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Atlantic Yards/Pacific Park graphic: what's built/what's coming + FAQ (pinned post)

If B4 tower arrives in 2023, that should trigger damages for delay (perhaps $1.65M). Would the developer have to pay?

The B4 tower (18 Sixth Avenue) flanking the Barclays Center is due April 2023, at least according to the signs (right) on the construction scaffolding.

Such signs can be optimistic, since construction typically takes longer than anticipated.

Still, even an April 2023 completion might pose trouble for developer Greenland Forest City Partners, since that would be nearly one year later than project documents require before penalties kick in regarding a quota of square footage for the arena block.

Whether those fines--which I estimate below at $1.65 million minimum--would be enforced is another question. After all, the guiding project documents have already been changed multiple times.

Could they meet the deadline?

Alternatively, perhaps the sign's in error. In April, the developer told the New York Post's Steve Cuozzo that the $640 million tower would be finished sometime in 2022. The deadline is 5/12/22. Perhaps that could be met with (more) after-hours work, though maybe the extra cost would dwarf the potential fines.

(I queried the developer about the timing of the tower and the potential fines, but didn't get a response.)

Substantial completion by May 12, 2022

According to the guiding Development Agreement (below; excerpt at right), the developer is required to "Substantially Complete" improvements on the Phase 1 Property--the arena block and Site 5--covering at least 1.5 million square feet within 12 years after the Project Effective Date, which was 5/12/10.

That makes the Outside Phase 1 Substantial Completion Date 5/12/22.

They can't meet that minimum required square footage without B4, the third of three towers (of five, potentially) to be built in Phase 1.

To reach 1.5 million square feet, the already constructed B2 (461 Dean Street, 380,687 square feet) and B3 (38 Sixth Avenue, 343,632 sf) must be joined by the giant B4, expected to contain up to 824,629 sf.

The maximum square footages in the three towers add up to nearly 1.55 million square feet, as noted in the document excerpted at right.

(Remember, the B1 tower likely won't be built, and its bulk is expected to be shifted to a two-tower project at Site 5, currently home to P.C. Richard and Modell's, but that process needs state approval, and hasn't even started. So completion of a new tower by May 2022 at Site 5 seems very unlikely.)

The formula for the penalties

The penalties, involving some maddeningly complex calculations, are described in the documents below: the City Funding Agreement and State Funding Agreement, both signed in 2007 regarding subsidies, and later the guiding Development Agreement, signed after the project received official approvals from Empire State Development (ESD) in December 2009. (ESD is a state authority.)

According to the City Funding Agreement, if Phase 1 is not substantially completed by the Phase I Outside Date, putting aside Unavoidable Delay, the initial calculation of damages will involve a formula incorporating three elements:
  • 2% as of the Outside Date ("Phase I Base Multiplier"), which goes up by 1% a year for three years, and later increases. This crucially, is keyed to the date of original subsidy disbursement
  • the Phase I Completion Multiplier, which is one minus a fraction calculated with the numerator (top of the fraction) being the number of gross square feet in excess of 750,000, and the denominator of 750,000
  • the number in Column C
That latter number is $55 million, less than one-third of the city direct subsidies, which are $179 million or $171.5 million, according to the city, or $205 million, as claimed by the developer.

Perhaps the $55 million acknowledges that a large portion of the city subsidies, $131 million, were to reimburse purchases of land to primarily build the arena. (That said, some of those parcels included sites later slated for tower construction.)

A sample calculation is at right, from the City Funding Agreement, involving a Completion Multiplier of 53.3%. But that's not the case here.

Attempting calculation

The Completion Multiplier would be simple to calculate in the current case. Its numerator would be zero, since the square footage in two towers already built is less than 750,000 square feet. The Completion Multiplier would equal 1, since it's 1 minus a fraction that is zero.

So, would the calculation then be 2% of $55 million, or $1.1 million that first year? Only if 5/12/22 represents Year 14, or 14 years after the first disbursement of city subsidies. But it doesn't.

According to the later Development Agreement, at bottom, all disbursements are assumed to have been made by 9/12/07, with Year 0 meaning 2/22/08. That means that Year 1 would end 2/21/09, and Year 14 would end 2/21/22.

That suggests that, as of the Outside Date, 5/12/22, the project would be in Year 15, and the calculation would be 3% of $55 million. That's $1.65 million. Not an insignificant sum, but also slight in comparison to the tower's overall cost.

If Phase I is not substantially completed on time, the developer is supposed to deliver an irrevocable letter of credit, factoring in  three potential years of damages.

State Funding Agreement

Are there state penalties, as well? According to the State Funding Agreement (below), if Phase 1 is not completed within 12 years of the Effective Date, subject to Force Majeure, the developer must repay "a portion, to be established in the Project Documentation, of State Funding Payments previously paid to Developer by ESDC with Interest and pay Liquidated Damages as set forty in the City Funding Agreement."

What's the repayment amount? A "portion of the 25% of State Funds, for the purpose of remedies, to be allocated to Phase 1."

The state contributed $100 million. So, would some percentage of the $25 million subset would be due? Despite the above language, no such provisions are in the Development Agreement, as far as I could tell.

Development Agreement 

Does the Development Agreement (further below) impose separate penalties? Not for Phase 1 delay.

According to the Development Agreement, there were to be penalties if certain buildings didn't start by specific deadlines. But those deadlines have been met.

In the Event of Default, ESD (see p. 42 in second-to-last document), should be paid liquidated damages by the developer, according to Schedule 3.

The final document, Schedule 3, describes such liquidated damages. However, in the case of a default under Section 17.1(l), which covers Phase 1 delay, Schedule 3 imposes no specific damages payable to ESD. Rather, it cites liquidated damages payable to the city, reflecting the process previously detailed in the City Funding Agreement.

There's no reference to paying back a portion of the 25% of State Funds, as cited in the State Funding Agreement.

What about the Urban Room?

Remember the much-touted Urban Room, the atrium in the B1 tower, once planned to loom over the intersection of Atlantic and Flatbush avenues? Well, the tower won't be built, so neither will the Urban Room.

The Development Agreement contains monthly penalties, adding up to $10 million over one year, related to 17.1(k), if the Urban Room is not built by the Outside Phase 1 Substantial Completion Date, 5/12/22.

Given that the arena plaza seems permanent, there won't be an Urban Room. Perhaps they'll make the argument that the plaza is a substitute of sorts. If so, the terms of the penalties might change, if they have not already.

If so, that leads to another question: will the terms change, or be enforced, regarding the delay in B4?