As Site 5 Interim Lease made public, timing questions, coordinated spin, & confirmation of future P.C. Richard store in retail space at planned giant development

Interestingly enough, the Empire State Development page (link) for Atlantic Yards, under the umbrella of the Atlantic Yards Community Development Corporation, recently added a copy (also at bottom) of the Oct. 25, 2021 Interim Lease for Site 5, the parcel across Flatbush Avenue from the Barclays Center. 

From AY CDC web site

The key contents of the lease were disclosed Aug. 1 when I wrote about pending plans for an even larger two-tower project at that site, long occupied by the big-box stores P.C. Richard and the now-closed Modell's.

But there are some details worth noting.

The P.C. Richard deal

First, the document confirms that the lease with the state proceeded on the same day developer Greenland USA had entered into a Purchase and Sale Agreement with P.C. Richard's parent company, gaining the right to purchase the property. (That has not proceeded yet.)

Greenland also agreed "to design and construct a retail condominium unit within the new building" at Site 5, thus confirming original developer Forest City Ratner's promise to the appliance and electronics retailer. 

(The failure to commit to that led to a lawsuit from P.C. Richard, which was ultimately settled. I had wondered whether P.C. Richard's discount, high-volume profile clashed with the "Time Warner Center" goals--as once expressed by a Forest City executive--for the site's retail.) 

Unofficial rendering    

In the 2021 lease, Exhibit K, as I reported, announced ESD support for two towers, 910 feet and 450 feet, at the site, which was approved in 2006 at 250 feet. 

In 2015-16, the developer started a plan to move the bulk from the unbuilt B1 tower (aka "Miss Brooklyn"), once slated to loom over the arena, across Flatbush Avenue to Site 5. The 2021 plan, also part of a 2023 proposal, expanded on that.

ESD consent

Note: it says, on top of the front page of the lease document in large type, "CONSENTS AND APPROVALS OF LANDLORD ARE SUBJECT TO SECTION 26.1(b) OF THIS LEASE."

That section is all in CAPITALS. For readability, I have converted it to sentence case:

As a condition precedent to landlord's obligation to give or otherwise consider any requires [sic] for approval of or consent to an easement agreement pursuant to section 25.2, creation of the development lease pursuant to section 30.1, or acceptance of tenant's consents or actions in the event of a bankruptcy proceeding of landlord pursuant to section 29.14, tenant shall be required to delver [sic] of an original signed statement from each recognized mortgagee (the "Approval Statement") stating either that the consent or other approval of such recognized mortgagee is not required for such matter, or that such recognized mortgagee consents and approves of such matter. Any obligation of landlord to respond to any request for consent under this lease shall be tolled on a day-for-day basis until such time as the approval statement is actually received by landlord. Landlord shall have no obligation to request, pursue or otherwise obtain the approval statement; such obligation is solely the responsibility of tenant.

This is hard to parse, but I think the main point is that if Greenland must get lender approval to proceed with the Site 5 project.

The timing question

Let's look at some timing issues. The "Commencement Date" means the date the lease was signed: October 25, 2021. The document states:

Promptly following the Commencement Date, Tenant will cooperate with Landlord to achieve a modification to the MGPP and/or such other approvals, including without limitation, any resulting modifications to the Design Guidelines (collectively, the "Entitlements") in a manner consistent with the Entitlements Criteria attached hereto as Exhibit K, all at Tenant's sole cost and expense.

That didn't happen. In a Nov. 21, 2022 letter to ESD and city agencies, Greenland USA President Gang Hu noted that the state authority was to have started efforts to approve project changes “promptly following the Commencement Date," according to the agreement.

However, he wrote, ESD was stalling, and delays had caused financial hardships. That delay, he wrote, "constitutes an Unavoidable Delay, permitting the tolling of obligations under the Development Agreement." 

As I wrote, ESD's intransigence was apparently based on its desire to ensure that Greenland at the same time would be ready to proceed with development at the six railyard sites.

Next stages

The "Entitlements Date" is the date when the ESD board adopts and affirms the changes requested, assuming there's no legal challenge pending and the statute of limitations for such challenges has expired. That is still pending.

The "Trigger Date" means the fourth anniversary of the Commencement Date, or Oct. 25, 2025.

The tenant has until the Outside Date, which can be extended by Unavoidable Delays, to prove that the building and infrastructure will be delivered as approved. 

How is the Outside Date established?

If ESD sets the Entitlements Date prior to the Trigger Date, Oct. 25, 2025, the Outside Date will be the fifth anniversary of the Entitlements Date. 

It can be extended another year thanks to Section 31.17, which allows for a written notice by the developer and payment of either a $15 million refundable payment, or a $5 million non-refundable one.

Otherwise, if the Entitlements Date does not occur on or prior to the Trigger Date, the Outside Date would be Dec. 31, 2029, but it can be extended.

Extension possible

The document states:

the Outside Date is subject to extension in accordance with Section 17.6 of the Development Agreement if Landlord does not elect to exercise the Site 5 Termination Option (as defined in the Development Agreement).

However, the original Development Agreement does not have a Section 17.6 but rather stops at Section 17.5. I have seen most but not all of the Amendments. 

Here's an opportunity for ESD to post the entire Development Agreement and all Amendments to clarify the situation.

The Development Agreement cites the possibility of a Termination Option if development has not proceeded by Outside Phase II Substantial Completion Date [May 12, 2035, 25 years after the project Effective Date], subject to Unavoidable Delays.

Not quite taxes

Greenland agreed to pay, commencing on the Commencement Date, payments-in-lieu-of-taxes (PILOTs) to New York City.

As with most other project buildings, the tenant/developer must pay actual taxes, but taking into account various exemptions the tenant would get on an as-of-right basis (such as the Industrial Commercial Abatement Program) or any discretionary exemption granted.

Coordinated spin

A section of the lease regarding Media Announcements states:

All media releases and announcements concerning the construction of the Development Project shall be referred to and coordinated jointly by Landlord and Tenant. In no event shall either Landlord or Tenant make any such announcements, media releases or public disclosures without coordinating with the other such party.

Well, the project hasn't proceeded, but this confirms that ESD, as Landlord, and Greenland, as Tenant, are partners. 

So, while, I typically use the phrase "oversees/shepherds" to describe ESD's role in the project, maybe that should be reversed.

The ownership chart

Presumably this will change, as Greenland is said (by ESD officials) to be seeking a development partner at Site 5.

However, as of 2021, two different Greenland entities--the difference is unclear--owned 74.2% and 25.8% of Greenland Atlantic Yards LLC, which in turn owned the subsidiary Pacific Park Site 5 Developer LLC.

All are headquartered, of course, in Delaware, where corporations appreciate the lack of transparency. Though Greenland is losing the six railyard development sites in foreclosure, it retains the valuable asset of Site 5 and B1 development rights, even if it doesn't have the capacity to proceed on its own.

Prohibited persons

It's worth noting that a Mezzanine Lender is defined as such:

a Lending Institution that provides bona fide financing or a bona fide preferred equity investment to Tenant, or Tenant's constituent entity(ies), and receives (in addition to any other collateral): (a) a pledge of equity or other direct or indirect ownership interests of Tenant; or (b) a preferred equity or other direct or indirect ownership interest in Tenant; provided that such Lending Institution may not be a Prohibited Person or Tenant, an Affiliate of Tenant, Guarantor, Greenland US Commercial Holding, Inc. or Greenland US Holding Inc.

(Emphasis added) 

This seems to be standard language. As I wrote in August, various project documents--including agreements regarding the EB-5 loans from immigrant investors that are part of the pending foreclosure action regarding the six railyard sites--prohibit dealings with a Prohibited Person, which include felons.

So, is Nicholas Mastroianni II, who heads the U.S. Immigration Fund (USIF), the "regional center" that packaged the EB-5 loan and is part of the joint venture, including Related Companies, set to take over those six railyard sites, a "prohibited person"? 

He was arrested on felony drug charges and pleaded no contest, but it's unclear whether the plea was to a felony.

How could Mastroianni be part of a "permitted developer," local resident Robert Puca asked at a meeting earlier this month of the advisory Atlantic Yards Community Development Corporation.

“We're still looking at it,” said ESD lawyer Matthew Acocella. “But based on the information we've gotten and based on the structure of the [joint venture], we don't see any any bar to proceeding with this joint venture as the permitted developer with Related and USIF.”

Does that mean that Mastroianni is not a felon? If so, please confirm.

Or if he is, it doesn’t count? As I wrote, could it be that that only the company that builds the project, not any financial partners, gets evaluated as a permitted developer? That, according to the language above, seems unlikely.