Breakthrough? ESD anticipates new developer proposed for six foreclosed railyard sites, but no details yet about who, or contours of (likely) concessions requested

This is the first of two articles about the meeting yesterday (link) of the advisory Atlantic Yards Community Development (AY CDC). held at offices of the parent Empire State Development (ESD) in Manhattan. The second concerns the future of Site 5.

At the little-publicized AY CDC meeting yesterday, an executive at ESD, the state authority that oversees/shepherds Atlantic Yards/Pacific Park, offered the first hint that the six railyard development sites (B5-B10), encompassing nearly 3.5 million square feet but which are now in foreclosure, may have interest from a developer.

But details were scarce, including the name of the company and whether and how much ESD would accommodate changes in project requirements to make it a deal more attractive. For example, would it  enforce or waive/delay $2,000/month fines for the 876 affordable housing units supposed to be completed by May 2025? 

Also, how much would a new developer, taking over those sites from Greenland USA, want other concessions to make the buildout--requiring an expensive platform over the Metropolitan Transportation Authority's two-block Vanderbilt Yard s well as payment for development rights and a commitment to affordable housing--financially viable?

"We want to update the board that ESD is being presented with a plan for a new developer to be brought in," said AY CDC President Anna Pycior, who serves as ESD's Senior VP, Community Relations. "Negotiations are ongoing. The parties are talking with the lender about bringing in new development partners."

She and colleagues offered no more details about a complicated process in which the "lender"--an entity affiliated with the U.S. Immigration Fund (USIF), a loan packager--must recruit a developer to bid on development rights.

They may not even know. AY CDC Chair Daniel Kummer asked a clarifying question: "So you've been advised that a presentation is coming but you haven't received it yet?" He got nods.

EB-5 foreclosure

Master developer Greenland USA in 2014 borrowed $349 million from immigrant investors under the EB-5 program, which offering the investors green cards for themselves and their families in exchange for investments into purportedly job-creating projects. They accept little or no interest.

The investors--represented by the USIF, a "regional center" that recruited them--were repaid a small amount but are owed $286 million. The six railyard development sites--or, more precisely, the corporate entities that have the path to develop those sites--served as collateral.

 

A foreclosure auction was announced for January but has been postponed four times, surely because of the complications associated with the deal, including negotiations with ESD over terms.

Concessions coming?

"Are there any concessions being given in order to attract a new developer?" asked AY CDC Director Ron Shiffman, a veteran advocacy planner and Pratt Institute academic.  

No, responded Arden Sokolow, Executive VP, Real Estate Development and Planning, quickly clarifying to add that "when they present us with a developer, I imagine that there will be requests, but we don't have that information."

That was surely an understatement, since no bidder would proceed without knowing the availability of concessions, including new subsidies, extended deadlines, and even additional development rights.

Would such requests come back to the AY CDC for advice and recommendations, asked Shiffman.

Any proposed modifications to the project plan, she said, would come back to the AY CDC, which is charged to make recommendations to the parent ESD board.

That includes changes at Site 5, the parcel catercorner to the arena, which is not part of the foreclosure but is the remaining developable site--and, as I'll write separately, also more likely to proceed,

Timing questions

Director Tamara McCaw, noting that July 23 is the announced date for the foreclosure auction, asked whether there was time for the presentation and ESD's response.

"Hopefully the presentation happens soon," responded Joel Kolkmann, ESD's Senior VP, Real Estate, adding that the auction--and thus the process--could be pushed back again.

Kummer observed that changes in the project plan couldn't be completed by July 23. Kolkmann noted that ESD staff has the right to approve a permitted developer, based on announced criteria such as experience in large-scale projects, a separate action from a modified project plan, which ultimately needs approval from ESD's gubernatorially-controlled board.

"The staff could approve a new developer that could hold hands with the lender as they go into the foreclosure," mused Kummer. "But it sounds like there's at least a chance that that request for approval is going to include some material changes to the project plan in order for that developer to agree to come in and bid." So, he said, "they're linked in some way."

MTA role

ESD attorney Richard Dorado clarified that "the collateral is part of the memberships in the two entities that have the development rights or"--he corrected himself--"have the opportunity to develop those two sites, but it's not the actual development rights. Those rest with the MTA," the Metropolitan Transportation Authority. 

Note: it's not clear how many of the annual payments required of the developer to MTA to acquire development rights have been paid. After initial payments of $2 million a year for four years, Greenland starting in June 2016 was required to pay about $11 million a year through June 2030.

By my calculation, Greenland should be close to having paid for development rights over the first railyard block, between Sixth and Carlton avenues, involving sites B5-B7, unless those payments were suspended in some way. 

Oversight and affordability

Shiffman warned about the possibility of a new developer not working out, and asked if the state authority could develop a Plan B to deliver project benefits. (After all, but original developer Forest City Ratner and successor Greenland USA presented optimistic plans but faltered, leading to financial losses.) 

"And why sit back and just allow a developer or group of developers who have not delivered for at least 15 years to continue dragging us along," he said, with frustration.

"I mean, the developers have delivered," responded attorney Dorado, playing defense. "There are a number of residential buildings that gone up as part of the project. And they are tenanted and they are, as far as I know, they've all been successful." (Tenants at 38 Sixth Ave., aka B3, might disagree. Stay tuned for more.) 

Shiffman pointed to the affordable housing not being provided, prompting Dorado to intervene, "As of yet, sir."

Shiffman, sounding increasingly perturbed, noted that the below-market housing is disproportionately aimed at moderate- and middle income households rather than serving the needy: "So you can't say it's been successful."

See chart below, by Ben Keel originally for my Urban Omnibus overview article on Atlantic Yards/Pacific Park. It focuses on 2-bedroom units, but the distribution was relatively consistent across unit types.

Dorado was sanguine: "The buildings are up, people can see them. The units, the same units that are market-rate units, are occupied by the affordable tenants." 

That's true for the five buildings that contain both market and affordable units, only one of which (B2, 461 Dean Street) contains low-income affordable units; the others contain 30% below-market units aimed at middle-income households. Two of the eight towers are "100% affordable." One is market-rate condos.

"According to the contractual documents and what was the deal at the time, that has been done," continued Dorado, skating over the public sector's willingness to redefine "affordable housing" as subject to regulatory agreements rather than serving the broad range of households originally promised by developer Forest City. "If it doesn't meet your satisfaction, that's a separate issue."

What's next

Sokolow stepped in: "Building on what Richard says, we're going to come back to you with a modified plan... So you know all of these things, we hear what you're saying on all these concerns, and we can work with you as we move to the next phase."

That sounds like a willingness to emphasize deeper affordability, which could be fostered by the new 485-x tax break, a successor to 421-a, as well as additional subsidies and/or concessions like additional bulk.

"When you say a modified plan, are you talking about the railyard sites or the project as whole?" asked Kummer.

"Well, all our documents are for project as a whole," Sokolow responded. 

That, actually, depends on the document. Yes, the overall General Project Plan regards the project as a whole, but there have been numerous amendments that address specific project elements, such as the 2019 amendment that revised the design of B5, allowed below-ground space at B12/B13 for a Chelsea Piers fitness center and fieldhouse, reduced parking, and more.

But her statement suggested they anticipate modifications for all the remaining development sites.

Any modification, said Kolkmann, would trigger a community engagement process, soliciting feedback, and involve the AY CDC.

"And we would come back to you actually even before a modified plan to talk with you about what successful community engagement would look like," Sokolow said. "And that would probably be not that far in the future."

Notes on AY CDC procedures

I didn't write a preview of this meeting because I never got the June 20 press release. 

Not surprisingly, there were no public comments received on the vague agenda, which did not detail the subjects to be discussed, and were due the day before, anyhow. 

If the agenda had disclosed the discussion of the project's future and Site 5, it's possible some people would have commented.

Nor were there public comments from anyone attending the meeting, since I, as far as I could tell, was the only outsider.

The next AY CDC meeting, the group was told, will likely be in September and be held in Brooklyn, fulfilling the request of some AY CDC board members and facilitating the potential attendance of more interested observers.

It will be held at 55 Hanson Place, the Shirley Chisholm State Office Building, which is near the Atlantic Terminal transportation hub.