No talk of Atlantic Yards at ESD meeting, but advisory body may meet soon. Foreclosure sale would be part of complicated process to unlock development sites.

The board of Empire State Development (ESD), the state authority that oversees/shepherds Atlantic Yards/Pacific Park, held its monthly meeting yesterday, and the project was not on the agenda.

Nor was it discussed during the meeting.

That sets up the possibility that loan collateral, rights to six development sites over the Vanderbilt Yard, nearly all the parcels in the remaining project--might be sold in a foreclosure auction Jan. 11 without any public discussion of conditions on the sale.

Or, perhaps, maybe not.

ESD has issued only an anodyne statement:

“Governor Hochul’s highest priority is expanding New York’s housing supply and promoting housing growth, and Empire State Development is focused on the successful buildout and completion of this project. We are currently reviewing the situation and are working to determine the best path forward.”

What about the advisory body?

This would seem like a time to involve the Atlantic Yards Community Development Corporation (AY CDC), the (purportedly) advisory body announced in June 2014, whieh is supposed to meet to quarterly but has not kept that schedule.

Its last meeting was in August, when board members voted to request, by Oct. 3, a financial analysis of the project's future. Another board member asked for a report on the affordable housing that's been delivered so far. Neither have been delivered.

As stated in the 2014 letter (bottom) announcing its establishment, AY CDC is charged with some relevant responsibilities:

• Reviewing proposed changes to Project plan and agreements, and advising ESD board accordingly in advance of votes; 
• Monitoring developer compliance with all public commitments;
• Making recommendations to ESD on ways to improve and expedite developer responsiveness to public obligations and increase transparency of Project deveiopment;
• Developing recommendations related to the Project, including in relation to unanticipated issues

The foreclosure sale surely qualifies as an "unanticipated issue."

I asked if such a meeting has been scheduled. "We’ll hold an AYCDC meeting early in the new year," I was told by an ESD spokeswoman. That could be January, or not.

What next?

That could mean that the AY CDC will be asked to weigh in on a potential renegotiation. Remember, master developer Greenland USA is obligated to deliver 876 more units of affordable housing by May 2025 and face $2,000/month fines for each missing unit.

Surely a potential bidder on development rights, owning a share--or a majority?--of the Greenland affiliate that would formally remain master developer, would want to know whether and how that obligation would be imposed.

Moreover, who's responsible for building the platform, in two phases, over the Metropolitan Transportation Authority's railyard?

Those questions shadow any potential sale.

Complicated process

The foreclosure sale involves the collateral for two separate loans, $249 million and $100 million, made by immigrant investors from China under the EB-5 visa program, which offers green cards in exchange for purportedly job-creating investments.

The advertisement at right from the Wall Street Journal refers to the first of the two loans. 

It involves DBD AYB Funding LLC, Administrative Agent for both itself and AYB Funding 100, the investment pool that aggregated $249 million in EB-5 loans.

Both are affiliates of the U.S. Immigration Fund, a so-called regional center that serves as a middleman for EB-5 loans, marketing mainly--at least as of 2014--to investors in China. (Its founder has a "tangled past," said Fortune, which could've been even tougher.)

For sale is AYB Funding's Class A limited liability membership interests in AY Phase II Development Company, an affiliate of Greenland USA.

That constitutes collateral for the loan. The principal asset of those membership interests are the parcels identified as B5, B6, B7, and B8 over the railyard.

The collateral will be sold to the highest qualified bidder, though the seller reserves the right to cancel or postpone the sale.

(A similar advertisement and sale involves AYB Funding 200, which aggregated $100 million in EB-5 loans, with interest in the B9 and B10 parcels.)

Revisiting the MTA deal

Can the investment fund, I wondered, simply auction off development rights to build those towers? 

The answer is: not quite. It's far more complicated.

The June 22, 2009 MTA Staff Summary regarding the deal to sell railyard development rights to original project developer Forest City Ratner (FCR), states:

Air Rights Parcel: to be conveyed after FCR's substantial completion of the Upgraded Yard and only upon payment in full of the price of a Development Parcel. Conveyance is further subject to FCR's entry into an Air Space Parcel Improvements Agreement and a Declaration of Easements acceptable to MTA/LIRR.

...The Air Rights Parcel consists of six development sites... A Development Parcel Purchase Price is assigned to each Development Parcel based upon the total ARP Purchase Price and the proportional zoning square footage density associated with the Development Parcel.

Each parcel is is conveyable to the developer or ESD only upon payment to MTA of the full Development Parcel Purchase Price.

The MTA has said that Greenland USA, the successor to Forest City, is current with payments. That means, by my calculation, a cumulative payment of $96 million, with $77 million left to go.

That should be enough to have paid for the Air Rights Parcels B5, B6, and B7, but only partly for B8, much less B9 & B10. 

More dealings with the MTA

But that doesn't mean they've acquired the sites. MTA spokesman David Steckel explained:

The auction is not for the direct sale of the air space parcels. None of the MTA air space parcels have been purchased by the developer. We understand that the auction relates to certain interests in the Developer entity that were pledged as security for the loant.

What would it take to activate those interests pledged as security? What would any winning bidder have to do to reap any benefits? Steckel responded:

The rights and obligations of developer, AY Phase II Development Company, LLC, are set forth in a series of project agreements with the MTA. The developer will need to satisfy the requirements in the agreements in order to acquire and develop the air space parcels (including constructing the platform) regardless of whether the pledged interests are transferred.

That's a somewhat cryptic answer, but it's clear that any developer would have to come to agreement with the MTA and ESD on the platform, as well as vertical construction.

Future complications

That sets up another potential complication: if the new bidder(s) would now own most of the AY Phase II Development Company, they would have to pass muster with ESD as the new master developer. 

They would have to reach agreements with the MTA and ESD on the platform and vertical construction. And they would have to factor in the potential cost of unlocking the value of the development sites, including the platform and extant fines for affordable housing.

If those fines continue to mount, even as interest rates stay high and the lack of a 421-a tax break makes it untenable for now to build and deliver new revenues, what's in it for a bidder?

Surely ESD, "focused on the successful buildout and completion of this project," recognizes that. 

And if that means a renegotiation of obligations, and/or a potential greater role for the public sector, that also means a requirement for far more transparency.