Will NY State enforce the $2K/month affordable housing penalties? ESD CEO Knight tells Asm. Simon yes, but doesn't sound convincing.

So, will Empire State Development (ESD), the state authority that oversees/shepherds Atlantic Yards, enforce the $2,000/month fines for each of the 876 affordable housing units not delivered by May 31, 2025?

Yes, if you go rely on an exchange (video here and below) Feb. 26, at a New York State Legislature joint budget hearing, between Brooklyn Assemblymember Jo Anne Simon and ESD CEO Hope Knight.

Maybe not, if you consider that ESD has avoided imposing fines for the unbuilt Urban Room atrium, widely seen as a precursor for its posture toward the affordable housing deadline, or that ESD made a deal with developer Greenland USA to expand the two-tower project at Site 5, catercorner to the arena, without telling the (purportedly) advisory Atlantic Yards Community Development Corporation, not even after the fact.

And probably not, if you consider Knight's magical suggestion, at a hearing last year, that the deadline might be met by converting existing market-rate housing.

The background

Simon is an active supporter of the BrooklynSpeaks coalition, which in 2014 negotiated the new deadline to complete a total of 2,250 affordable housing units. Simon, probably the legislator best informed about the project, started by asking "about our favorite topic, Atlantic Yards in Brooklyn, which has possibly much to happen there, but not much has happened for a long time."

She's right that much--eight buildings--awaits, but the six tower sites (B5-B10) over the Metropolitan Transportation Authority's Vanderbilt Yard have been in foreclosure since November 2023.

That's when developer Greenland USA failed to meet a deadline to repay Chinese investors who put $349 million into the project, under the federal EB-5 investor visa program, with $286 million left unpaid.

The current owners of those development rights are holding companies that made the two loans, originally $249 million and $100 million. 

Those companies are controlled not by the investors, but by the middleman "regional center," the U.S. Immigration Fund (USIF). Also owning a slice is the private equity fund Fortress Investment Group, which has periodically made deals with the USIF.

The question

"So I'm very curious whether ESD has been presented with a developer to vet for receiving the railyard rights and, if so, are you going to be able to complete a transfer of those rights before the affordable housing deadline of May 31," Simon asked.

Note that the USIF and Fortress cannot constitute a "permitted developer," which must be a development company or construction manager with ten years of experience on large projects. Last year it seemed that Hudson Yards developer Related Companies would step into a joint venture, but they pulled out. 

Another company, Cirrus Real Estate, reportedly has since entered, but they're just a funder.

Unmentioned: it's hardly clear that any new entrant would be willing to take on the affordable housing penalties. After all, Greenland in 2023 tried to get an extension of deadlines and additional development rights.

An incomplete answer

"Thank you for that question about Atlantic Yards," Knight responded. "At this time, we continue to wait for the lender to present us with a qualified developer. We have not had one come forward as of this time, and so, you know, we have until the deadline to, uh, see if that happens."

Note that the USIF is not exactly the lender. That's bad shorthand, regarding a company that, thanks to advantageous (and dubious) contract language, has control.

"So you haven't been formally presented with a developer, right?" Simon continued, gaining assent from Knight, before adding, "We've heard a lot of stories." 

There's more to that. Related surely was "formally presented," given that the firm was lobbying ESD last year for months, and ESD SVP Anna Pycior, at a meeting last Nov. 14, said they were “completing our review of their documents, and once the review is satisfactory… we would proceed with the new joint venture. We don't anticipate issues moving forward.”

So I suspect that Knight's statement referred to the fact that they haven't been presented with a new qualified developer.

What next?

"What are you going to do if the affordable housing deadline passes on May 31," Simon asked, given that "tremendous liquidated damages" are due.

"There are liquidated damages that are due, yes," Knight replied, repeating her interlocutor's words, as if buying time to formulate an answer.

"Do you have any plans for what to do with that, at that point?" Simon asked. "I mean, clearly this is a big issue. It's a lot of money, for one, and it's also affordable housing that we desperately need, but expensive to build given where it is." That surely referred to the cost of the platform needed to protect the railyard functions while building vertically.

"So we continue to have dialogue with the lender," Knight said. "Like I said, to the extent that does not come forward, we'll have to enforce, y'know, what we have with respect to our contract."

"So it's your intention to enforce the contract," Simon responded. "Thank you very much." 

We didn't get a chance to see Knight's expression, but her tone was not exactly certain.

Reasons for doubt

Knight's uncertainty shouldn't be surprising.

After all, we don't know if the USIF-controlled entity has assumed--or could assume--Greenland's obligations, including the affordable housing. Why would it take on such a costly responsibility without other concessions?

Moreover, if Greenland still controls development rights at Site 5, where it plans to build a giant two-tower project by adding development rights from the unbuilt B1 tower, once slated to loom over the arena, what portion of the obligations would it retain? 

Based on Greenland's 2023 negotiations, I'd expect a proposal in which a new joint venture (along with Greenland's remaining development plans?) promises to deliver more affordable housing, but on a delayed schedule, in exchange for gaining an extension on the damages and, crucially, new value in increased development rights--free vertical land.

Complications

That's complicated, because not only must the "lender" recruit a new developer, ESD would have to appropriately apportion rights and responsibilities for the remaining parcels. Moreover, what's the justification for an even larger project when, for example, the attendant open space is already inadequate for the population?

If no new proposal emerges, then what entity can ESD get to pay the damages? 

(Greenland's already run out of money to pay the EB-5 investors, but retains B1 and Site 5 development rights. Could New York State claw any of that back?)

What do existing contracts say? If there are new state concessions or investments, what does the public get?

Perhaps this can be raised at the next meeting of the AY CDC, likely in March, given the need to approve the annual budget. Legislators like Simon--who, to her credit, has gone to AY CDC meetings--should get more time to drill down on the precise contractual issues.

What about Site 5?

As an an addendum to her initial question, Simon said, "And I know there's also talk about Site 5 happening, too." That never got discussed

The Site 5 plan could be tied to any future negotiations about the project's total square footage and obligations, and New York State, despite the 2021 Interim Lease seemingly locking in a new, larger project, still hasn't approved those changes.

There should be "community outreach" and public hearings before any formal approval by the ESD's gubernatorially controlled board, even if the state authority has essentially set the parameters.

Update: the BrooklynSpeaks response

BrooklynSpeaks tweeted: "@EmpireStateDev CEO Hope Knight tells
@JoAnneSimonBK52 liquidated damages for #AtlanticYards missing May #affordablehousing deadline will be enforced if EB-5 lending agent does not present a viable development partner."

My response: "I thought the response was not terribly convincing and believe that legislators have room to drill down further on the contracts."

I thought the response was not terribly convincing and believe that legislators have room to drill down further on the contractshttps://t.co/rN5ooprEbj

— Norman Oder (@AYReport) February 28, 2025

Gib Veconi, essentially the leader/co-leader of BrooklynSpeaks, quote-tweeted the BrooklynSpeaks tweet to say: "It's time for a new plan at #AtlanticYards @pacificparkbk. Holding the current parties accountable for project commitments is the place to start."

He tagged various elected officials.

It's unclear whether the parties will be held accountable and how and whether the state would wrestle control. So far, they act as if the contracts leave the "lender" in charge, but they have no plans to enforce the penalties.