As foreclosure auction of six development sites looms, big Qs about bidders' obligation to build platform, pay MTA, & deliver affordable housing. What does NYS say?
And that means that Empire State Development (ESD), the state authority that oversees/shepherds the project, must publicly discuss its role and the guidelines and obligations it requires of whatever company (or companies) might take control from Greenland USA.
ESD did not respond to my queries yesterday. It is overdue to schedule a quarterly meeting of the advisory Atlantic Yards Community Development Corporation (AY CDC), which has mostly been toothless but on Aug. 2 asked for a report on the project's financial viability.
That would include the developer's obligation to pay $2,000 a month in fines for each affordable housing unit not delivered by a May 2025 deadline. Of the 2,250 required units, 876 (or 877) remain.
That report, requested for early October, has not been delivered.
Coordinating with MTA
Notably, any winning bidder(s) cannot simply start construction but must pay the Metropolitan Transportation Authority (MTA) $11 million a year for the next seven years for development rights over the Vanderbilt Yard. They also must construct a two-block platform over the railyard.
That implies a significant time horizon as well as major investments, on top of the obligation--assuming it's not waived--to build the affordable housing.
Uneven divisions
Moreover, the two auctions are not commensurate: one involves four development sites (B5, B6, B7, B8), which means one full platform block and part of another, while the other involves two development sites (B9, B10), over the second platform block.
That means it would be challenging for separate bidders to work together, given the need to coordinate on infrastructure.
State government as brake, or enabler?
Even more complicating, this is not simply a matter of building on private land, on terra firma.
Any bidder who also seeks to construct the platform must meet the MTA's standards.
What about the transferability of the 2025 affordable housing obligation? Is ESD prepared to waive that, or to enforce it? That would make a huge difference in the perceived value of the sites.
What does the project's guiding Development Agreement (bottom) state?
In Section 10.2 (p. 27, or the 34th page of the PDF), it states that no transfers of any equity interest in the various development entities will "be permitted without the prior written consent of ESDC" (the former name of ESD), which shall be in the authority's "reasonable discretion," provided that nothing "shall be deemed to restrict or prohibit any "Equity Interest Disposition by a Third Party Owner" as long as that buyer is not a "Prohibited Person," which includes those convicted of felonies.
(I previously argued that Barclays, which bought naming rights to the arena and admitted a felony, thus should've been struck from its role, but that was never enforced.)
While the above language suggests relatively relaxed terms regarding such transfers, if the planned auctions come with the obligation to complete the affordable housing--or even a requirement to negotiate with ESD--that implies a huge role for the state authority.
In Section 10.2 (p. 27, or the 34th page of the PDF), it states that no transfers of any equity interest in the various development entities will "be permitted without the prior written consent of ESDC" (the former name of ESD), which shall be in the authority's "reasonable discretion," provided that nothing "shall be deemed to restrict or prohibit any "Equity Interest Disposition by a Third Party Owner" as long as that buyer is not a "Prohibited Person," which includes those convicted of felonies.
(I previously argued that Barclays, which bought naming rights to the arena and admitted a felony, thus should've been struck from its role, but that was never enforced.)
While the above language suggests relatively relaxed terms regarding such transfers, if the planned auctions come with the obligation to complete the affordable housing--or even a requirement to negotiate with ESD--that implies a huge role for the state authority.
What are potential bidders being told?
The advertisements in the Wall Street Journal (right) for the foreclosure auctions, on Jan. 11, of the shares in "AY Phase II Development Company" indicate that interested parties seeking information, including requirements to be a bidder and the terms of the sale must contact the real estate firm Newmark for information, upon execution of a standard non-disclosure agreement.
However, given the significant government role in the project, there should be more sunlight:
- how are potential bidders informed about the obligation to build the platform? to pay the MTA?
- how are they informed about the obligation
- how are they expected to coordinate with, and meet minimum thresholds, to work with the MTA and also ESD?
There's a role not only for the state bureaucrats but also the elected officials--from Gov. Kathy Hochul to the state and city legislators--to deliver more transparency.
More on the deals
Note that the "Secured Parties," known as AYB Funding and AYB Funding II, are investment funds formed by contributions from immigrant investors under the EB-5 program, and under the control of the middleman, the U.S. Immigration Fund (USIF), which is run by the controversial Nicholas Mastroianni II.
The first pool lent $249 million to the project, of which a little more than a quarter has been repaid, upon sale of the B15 development lease. The second group lent $100 million to the project.
What are the chances those development rights are worth what the investors are owed? That depends on the obligations.
Is this a feint?
Note that the notice states the Security Party "reserves the right to cancel the sale in its entirety, or to adjourn the sale to a future date by announcement made at the time and place scheduled for the public sale."
That means that any state imposition or renegotiation of terms could significantly change the value of the development sites and thus delay or cancel the sale.
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