Atlantic Yards CDC meeting: project still in limbo, as ESD talks vaguely of progress, but acknowledges talks with Greenland stalled. Will foreclosure sale happen?
Unlike at the previous meeting, Aug. 2, there were no representatives from Greenland present, nor the Metropolitan Transportation Authority (MTA) at the session, held in Manhattan at the offices of parent Empire State Development, the gubernatorially controlled state authority.
Both parties then announced theyād reached agreement on permissions to build a platform over the railyard, the precursor to construction of six towers, but Greenland acknowledged that economic conditions, including the absence of the 421-a tax break, meant they had no plans to proceed.
āWe've been talking with Greenland about how they can best move things forward under the current approvals,ā Joel Kolkmann, ESDās Senior VP, Real Estate and Planning, said yesterday, āand we are trying to get a path forward with them. We haven't gotten anything from them yet.ā
Nor did attendees learn much about whether a foreclosure sale involving the rights to those six towers (B5-B10), announced for Jan. 11 and then postponed to Feb. 12, would go forward.

Details limited
The main presentation was made by Anna Pycior, the ESD's new Senior Vice-President for Community Relations, succeeding Marion Phillips III.
Pycior said Greenland--via two corporate affiliates--is in default on its obligations to pay back its EB-5 debt, two loans with affiliates of the U.S. Immigration Fund (USIF), a āregional centerā that serves as a loan packager for immigrant investors, aggregating loans of $500,000 each.
She did not state the total owed. The two loans, $249 million and $100 million, totaled $349 million, but the sale of the B15 development lease triggered a $63.16 million repayment. That leaves $285.84 million.
The default on the EB-5 loans, she said, does not cause a default under the overall project documents.
Pycior noted that the lenders issued notices that the loan collateral, ātheir ownership interest in AY Phase II Developer,ā would be put up for auction. She didnāt indicate whether ESD believes that auction will go forward next month as planned.
Transfer conditions?
Any successful bidder--assuming that bidder won both sets of collateral--would then own the assets of the AY Phase II Development Company. āI should note that any transferee of Greenland's interest must be a permitted developer that is approved by ESD,ā Pycior said.Whatās a āpermitted developerā? According to past project documents, an entity that has at least ten years of experienceāor retains a construction manager with that experienceāin developing and building āhigh-rise residential office, hospitality and/or mixed use projects in an urban environment.ā
Or, alternatively, an entity āreasonably acceptableā to ESD.
That entity cannot be a āProhibited Person,ā defined as in default to obligations to the state or city; in default on taxes; convicted of a felony or a crime of moral turpitude or having organized crime connections; or controlled by a government that has violated certain federal regulations.
Next steps
Pycior offered only a brief summation.
"ESD's goal is to determine the best path forward to advance the project and to get the remaining housing built. We are working with Greenland in an effort to have them comply with their obligations under the Development Agreements,ā she said. āIt is our focus. We have been figuring out routes to... complete the project, and are looking forward to your feedback.ā
That didnāt offer much. How could the AY CDC offer feedback on those āroutesā without having ESD share them?
Clarifying the language
Pycior surely referred to an entity known as AY Phase II Development Company. (Small differences in naming do make a difference.)
To draw on the September 2014 Consent Letter for the first EB-5 loan, the overall parent development entity, Atlantic Yards Development Company (AYDC) advised ESD that an affiliate, AY Phase II Mezzanine, had borrowed $249 million from AYB Funding 100, an entity created by the USIF.
Under EB-5, the investors accept little or no interest, because they prioritize green cards, in exchange for purported job-creating investments. The borrower gets a loan at below-market interest. The regional center gets fees and most of the interest.
To provide collateral, AYDC assigned certain rights and obligations of its affiliate Atlantic Yards Venture to AY Phase II Development Company. The loan was secured by a pledge of AY Phase II Mezzanineās equity interests in AY Phase II Development Company, then involving sites B5-B10, plus B15. (That would later be diluted with the second loan, of $100 million.)
For the second loan, in a June 17, 2015 letter, AY Phase II Development Company advised ESD that AY Phase II Mezzanine, (aka āClass A Borrowerā) had admitted AY Phase III Mezzanine (aka āClass B Borrowerā) as, collectively, the Owner.
Now there were two classes of membership interest in Owner, the Class A Interest and Class B Interest. The owner of the Class A Interest would have sites B5-B8, and B15, as collateral. The owner of the Class B Interest would sites B9-B10. However, to unlock development requires a costly platform and payment to the MTA for development rights.
About the middleman
Regarding USIF, Pycior said, āthey have brokered the deal between the EB-5 foreign investors and the EB-5 lenders.ā
That muddied the issue. The USIF, yes, is the middleman. But the foreign investors and the EB-5 lenders should be, essentially, the same thing.
However, the investors put their money in a special purpose fund that, as far as I know, is controlled by the manager, a separate USIF entity.
The August request
AY CDC Director Gib Veconi, who as a leader of the BrooklynSpeaks coalition has criticized ESD's performance on the project, brought up the motion passed at the August board meeting for an estimate on the cost of project completion, including the $2,000 month fines for the 876 (or 877) affordable units not build by May 2025.
Kolkmann said that they had been working on it with Greenland, but work had stalled on the developer's side.
Director Ron Shiffman, a veteran advocacy planner and former City Planning Commissioner, asked if ESD had staff to check on Greenland and/or to provide their own cost estimates. He was told ESD didnāt have such capacity in-house and would have to hire a third-party consultant.
āThe concern that I have at this point is although we haven't discussed it here in this meeting yet,ā Veconi said, is "a private equity fund known as Fortress Investment Group has bought a certain amount of the EB-5 debt.ā (That suggests that the entities controlled by the USIF had sold the debt.)
āIt seems to me that, at this point,ā Veconi said, "the future of the project right now is turning on decisions made by a developer that really doesn't look viable anymore and a private equity firm that's known for turnaround.ā
He agreed with Shiffman that āwe need to be armed with something because otherwise we've got people making decisions about very important public benefits that this project was supposed to provideā who have other interests.
Greenland, he noted, wants to pay back its liabilities. Fortress seeks return for their investors.
āNo one can step in and do this without presenting a plan to ESD for our review,ā said Arden Sokolow, Executive Vice President, Real Estate and Planning.
āI'm concerned that when that plan shows up, I don't I don't expect it to be highlighting community benefits,ā Veconi said.
Triggering default
Veconi asked for clarification that default of the EB-5 loans doesn't trigger a default under the Development Agreement, which does have language āthat specifies that an assignment for the benefit of creditorsā is a default.
It ESD's position that has not happened?
āThis is a mezzanine financing,ā responded Richard Dorado, an ESD staff lawyer.
āThe collateral was put up by two Greenland affiliates that have the ownership interest in the platform developer..ā¦ The two owners of the entity are in default.ā (Those are AY Phase II Mezzanine and AY Phase III Mezzanine.)
Are the owners of AY Phase II āanyone other than the joint venture Greenland Forest City Partners?ā Veconi asked.
āThey are affiliates of the joint venture,ā he was told.
In other words, alter egos but separate legal entities to separate liability. Note that itās unclear what role Forest City, now owned by Brookfield, retains in Atlantic Yards/Pacific Park. A Brookfield spokesman last November said the firm has a ānominal interestā in the project.
AY CDC Chair Daniel Kummer, an attorney, said an āassignment for the benefit of creditors is a very specific proceeding under New York law.. It's essentially a state law level bankruptcy proceeding, I have seen nothing in the record that suggests thatā has started.
Getting confusing
Veconi suggested AY Phase II āwas created in order to break off lots B5 through B10ā to borrow the EB-5 funds.
No, Dorado told him. Two other entities were created. (AY Phase II Mezzanine and AY Phase III Mezzanine.) They āwere interposed between the Greenland entity that was sort of one step above these two entities.ā
(Without seeing an organizational chart, thatās unclear, but I suspect it may be AYDC > AY Phase II Development Company > AY Phase II Mezzanine + AY Phase III Mezzanine. This all should have been provided in writing.)
āThese two entities are the owner of the AY Platformāthe actual entity that has the platform development obligation,ā Dorado said. (I donāt know if thereās any entity with the name āAY Platform.ā)
The two entities receiving the loan proceeds, he said, do not have the platform development obligation.
āI really think this is very important for the directors to understand,ā Veconi observed. āWho now owns the rights to develop the six lots over the railyards?
āAY Platform Developer,ā Dorado said, then correcting himself to say, āAY Phase II Developer"-- again, most likely AY Phase II Development Company--"has the obligations to develop the platform sites."
āWho owns that?ā Veconi asked.
āThe two entities that borrowed the EB-5 loans,ā Dorado said.
āAnd who owns them?ā Veconi asked.
āThey are currently owned by another Greenland affiliate,ā he was told.
Affordable housing obligations
āWere the obligations to meet the affordable housing commitments of the project also transferred to AY Phase II Development?ā Veconi asked.
āThat's one of the obligations they have to meet,ā Dorado said.
āSo that entity I'm guessing at this moment doesn't have any revenue,ā Veconi observed. āIt probably doesn't have assets beyond the rights. Is that a fair statement? I think it'd be helpful to understand that as well.ā
āWhy is it helpful to understand that,ā Dorado responded, a bit combatively. āThe overall development obligation is deliver the units. Every other obligation in the Development Agreement remains in place. Those obligations run to us.ā
Liquidated damages
Veconi noted that, when Greenland sold development leases--such as to B12 & B13--to other developers, those new leaseholders assumed the obligation to deliver affordable housing.
In this case, despite transferring those obligations to AY Phase II Development, would the parent company still be responsible and face liquidated damages for failure to meet the May 2025 affordable housing obligation?
āYes,ā Dorado responded. āThose obligations remain in effect.ā (Again, that's somewhat confusing. He had earlier said that the obligations were transferred to AY Phase II, but I think it's more likely they stay with the parent.)
Shiffman noted that, given that it would take three years to develop the platform, liquidated damages would be imposed. (That is, unless ESD waives them.)
āThe default will not occur unless they meet that delivery date,ā Dorado responded.
Shiffman noted that it would be impossible to meet the deadline, and asked what ESD was doing to prepare for it.
āESD is in discussions with Greenland and is monitoring the situation very closely,ā Dorado said.
āWe have told Greenland that we are retaining all our rights,ā Sokolow added.
Ready for 2025?
Shiffman asked if ESD is preparing for when that occurs, so as to expedite the delivery of housing, especially affordable housing. āI don't think ESD should be waiting until a default takes place in order to prepare a strategy.ā
āESD is not being passive,ā Dorado added. āThey have constant discussions with Greenlandā¦ how they plan to move forward. Other parties, such as the EB-5 aggregator has reached out to usā¦ There's not like a stop.ā
Kolkmann, however, put a bit of a damper on that by acknowledging they hadn't gotten anything from Greenland.
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