Another Atlantic Yards renegotiation is inevitable. Forest City started use of tactic. Greenland has picked it up. Plus: common Chinese business practice.

With the departure of Greenland USA's Scott Solish, and Empire State Development's Tobi Jaiyesimi, both the public faces of Atlantic Yards/Pacific Park for their respective entities, the project seems adrift.

At the same time, however, Greenland, which owns nearly all of Greenland Forest City Partners, faces a looming May 2025 deadline to deliver 2,250 units of affordable housing, with $2,000/month fines for each missing unit--as of now 876 (or 877).

But Greenland surely doesn't want to pay $1.75 million a month in fines, part of a settlement agreement announced in 2014, which set that new affordable housing deadline.

Though Solish had long said Greenland would meet its obligations, at the June 2022 meeting of the (purportedly) advisory Atlantic Yards Community Development Corporation (AY CDC), he hinted that the developer might ask ESD, the state authority that oversees/shepherds the project, for an extension or other accommodation.

ESD posture

This past April, at a meeting of the AY CDC, Director Gib Veconi asked about the fines: "What’s ESD’s position about collecting those remedies?” ESD representatives, he noted, had previously claimed that the remedies were non-negotiable.

“The project documents haven’t changed, so the requirements on the project are still the same,” the ESD's Jaiyesimi stated carefully. “We recognize where we are with the developer’s ongoing discussion with the MTA [Metropolitan Transportation Authority] as it relates to the platform… but at this time there have been no changes to the project documents, so those obligations are still standing.”

She was referring to the stalled plan to build a platform, in two stages, over the Metropolitan Transportation Authority's Vanderbilt Yard, used to store and service Long Island Rail Road trains. Each block would support three towers and, once complete, would supply the remaining project open space. 

It's unclear how much of the stall should be attributed to those MTA discussions, or whether Greenland-- whose Shanghai-based parent, Greenland Holdings Corp., faces financial strictures--is being cautious about new spending, especially given high interest rates and the absence of the 421-a tax break.

A history of renegotiation

What is clear is that Atlantic Yards has a history of changes in designers, owners, design plans, and contracts--plus, of course, a name change in 2014 to Pacific Park, nearly eleven years after the project was announced in December 2003.

After the Atlantic Yards was approved in 2006 by Empire State Development Corporation, ESD's predecessor, the project was stalled by lawsuits and the recession. Original developer Forest City Ratner in 2009 gained crucial concessions from both the MTA and the ESDC.

Surely Forest City had anticipated curveballs. Forest City was good at estimating markets, CEO Chuck Ratner told industry peers in March 2007, but "we are terrible, and we've been a developer for 50 years, on these big multi-use, public-private urban developments, to be able to predict when it will go from idea to reality. All we know is that if we pick the right place and we're in with the right people, that over time we're going to create tremendous value."

First, the MTA agreed that Forest City need not pay the full $100 million for Vanderbilt Yard development rights but merely had to pay $20 million for the parcel needed for arena construction, with the remaining $80 million payable, at an implied 6.5% interest rate, over 21 years. 

Moreover, the developer would build a seven-track replacement railyard, not the nine-track one earlier promised. 

Then ESD agreed to phase condemnation, limiting the developer's payments in the short term, allowing time for financial conditions to improve.

At that point, those were considered very good deals, but Forest City still couldn't make the project work. After failing in its plan to establish a new modular construction business, fed with Atlantic Yards towers, Forest City in 2013 announced plans to sell part of the project. 

Greenland bought 70% of Atlantic Yards, excluding the sole modular towar (B2, 461 Dean) and arena operating company. Greenland Forest City Partners built three towers together--B3, B11, B14--before Forest City declared a unilateral stall and, ultimately, gave up all by 5% of the project going forward.

The newly dominant Greenland sold leases to three parcels--B12/B13 and B15--and built B4 in partnership with The Brodsky Organization.

But there's no easy way to monetize the remaining parcels--the six development sites over the railyard, which require that platform, as well as Site 5, catercorner to the arena, where the developer since 2015-16 has floated plans to build a giant two-tower complex, which needs new state approval.

What's being negotiated?

The question then is what Greenland may be negotiating. Are they simply trying to defer the fines? Are they offering new public benefits? Are they claiming that the pandemic, as well as other factors, made it difficult to build?

We don't know yet, but it deserves transparency from the state and oversight from public officials.

And remember, the developer has long asked the state for help. After Arana Hankin, former Atlantic Yards overseer for Empire State Development project overseer, left in 2013 for a Loeb Fellowship at Harvard University, her qualms about the project surfaced, as I wrote in 2016.

"There really is no accountability," she declared in a lecture, acknowledging that project agreements were "drafted to be as complicated and obtuse as possible.” One of her roles was to determine "how ESD should respond to developer requests for additional benefits, and there were many."

A culture of renegotiation

It's worth recognizing that a China-based company likely comes with a predisposition to renegotate, as numerous experts suggest, as does Greenland's history.

Recall Greenland's willingness to renegotiate a project in London, as reported in February 2022, Greenland had suggested cutting the promised affordable housing at Spire London to make the project viable. (As far as I can tell, that project is still stalled.)

Consider Lawrence Tabak's 2021 valuable book Foxconned, subtitled "Imaginary Jobs, Bulldozed Homes, and the Sacking of Local Government," concerning the ill-fated plan, embraced by public officials in Wisconsin for Foxconn, the electronics contract manufacturer, to build a huge new job-creating factory.

Foxconn is Taiwanese, but has more operations in China than anywhere else, and is culturally Chinese.

Tabak quotes Harvard Business School professor Willy Shih, who suggests the 2018 Foxconn groundbreaking ceremony, featuring not just state Gov. Scott Walker but also President Donald Trump, was just for show.

"In China, this happens all the time," Shih said. "They even have a name for it. I'd translate it as state visit project. They announce a large project, everyone basks in the glory of the event and it remains to the economics to determine if anything gets built."

Author Tabak concludes that it was tough "to understand Foxconn's motivation and intent," given "the company's opaqueness and its seemingly shifting objectives." But Shih offers an explanation: 

He described how U.S. business leaders are like the vacationer who plots every minute of his or her trip; Chinese business leaders are the vacationers who jump into their car and just head out, open to whatever interesting prospects should emerge.

Based on Chuck Ratner's quote, some U.S. business leaders are also open to improvisation. But the upshot of that is that Greenland is steeped in that. Tabak observes, "in China, when the economic situation underlying a contract changes, terms of the contract are expected to be renegotiated."

Other citations

In  CULTURE AND NEGOTIATION:HOW TO MAXIMIZE NEGOTIATION WITH CHINESE FROM THE FRENCHPERSPECTIVE, an MA dissertation by Cyril Bazin:

Chinese post-negotiation style Chinese value more the strength of the relationship with both the negotiators and the company than the final written agreement, which is more an expression of intent. They do not feel the obligation to strictly comply with a contract and consider that both parties can renegotiate it afterwards if it is required. They consider the use of lawyers as meaningless as trust and friendship should be established between both parties.

Note that the citations are from 1996 to 2004, so things may have evolved. Then again, in China: How to negotiate and other Chinese business practices, by Marian Stetson-Rodriguez, president, Charis Intercultural Training, writes:

It is not unusual for Chinese to revisit items previously discussed and agreed upon, and try to renegotiate. If this happens, graciously enter into talks, be flexible and well prepared for what you are willing and unwilling to do, and prepare your organization that there may have to be changes.

Negotiating with the Chinese: A Socio-Cultural Analysis, a 2001 paper, Pervez Ghauri and Tony Fang quote a Swedish negotiator from the electronics firm Ericsson:

“I have worked with Ericsson in different places for 20 years. I have quite a broad negotiating experience with European, Middle Eastern and African countries. The difference between Chinese and these countries [negotiators] was that although one also has tough negotiations there, once an agreement was made the issue was clear and over. Negotiators did not call the old issue into question again. But this was not the case with Chinese. The Chinese could take up and renegotiate whatever whenever they wanted. They did not stand by what they had already said.”

In Business Negotiation Between Westerners and Chinese State-Owned Enterprises, a 2008 paper, in The International Lawyer,  Catherine (Xiaoying) Zhang notes that the signing of a contract "is still too early to feel great relief. Western firms should prepared for any after-contract renegotiation."

Fortune, in a 12/3/16 article headlined Businesses Going Into China Need to Know These Rules First, cites veteran businessman Tim Clissold, author of Chinese Rules and notes:

Other highly ranked frustrations include the Chinese tendency to renegotiate issues as well the tendency to draw out negotiations.