises the question of whether any other project, or version of this one, could have worked better--and how the changes in and around Downtown Brooklyn were driven by this project.
What went wrong?
So why did Ratner's project go wrong? Well, several reasons have surfaced (and likely there are more), including misconceiving Atlantic Yards, misjudging the market, bad luck/timing, misjudging the potential opposition, and the developer's rather loose practices.
As Chuck Ratner, Bruce Ratner's cousin and then CEO of Forest City Enterprises, said in March 2007:
"It spotlights two of the hard lessons we've learned coming out of the recession," he said. "We need to control land rather than own it, prior to being ready to go vertical, and we need a strong capital partner up front for a project of this magnitude."
In other words, they were spending too much money on land, and carrying costs, and needed to spread the risks. Surely the pressures of a publicly traded company, with quarterly and annual results, drove some decisions.
For example, the Brooklyn Nets are now being marketed at a value of $2 billion. A deeper-pocketed, more patient owner--not that team ownership was this corporation's core competency--might have reaped value over the longer term.
Who should have blown the whistle?
"Ratner was only really guessing at the size, cost, and architecture of the project as well as the benefits to the community," Doctoroff writes of an early meeting. But public officials and agencies repeated those guesses as fact, and he was a cheerleader.
Notably, all predictions by the city and state, estimating the project's fiscal impact, presumed what we now know was an unrealistic ten-year buildout. If they had estimated a 15- or 20- or 25-year buildout, and a range of outcomes, wouldn't that have changed our perspective?
If they had contrasted a 25-year buildout for a project with an arena versus a smaller project just on the railyard but arrived faster, would that have changed our perspective?
We didn't get candor from the government. Nor did we get candor from government consultants like KPMG, which said a ten-year buildout was reasonable. (Remember, "reasonable" is that cover-your-butt term that gets a project past judicial scrutiny in New York, where the bar is "rational basis": you have to have a reason, not necessarily a convincing one.)
By contrast, real estate expert Joshua Kahr, working as a consultant for community groups critical of the project, wisely opined in 2009 that "The demand for housing units is most likely not sufficient to support a project of this scale over the next ten years."
More skepticism needed
I've been criticized for assuming Forest City would make money, even after losses. Indeed, in retrospect, I and others, however skeptical of the pace of the project and other promises, should have looked more carefully at the economics.
Early on, however, not only were boosters of the project expecting profits, so too critics expected success, as in Chris Smith's August 2006 reporting in New York magazine:
Over time, though, Kahr's 2009 report and project delays pointed toward skepticism. I and others certainly expressed doubt that the project would proceed as promised, and that doubt was well-founded.
But I and others were not sophisticated to consistently analyze the (estimated) numbers; nor did we have all the data to do so. And yes, the project--and, likely, its terms--will continue to change.
So this all raises questions: if public officials had known the project was this risky, and costly, would that have argued for more subsidies, or a lesser "burden" to deliver infrastructure, affordable housing, or jobs? (Already the developer has negotiated more attractive terms regarding affordable housing.)
Or, perhaps, did it mean that the risks of a large, complex project should have been more clear, and alternatives should have been considered more seriously?
And now: does this mean that Greenland Forest City, having made (or, in Greenland's case, bought into) some unwise decisions, now deserves leverage with public agencies to deliver less than what it promised? Will they cut corners?
Or will they pull more rabbits out of the hat, as with the giant tax cut they achieved for the condo building 550 Vanderbilt? (In other words, is another 421-a benefit coming?)
The interesting revelation: why not ULURP?
Doctoroff also helps us revisit another issue. Atlantic Yards backers have long said that the plurality (or, inaccurately, majority) of state-controlled land, notably the MTA's Vanderbilt Yard, meant that the project would have to be overseen by a state process, not the city's Uniform Land Use Review Procedure, or ULURP.
But that wasn't necessarily so. "Although we would eventually become masters of ULURP," he writes, "at this point not a single rezoning had been approved and internally we had doubts about pulling off all were were trying to accomplish. Because the state owned much of the land, we decided that for expediency we would skirt ULURP and take advantage of the state's seemingly speedier process. With twenty-twenty hindsight, I am positive we could have placated our opponents in negotiations and gotten the process through ULURP."
As I wrote in Gotham Gazette, he has a point. The Bloomberg administration might not have placated all opponents--after all, some wouldn't accept an arena--but surely there would have been some concessions, and City Council Member Letitia James likely would have had a voice.
That could have led to more legitimacy and more oversight for the project--and maybe someone stepping in to warn about the variables facing the project.
Noting that developer Bruce Ratner had to buy the money-losing New Jersey Nets and navigate a complex set of approvals, Doctoroff “thought it was a crazy risk, but, hey, it was his money.” Actually, it involved public money too, as well as the opportunity cost of delaying alternative use for the public property at issue.That's important.
After all, given how much Atlantic Yards was sold to the public as providing solutions to the affordable housing crisis, didn't public officials owe us more candor about the risks of delay and nonperformance?
We know today that Forest City Enterprises/Forest City Realty Trust, parent of Brooklyn-based Forest City Ratner (now Forest City New York), has taken significant "impairments" (write-downs of value, essentially losses) on Atlantic Yards/Pacific Park, including the project as a whole, and the modular building, B2, aka 461 Dean.
As I wrote this past January, after a second hedge fund targeted the parent company for losses, the math: the B2 impairment was $146 million, while Atlantic Yards/Pacific Park impairments were $299.3 million and $242.4 million, all before taxes (which lowered the hit). That adds up to $687.7 million. (Maybe there's more.)
The bigger picture
That doesn't mean there isn't money to be made going forward by Greenland Forest City Partners, especially Greenland USA, and especially if terms change regarding public obligations. But it does mean that Forest City's early big investment hasn't worked out at all.
Doctoroff, by the way, suggests it was worth it on the city's end, though he doesn't grapple with predictions from the Independent Budget Office that Atlantic Yards would be a money-loser for the city.
He acknowledges that "I don't think we will ever know" whether Ratner will ever make money, but says the developer's "vision, commitment, and tenacity made the transformative project possible."
That raises the question of whether any other project, or version of this one, could have worked better--and how the changes in and around Downtown Brooklyn were driven by this project.
What went wrong?
So why did Ratner's project go wrong? Well, several reasons have surfaced (and likely there are more), including misconceiving Atlantic Yards, misjudging the market, bad luck/timing, misjudging the potential opposition, and the developer's rather loose practices.
As Chuck Ratner, Bruce Ratner's cousin and then CEO of Forest City Enterprises, said in March 2007:
We’re very good at estimating markets, we’re very good at estimating rents, at estimating lease-ups, and estimating costs. We are terrible, and we’ve been a developer for 50 years, on these big multi-use, public private urban developments, to be able to predict when it will go from idea to reality. All we know is that if we pick the right place and we’re in with the right people, that over time we’re going to create tremendous value.That didn't work this time. More recently, in December 2013, successor CEO David LaRue acknowledged a large potential impairment and expressed disappointment.
"It spotlights two of the hard lessons we've learned coming out of the recession," he said. "We need to control land rather than own it, prior to being ready to go vertical, and we need a strong capital partner up front for a project of this magnitude."
In other words, they were spending too much money on land, and carrying costs, and needed to spread the risks. Surely the pressures of a publicly traded company, with quarterly and annual results, drove some decisions.
For example, the Brooklyn Nets are now being marketed at a value of $2 billion. A deeper-pocketed, more patient owner--not that team ownership was this corporation's core competency--might have reaped value over the longer term.
Who should have blown the whistle?
"Ratner was only really guessing at the size, cost, and architecture of the project as well as the benefits to the community," Doctoroff writes of an early meeting. But public officials and agencies repeated those guesses as fact, and he was a cheerleader.
Notably, all predictions by the city and state, estimating the project's fiscal impact, presumed what we now know was an unrealistic ten-year buildout. If they had estimated a 15- or 20- or 25-year buildout, and a range of outcomes, wouldn't that have changed our perspective?
If they had contrasted a 25-year buildout for a project with an arena versus a smaller project just on the railyard but arrived faster, would that have changed our perspective?
We didn't get candor from the government. Nor did we get candor from government consultants like KPMG, which said a ten-year buildout was reasonable. (Remember, "reasonable" is that cover-your-butt term that gets a project past judicial scrutiny in New York, where the bar is "rational basis": you have to have a reason, not necessarily a convincing one.)
By contrast, real estate expert Joshua Kahr, working as a consultant for community groups critical of the project, wisely opined in 2009 that "The demand for housing units is most likely not sufficient to support a project of this scale over the next ten years."
More skepticism needed
I've been criticized for assuming Forest City would make money, even after losses. Indeed, in retrospect, I and others, however skeptical of the pace of the project and other promises, should have looked more carefully at the economics.
Early on, however, not only were boosters of the project expecting profits, so too critics expected success, as in Chris Smith's August 2006 reporting in New York magazine:
The only public documentation of profit appears to be a nearly illegible one-page form filed with the MTA labeled pro-forma cash-flow statement. It seems to show Ratner with a profit of $1 billion. Real-estate expert Jeffrey Jackson ran all the available Atlantic Yards numbers and came to the same rough conclusion. “It’s difficult to quantify the profitability of the arena,” Jackson says, “and the return will be impacted by the final mix of financing. But Ratner should make around $700 million to $1 billion—about a 25 percent return. That’s pretty good.”That figure would be echoed by Develop Don't Destroy Brooklyn (DDDB), which led opposition to the project. And the argument that Ratner's profit would be much greater than the public benefit was key to the eminent domain case organized by DDDB, though the state never measured the equation and the courts let it pass.
Over time, though, Kahr's 2009 report and project delays pointed toward skepticism. I and others certainly expressed doubt that the project would proceed as promised, and that doubt was well-founded.
But I and others were not sophisticated to consistently analyze the (estimated) numbers; nor did we have all the data to do so. And yes, the project--and, likely, its terms--will continue to change.
So this all raises questions: if public officials had known the project was this risky, and costly, would that have argued for more subsidies, or a lesser "burden" to deliver infrastructure, affordable housing, or jobs? (Already the developer has negotiated more attractive terms regarding affordable housing.)
Or, perhaps, did it mean that the risks of a large, complex project should have been more clear, and alternatives should have been considered more seriously?
And now: does this mean that Greenland Forest City, having made (or, in Greenland's case, bought into) some unwise decisions, now deserves leverage with public agencies to deliver less than what it promised? Will they cut corners?
Or will they pull more rabbits out of the hat, as with the giant tax cut they achieved for the condo building 550 Vanderbilt? (In other words, is another 421-a benefit coming?)
The interesting revelation: why not ULURP?
Doctoroff also helps us revisit another issue. Atlantic Yards backers have long said that the plurality (or, inaccurately, majority) of state-controlled land, notably the MTA's Vanderbilt Yard, meant that the project would have to be overseen by a state process, not the city's Uniform Land Use Review Procedure, or ULURP.
But that wasn't necessarily so. "Although we would eventually become masters of ULURP," he writes, "at this point not a single rezoning had been approved and internally we had doubts about pulling off all were were trying to accomplish. Because the state owned much of the land, we decided that for expediency we would skirt ULURP and take advantage of the state's seemingly speedier process. With twenty-twenty hindsight, I am positive we could have placated our opponents in negotiations and gotten the process through ULURP."
As I wrote in Gotham Gazette, he has a point. The Bloomberg administration might not have placated all opponents--after all, some wouldn't accept an arena--but surely there would have been some concessions, and City Council Member Letitia James likely would have had a voice.
That could have led to more legitimacy and more oversight for the project--and maybe someone stepping in to warn about the variables facing the project.
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