A closer look at the elected officials' letter on affordable housing schedule: what's role of new developers? any recourse if sponsors fail? who owns what?

My relatively short article yesterday for the Brooklyn Daily Eagle, Brooklyn lawmakers seek Pacific Park affordable housing schedule, focused on the most important element of the letter sent to Empire State Development (ESD) head Howard Zemsky by Assemblymembers Walter Mosley and Jo Anne Simon, along with state Senator Velmanette Montgomery: the need for a timetable to meet the May 2025 deadline for 2,250 affordable apartments, with a gap of some 900 units beyond those already built and expected to start this year and next.

After all, as the letter states, the project is clearly behind a 2014 tentative schedule released by developer Greenland Forest City Partners. And, as I've reported, efforts to get more transparency--in questions from the Atlantic Yards Community Development Corporation (AY CDC) to GFCP, or a proposed AY CDC resolution--have come to naught.

But I'd like to look more closely at some other elements of the letter.

The deadline and the tax abatement

The legislators wrote:

Assuming that all of the project’s remaining buildings were to contain affordable units sufficient to qualify for State tax abatement, the project would have to complete eleven buildings over the next seven years, a level of performance Atlantic Yards has not experienced since its approval in 2006.

That, of course, is unlikely. But it's also surely not the developers' plan. The 2014 tentative schedule assumed that affordable units would be delivered throughout the buildout, including in the final buildings, completed in 2025. Thus the affordable units would be completed along with the full project.

Today, it's clear that the full project won't be completed by 2025; after all, the developer has told potential condo buyers, as I reported last August for The Bridge, "the remaining buildings, and the balance of the public park, [are] projected to be completed in phases by 2035,” with even that deadline hedged.

Which means, as I reported for City Limits--based on plans shared with immigrant investors under the EB-5 program, but not shared publicly--that the developer might build a "100% affordable" building once it starts construction over the railyard, which needs an expensive platform before vertical construction. (The affordability level is unclear.)

The tax abatement issue is interesting. According to the Affordable New York page from the New York City Department of Housing Preservation and Development, regarding the revamped 421-a tax break:

The New Program is now available to projects that commence construction between January 1, 2016 and June 15, 2022, and are completed on or before June 15, 2026. Projects that commenced construction on or before December 31, 2015 also may opt into the New Program if they have not as yet received 421-a benefits.

In other words, they'd need to start buildings over the railyard by June 15, 2022, nearly three years before the affordable deadline. That might be heavy lift, though it's possible to "start" construction with very preliminary work, thus meeting a deadline. And not impossible to think that the tax break will be extended or renewed.

The issue of transferred development rights

From the letter:

We are therefore concerned that the 2025 deadline for completion of Atlantic Yards’ affordable housing may not be met. As you are aware, under the amended project agreements with Empire State Development, GFCP, Greenland USA and FCRC are subject to liquidated damages of $2,000 per month for each apartment that is not completed by the deadline. We understand that GFCP intends to transfer the rights to Atlantic Yards development sites B12, B13 and B15 to third parties. We further understand that while the development rights may be transferred to others, the obligation for completion of the required affordable housing will continue to rest with GFCP, Greenland USA and FCRC, as will liability for damages under the project agreements. 

We would therefore appreciate your response to the following questions, including documents about the transfer of interests between FCRC, GFCP, Greenland USA, TF Cornerstone, and the Brodsky Organization:

How many apartments promised?

From the letter:

1) What number of affordable apartments has been committed by the transferees to be included in buildings on lots B12, B13 and B15, and how will ESD enforce that commitment?

This answer we don't quite have yet, but we do have information, for example, from the most recent meeting of the AY CDC about planned affordability in B15 and also B4 (not mentioned in the letter):

The B12 and B13 buildings have been said to be at least 25% affordable, so 200 of some 800 units, but that hasn't been locked down, at least not publicly, in part because the buildings haven't started.

The affordability percentage likely would be memorialized in subsidy documents signed not by Empire State Development but by city housing officials. Those could be made public. Stay tuned.

Indemnifying the sponsor?

The letter asks:

2) Are the transferees expected to indemnify GFCP, Greenland USA and/or FCRC for liquidated damages resulting from their failure to fulfill commitments for affordable apartments in the buildings they construct, and will ESD be an additional indemnified party?
3) What other provisions to ensure fulfillment of Atlantic Yards’ affordable housing commitments will be included in the transfer agreements?
4) Will the terms of the transfer agreements be provided to the Atlantic Yards Community Development Corporation (AYCDC) for review in advance of the closing of such transfers?

These are versions of questions raised by AY CDC member Gib Veconi at the last meeting, as I reported.

"So I would like to, one, say, that the agreement they have with TFC and the agreement they have with Brodsky, once they close, they are more than welcome to share that with the directors," ESD executive Marion Phillips said at the meeting, as I reported at the time.

Does the state have ability to demand performance on affordable housing?"

"The gist of it is this: the recourse is not with the partners receiving the assignment, the recourse is with Greenland," Phillips said. "And we have a completion guarantee from both of the partners... that is how we became comfortable."

"But I believe the larger part of this conversation is more legal and technical" than he was capable of having, he added, promising to provide the assignment of lease documents.

"We don't need a motion," Veconi concluded. "Does the completion guarantee [for each building] also speak to the delivery of affordable units, or just the completion of the building? Would the completion guarantee cover just the creation of x number of units... or x number of units including the percentage of affordable?"

"The completion guarantee is per building," Phillips said. "I guess your question is asking me: is the completion guarantee on the 2,250 units?"

"For any percentage of affordable units in each of those buildings," Veconi responded.

"It is for the completion of that building, based on the program that has been assigned to that building," Phillips said.

"So, the completion guarantees guarantees not only that building will be physically constructed, but it guarantees that a specific number of affordable units will be provided in it?" Veconi asked.

"Correct," Phillips said.

"OK, then I think all we need to see is the completion guarantee," Veconi said.

Phillips said that ESD would provide that document to the board.

Stay tuned.

Any ESD recourse if developers fail?

From the letter:

5) If the required 2,250 affordable apartments are not completed by 2025 and GFCP, Greenland USA and/or FCRC is then insolvent, what recourse for liquidated damages will ESD have to transferees whom have received development rights? What other recourse would ESD have for collection of damages?

That's a very interesting question. After all, if the sponsors have no assets, they can't pay damages. But if the transferees deliver the required fraction of affordable units, they wouldn't be on the hook, either.

There are--I speculate--potential ways to ensure some public recourse. For example, contracts could be revised to give the state some percentage of already-constructed buildings or--perhaps more likely--a percentage of the future project to be built at Site 5.

After all, the transfer of development rights from the unbuilt "Miss Brooklyn" tower to Site 5 will require a public process.

New developers project sponsors?

From the letter:

6) Are GFCP, Greenland USA, TF Cornerstone, Brodsky Organization, and other transferees of FCRC’s rights in the Atlantic Yards project considered “project sponsors” under the terms of the June 25, 2014 letter [bottom] from ESD to Fifth Avenue Committee, Inc. and Prospect Heights Neighborhood Development Council?

That was the letter before Forest City sold 70% of the project going forward to Greenland, forming  Greenland Forest City Partners. I suspect that the latter (today mostly owned of Greenland USA, with 5% ownership from Forest City, now owned by Brookfield) can be defined as "project sponsors," while the new developers are not. But clarification would be very useful.

Continued developer obligations

From the letter:

7) Will GFCP, Greenland USA, TF Cornerstone, and Brodsky Organization assume any of FCRC’s obligations under the terms of the 2014 settlement and, if so, which obligations?

Presumably GFCP, at least, as sponsor must assume the obligation to build 2,250 affordable units. A more interesting question is whether the developer will be required to maintain 35% affordable units throughout the project, especially if--not mentioned, but surely on the radar--the number of total units is increased because of the anticipated development at Site 5.

Several variations, one with office and hotel use, but two others with significant residential space, were floated in 2016 plans for Site 5.

Who owns what?

Another important question from the letter:

8) What are the current percentages of ownership held by FCRC, GFCP, and Greenland USA in the Atlantic Yards project, and what will be the ownership percentages be following the closing of the rights transfers that have been announced?

Presumably the ownership percentages held by GFCP have diminished because of the four development leases involving TF Cornerstone and The Brodsky Organization. And one of those leases may not be in full.

In closing

The letter notes:

We note that Greenland USA, which now owns 95% of GFCP, is actively marketing its interest in uncompleted development projects in Los Angeles and San Francisco, and its parent company is in the process of issuing short-term high-yield debt to finance operations. Under these circumstances, and with Atlantic Yards’ affordable housing deadline growing nearer, there may be additional rights transfers in the future. The present proposed transfers will set a precedent for others that may come later, and as such, we believe it is critical to ensure that the public’s rights in Atlantic Yards’ affordable housing are protected to the greatest extent possible.

In other words, the current deals may be just a warm-up for future plans, including at Site 5.

Legislators Letter to Zemsk... by on Scribd

Empire State Development At... by on Scribd