Trump SoHo tale of inflated condo sales suggests Atlantic Yards echoes (misleading sales figures, phantom $1 taxes)

In How Ivanka Trump and Donald Trump, Jr., Avoided a Criminal Indictment, a collaboration between The New Yorker, ProPublica, and WNYC published 10/4/17, we learn a very troubling story.

As Andrea Bernstein, Jesse Eisinger, Justin Elliott, and Ilya Marritz reported, the Manhattan District Attorney’s office pursued but ultimately dropped an investigation into whether the Trump children criminally misled potential buyers in the Trump SoHo, a condo hotel:

The evidence included e-mails from the Trumps making clear that they were aware they were using inflated figures about how well the condos were selling to lure buyers.

What were the statistics? From the article:

Business was slow, but the Trump family claimed the opposite. In April, 2008, they said that thirty-one per cent of the condos in the building had been purchased. Donald, Jr., boasted to The Real Deal magazine that fifty-five per cent of the units had been bought. ...None of that was true. According to a sworn affidavit by a Trump partner filed with the New York Attorney General’s office, by March of 2010, almost two years after the press conference, only 15.8 per cent of units had been sold.

Buyers who sued in civil court sparked the criminal investigation:

They believed that Ivanka and Donald, Jr., might have violated the Martin Act, a New York statute that bans any false statement in conjunction with the sale of a security or real estate. Prosecutors also saw potential fraud and larceny charges.... 

But in real estate, the truth doesn't count: 

...The defense team acknowledged that the Trumps made some exaggerated statements in order to sell the units. But this was mere “puffery”—harmless exaggeration. Such language, they contended, didn’t amount to criminal conduct. 

(Also see Jack Shafer on America's First Real Estate Presidency.)

Ultimately, though, the civil suit was settled, and the buyers stated the defendants had not violated criminal laws. That helped undermine the criminal case. Also, defense lawyers argued that prosecutors had more important things to focus on.

There's also the curious role of Trump's personal lawyer, who went directly to District Attorney Cyrus Vance, Jr., and later both made a major campaign contribution and hosted a fundraiser. Vance is giving that contribution back. Not that it wasn't legal to accept it in the first place.

Atlantic Yards echo: condo sales figures and KPMG

The article provoked some Atlantic Yards/Pacific Park echoes. As I wrote in May 2010, a key document relied on by Empire State Development Corporation (now ESD), the state authority overseeing/shepherding Atlantic Yards, to assert that a ten-year project buildout was realistic was a market study by consultant KPMG.

As state Supreme Court Justice Marcy Friedman wrote in her 3/10/10 decision, "KPMG concluded that FCRC's residential absorption rate estimates were supported by current market data for condominiums..."

As I wrote, the estimates were not supported by current market data, because the market data was a lie. As I wrote 3/30/10, while KPMG said that as of August 2009 the Oro condo development had sold 75% of its units, a 3/29/10 press release indicated that the development had finally reached the halfway mark. 

And a New York Times article demolished KPMG's claims regarding 75% sales of Richard Meier's One Prospect Park, stating, "While the developers say half of the building’s 99 units have been sold, the real estate Web site StreetEasy.com documents only 25 closings through public records."

That Oro press release was cited in the motion to reargue filed by petitioners in the case challenging the project's re-approval and failure to study an extended buildout. In response, the ESDC deemed the Oro information as an "alleged inaccuracy" and called it "far too trivial to warrant reargument," given that no evidence showed it was material to either KPMG's conclusions or ESDC's decision:

Assuming the accuracy of the internet press release cited by petitioners, the recent surge in condominium sales at this 303-unit luxury building in downtown Brooklyn well illustrates the robust demand for market-rate units in the area, even in today's tough economic climate.

Actually, as I noted, it illustrates the robust demand for market-rate units at a 25% discount, as Crain's had reported.

Ironically enough, condo prices have risen well beyond those predicted by KPMG. However, that likely reflects rising costs as much as anything, because the rising prices, in a time of glut, have most assuredly not led to a fast buildout. The year 2019 is just around the corner. 

The best-case scenario of Atlantic Yards/Pacific Park is 2025, given the stated deadline (with loopholes) for affordable units, but Forest City, after announcing an unspecified pause last November, has a financial model that extends until 2035, which implies construction completion not long before then.

Atlantic Yards echo: condo sales figures for 550 Vanderbilt

The statements regarding the condo building 550 Vanderbilt were not as immediately dubious as the KPMG report, but presented in rather misleadingly impressive light. As I wrote in July 2016, first quoting the Real Deal:

Nine months after officially launching sales, Pacific Park Brooklyn’s first condominium building is 50 percent sold, the developer said.

However, nine months earlier, when the sales gallery opened, it was more than 30% sold, which meant the nine-month sales growth was actually fairly modest. The press release stated:

Since 550 Vanderbilt launched pre-sales in June, more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences. The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn, and at Greenland Forest City Partners’ 22-acre Pacific Park Brooklyn...

Actually, the "strong response from the marketplace" significantly reflects interest in China, where Greenland Holdings has a customer base that includes millionaires eager to move some money out of the country and where pre-sales of "international units" began.

Atlantic Yards echo: claims of $1 taxes for 550 Vanderbilt units

As I wrote in City Limits 10/23/17, regarding the astounding maneuver to lower taxes (and thus the cost of ownership) at 550 Vanderbilt:

Even more strangely, after Greenland Forest City Partners in July announced a new real estate broker for 550 Vanderbilt, advertising for 550 Vanderbilt condos on the three web sites–550Vanderbilt.com, new broker Nest Seekers International, and the database StreetEasy–for weeks claimed owners would owe just $1 in monthly taxes, not the newly-shrunken figures disclosed in the developer’s documents.
When queried about this in July, the developer and broker didn’t respond. The $1 tax deal lasted for weeks on both Nest Seekers and StreetEasy, and still appears on 550Vanderbilt.com today, well after this reporter’s second round of inquiries.

Guess what--it's more than a month later, and 550Vanderbilt.com, while it has corrected the tax figures in units still up for sale, still, in a few cases, lists $1 taxes for sold units.

How is that OK? As I wrote on this blog 10/24/17:

The Attorney General’s office, after ignoring multiple queries, finally said it “cannot comment on any potential or ongoing investigations.” (Maybe, maybe not.) But the applicable state law--“All assertions of fact in advertisements must be demonstrably true"--sure seems to justify official attention.

The next big Atlantic Yards/Pacific Park story?

It's taken a while since the December 2014 groundbreaking for 535 Carlton for most journalists and observers to wake up to the fact that the housing wasn't too affordable.

Maybe it will take less time for them to notice the 421-a tax maneuver saving enormous amongs of money without providing any new affordable units. As I wrote on this blog 10/24/17:

Collectively, the building's nine most expensive apartments, listed at prices from $3.45 million to $7.715 million, would see their annual taxes shrink from $302,116 (a nearly 25% discount off taxes without 421-a) to $12,445, a 97% discount.
The dramatic increase in annual savings actually undercounts the overall benefit, because the earlier tax exemption would last only 15 years, stepping down over the last four years, while the new version would last 25 years, with a four-year phase out. All told, those nine units should collectively save nearly $8.8 million in taxes over 25 years thanks to the tax break, by my calculation, which is $7.5 million more than in the earlier iteration of 421-a.