Did New York City ever get paid for development rights at Site 5? If building didn't start by May 2020 (& it didn't), developer had to forfeit rights, or pay.
Recently we've been reminded of lingering clauses in official Atlantic Yards documents that seem to have been forgotten by the government officials required to enforce them, such as the 5/12/22 deadline to build the Urban Room, with a potential $10 million penalty for delay--unless it's waved away by a renegotiation and amendment.
As I wrote in 2019, a previously undisclosed appraisal suggested that the payment would be just $800,000, plus--from my reading of the City Participation Agreement--3% interest calculated for more than 12 years. That should easily exceed $1 million.
Why such a small total? Well, the appraisal assessed the parcel disregarding the state's initial override of zoning for a larger building, then subtracted the developer’s expected costs.
2010 assessment
According to the appraisal, Site 5 was said to have 323,598 square feet of development rights overall, given a 1.24 acre parcel (53,933 square feet) and a buildable Floor Area Ratio (FAR) of 6, meaning a multiple of a fully built-out parcel.
The appraisal calculated the costs to achieve the exit of the two retailers, and subtracted that from the overall value of the then unencumbered buildable square footage. Those costs were estimates, so it's not clear whether they remain part of a revised assessment.
The overall value, $35.6 million, assumed $660 per square foot of land, or about $110 per buildable square foot. However reasonable in 2010, that seems generous in hindsight, given that the price per buildable square foot for the project and other sites nearby has steadily risen.
More importantly, as with the other city properties assessed, the appraisal assumed the zoning that existed before Atlantic Yards emerged.
That means it ignored that ESD, overriding city zoning, had already permitted at Site 5 a building with 439,050 square feet, about one-third more than current zoning allowed.
That suggests another $12.7 million in appraised value, even at the modest $110/psf. (Again, that does not assess the value of the potential transfer from B1.)
After all, a separate appraisal conducted by the Metropolitan Transportation Authority for its Vanderbilt Yard development rights used the expected future bulk, not the current buildable square footage.
The contours of the deal
An 11/19/15 email from Winthrop Hoyt (an executive at original developer Forest City) to NYC EDC’s Jeffrey Nelson (and copied to colleagues at Forest City and Greenland USA) set out the deal, shortly before Forest City, then an active minority owner in Greenland Forest City Partners, started pursuing the new Site 5 plan.
“I wanted to give you some background as to the agreement that we reached with EDC on this topic some time ago,” Hoyt wrote. “The City owns the development rights above the current buildings on Site 5 – approximately 270,000 sf based on the underlying zoning. The City agreed to contribute these development rights, as well as certain other properties and benefits (e.g, certain streets, two parcels on the arena block, PILOT benefits, etc.), to the project.”
CBRE, the appraiser agreed on by both parties, completed the retrospective appraisal on 6/29/12.
The appraisal used comps from 2009—a DUMBO site selling for $97.73 per buildable square foot, a Downtown Brooklyn/Boerum Hill site selling for $112.96 psf, a Williamsburg site for $98.35 psf, and a Downtown Brooklyn site for $95.32 psf.
As noted, that resulted in a price of about $110 per buildable square foot.
Deducting costs
“The agreement,” wrote Hoyt, “also contains a provision calling for payment to the City if the developer fails to start construction of the project by May 12, 2020. In that scenario, we would either pay the City the value of the development rights or forfeit them back to the City."
Did that happen? We deserve an update.
Another is a requirement I wrote about in November 2019: how developer Greeenland Forest City Partners (GFCP) faced a 5/12/20 deadline—ten years after the project Effective Date, 5/12/10—to start construction at Site 5, longtime home of the big-box stores Modell's (now closed) and P.C. Richard.
If not, the developer had to either pay New York City for its retained development rights or give up those rights, according to a document known as the Atlantic Yards City Participation Agreement.
Construction, of course, has not started at Site 5; the developer has proposed--but not yet started--a plan to move most of the bulk of the unbuilt B1 tower (aka "Miss Brooklyn"), once slated to loom over the arena at Atlantic and Flatbush avenues, across Flatbush.
That requires approval by Empire State Development (ESD), the state authority that oversees and shepherds the project. The bulk transfer, and the lengthy public process needed to approve it, was delayed by a lawsuit by P.C. Richard, since settled.
The developer surely has not given up those rights, but there's no evidence of any payment, nor any public discussion of the issue. I haven't gotten any clarity from those who should know.
The developer surely has not given up those rights, but there's no evidence of any payment, nor any public discussion of the issue. I haven't gotten any clarity from those who should know.
Site 5 plans
I first wrote about the Site 5 proposal for City Limits in July 2016: GFCP had floated plans to super-size the tower already approved at Site 5 to a potential Floor Area Ratio (FAR) of 23.5, nearly double that of the Downtown Brooklyn rezoning. (FAR is a multiple of bulk compared to lot coverage.)
It also would preserve the plaza, an important safety valve for arena operations.
What next?
After I first wrote about the development rights issue, I filed a Freedom of Information Law (FOIL) request with the city. My request--like many others from me and other journalists--is still pending.
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| From both 2016 Greenland Forest City Partners' presentations |
What next?
After I first wrote about the development rights issue, I filed a Freedom of Information Law (FOIL) request with the city. My request--like many others from me and other journalists--is still pending.
In November 2019, I wrote that perhaps the city might not get paid. After all, no developer wants to pay extra money. (See: the Urban Room issue.)
As I wrote in 2019, a previously undisclosed appraisal suggested that the payment would be just $800,000, plus--from my reading of the City Participation Agreement--3% interest calculated for more than 12 years. That should easily exceed $1 million.
Why such a small total? Well, the appraisal assessed the parcel disregarding the state's initial override of zoning for a larger building, then subtracted the developer’s expected costs.
2010 assessment
According to the appraisal, Site 5 was said to have 323,598 square feet of development rights overall, given a 1.24 acre parcel (53,933 square feet) and a buildable Floor Area Ratio (FAR) of 6, meaning a multiple of a fully built-out parcel.
The overall value, $35.6 million, assumed $660 per square foot of land, or about $110 per buildable square foot. However reasonable in 2010, that seems generous in hindsight, given that the price per buildable square foot for the project and other sites nearby has steadily risen.
More importantly, as with the other city properties assessed, the appraisal assumed the zoning that existed before Atlantic Yards emerged.
That means it ignored that ESD, overriding city zoning, had already permitted at Site 5 a building with 439,050 square feet, about one-third more than current zoning allowed.
That suggests another $12.7 million in appraised value, even at the modest $110/psf. (Again, that does not assess the value of the potential transfer from B1.)
After all, a separate appraisal conducted by the Metropolitan Transportation Authority for its Vanderbilt Yard development rights used the expected future bulk, not the current buildable square footage.
The contours of the deal
An 11/19/15 email from Winthrop Hoyt (an executive at original developer Forest City) to NYC EDC’s Jeffrey Nelson (and copied to colleagues at Forest City and Greenland USA) set out the deal, shortly before Forest City, then an active minority owner in Greenland Forest City Partners, started pursuing the new Site 5 plan.
“I wanted to give you some background as to the agreement that we reached with EDC on this topic some time ago,” Hoyt wrote. “The City owns the development rights above the current buildings on Site 5 – approximately 270,000 sf based on the underlying zoning. The City agreed to contribute these development rights, as well as certain other properties and benefits (e.g, certain streets, two parcels on the arena block, PILOT benefits, etc.), to the project.”
CBRE, the appraiser agreed on by both parties, completed the retrospective appraisal on 6/29/12.
The appraisal used comps from 2009—a DUMBO site selling for $97.73 per buildable square foot, a Downtown Brooklyn/Boerum Hill site selling for $112.96 psf, a Williamsburg site for $98.35 psf, and a Downtown Brooklyn site for $95.32 psf.
As noted, that resulted in a price of about $110 per buildable square foot.
Deducting costs
Hoyt explained in an email, “The appraisal accounted for the appropriate value deductions that would be required to realize the value of the City’s air rights, namely, the buyouts of the fee interests of both Site 5 parcels (occupied by Modell’s and PC Richard), the cost of buying out Modell’s long-term lease, and certain development cost premiums caused by the site’s environmental status and proximity to multiple subway lines.”
So significant sums were subtracted from the $35.6 million total: $13.7 million to buy out P.C. Richard, an owner of one lot, plus $10.2 million—$6.7 million plus $3.5 million—to buy out Modell’s, a tenant. That totals $23.9 million. As noted, those are estimates.
The cost “associated with the Subway related infrastructure has been provided to us and totals $10,900,000," the appraisal stated. "We have not done any independent verification of this figure as it has reportedly been agreed upon by both parties to this transaction."
So significant sums were subtracted from the $35.6 million total: $13.7 million to buy out P.C. Richard, an owner of one lot, plus $10.2 million—$6.7 million plus $3.5 million—to buy out Modell’s, a tenant. That totals $23.9 million. As noted, those are estimates.
The cost “associated with the Subway related infrastructure has been provided to us and totals $10,900,000," the appraisal stated. "We have not done any independent verification of this figure as it has reportedly been agreed upon by both parties to this transaction."
What about now?
Does those figure hold? The cost of infrastructure surely has risen. So that could, potentially, wipe out the development rights' value of $800,000, before interest.
As I wrote in 2019, if this deal were renegotiated or recalculated today, the numbers would change. The value per square foot would be much higher, based on current valuations. But the costs also would be higher. It doesn't seem fair to increase the costs without increasing the valuation.
As I wrote in 2019, if this deal were renegotiated or recalculated today, the numbers would change. The value per square foot would be much higher, based on current valuations. But the costs also would be higher. It doesn't seem fair to increase the costs without increasing the valuation.
“The agreement,” wrote Hoyt, “also contains a provision calling for payment to the City if the developer fails to start construction of the project by May 12, 2020. In that scenario, we would either pay the City the value of the development rights or forfeit them back to the City."
Did that happen? We deserve an update.
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