The future of Atlantic Yards/Pacific Park: extend, pretend, and find some new friends? New York State has an affordable housing deadline to enforce--or not.

Way back in December 2010, in my "Anatomy of a Shady" deal series on the first--of three--efforts to raise cheap capital for Atlantic Yards, I wrote about the expected uses for the expected $249 million in EB-5 financing from would-be immigrants from China gaining visas in exchange for a purportedly job-creating investment.

While original developer Forest City Ratner claimed "much" of the money would help build a new rail yard, some might help pay off land loans.

As I wrote, evidence suggested that the primary goal would be paying off land loans, thus arresting a cycle known in the real estate industry as "extend and pretend" (or sometimes "pretend and extend"), in which borrowers are simply given more time under the hope that the situation will improve.

Well, it did improve, thanks to that $228 million (not $249 million), and investors in the Brooklyn ts Brooklyn Arena and Transportation Infrastructure Project were, as I wrote in January 2020, ultimately paid back, some eight-and-a-half years after the loan closed.

That stretched the original plan for a five-year maturity date and a two-year forbearance period, but perhaps the documents were amended.

Finding new friends

Back in 2010, I called the manuever one for the annals of real estate lending: "Extend, pretend, and find some Chinese friends." The latter were the individual EB-5 investors.

Beyond that, Forest City in 2013 found some different Chinese friends, Greenland Holding Corp., owned significantly by the government of Shanghai, to buy 70% of the project going forward, excluding the arena company and the first tower, B2 (aka 461 Dean St.), via its U.S. subsidiary, Greenland USA.

The Greenland Forest City Partners joint venture built three towers together until Forest City's parent company, then called Forest City Realty Trust, called a unilateral pause on future construction. A year later, Greenland USA had taken over all but 5% of Forest City's share.

Finding more friends

That left Greenland on the hook to finish the new railyard and build the crucial platform to support six new towers. 

Greenland raised money by selling three terra firma development sites, to local developers TF Cornerstone and The Brodsky Organization, and partnered with Brodsky on a fourth site, B4, which became the 18 Sixth Ave. (aka Brooklyn Crossing) tower.

It seemed ready to start the platform last year but stalled. Was it simply the need to negotiated terms with the Long Island Rail Road? Or was it the parent company's credit crunch, the loss of the 421-a tax break, and the rising cost of borrowing?

Needed: new friends

Now the Greenland-dominated joint venture faces a May 2025 deadline to deliver 876 (or 877) more affordable apartments, with, at least on paper, onerous $2,000/month fines for each missing unit, to be directed to an affordable housing trust fund.

Surely Greenland does't want to pay, and might claim--as contracts might be interpreted to allow--an "unavailability" of subsidy.

Or Empire State Development (ESD), the gubernatorially-controlled state authority that oversees/shepherds the project, will exercise a "right to refrain" from enforcement for a certain period of time, invoking COVID-related delays and financial challenges.

In other words, in this case, ESD might be in somewhat the same position as a lender, deciding not to enforce a contract because it believes its counter-party is not yet in a position to fulfill it--and that conditions might improve. That could mean Greenland taking on a new partner, or selling its stake.

Not so simple

But this is no ordinary "loan" and ESD is no private lender. The damages are a contractual provision aimed to deliver below-market "affordable" housing, a public benefit in part, on a timetable that, when set in 2014, was already delayed.

(Even though the four most recent towers have had 30% middle-income housing, which hardly serves those who advocated for the project, such apartments are not as lucrative for developers as market-rate housing. It's a separate issue as to why the state allowed such a loose definition of "affordable housing.")

If the ESD considers an extension, that would mark an end to previous pretending--by both authority and developer--that the developer would meet its obligations. 

And it would require ESD to acknowledge that it prioritizes developer flexibility over publicly stated obligations. 

If so, elected officials, from the governor on down, shouldn't roll over. It's up to local officials and civic groups to keep the pressure on, but any gesture of flexibility toward the developer should, reciprocally, trigger more transparency, more oversight, and more future public benefit.