What happens June 1, when affordable housing penalties are due? We don't know (yet). The documents leave wiggle room, notably a "right to refrain."

The 876 remaining units of affordable housing (of 2,250 required) due May 31 won't be delivered by then.

What happens June 1, when $2,000/month penalties are due? 

We haven't been told whether Empire State Development (ESD), the state authority that oversees/shepherds the project, will hold developer (for now) Greenland USA accountable, will put things on pause, or will announce a renegotiation with a new joint venture.

I'd bet they'll kick the can down the road, as hinted in March, rather than try to impose penalties. Remember, ESD has the potentially contradictory task of encouraging economic development while being responsive to communities and upholding contracts.

Keep in mind that ESD, in the project's guiding Development Agreement, retains a "Right To Refrain"  "from exercising any of its rights under this Agreement at any time or from time to time." That's a significant power.

It's worth noting that ESD's 2014 settlement agreement with the coalition BrooklynSpeaks did not create enforceable obligations, but rather incorporated them into the Development Agreement. 

The potential plaintiffs retained their right to sue if ESD did not take the steps outlined, so if ESD doesn't enforce the agreement a lawsuit would have to challenge that "right to refrain," which seems in tension with the strict deadline, said in 2019 by an ESD executive to be "nonnegotiable."

Let's go back to a March 25 discussion at the (purportedly) advisory Atlantic Yards Community Development Corporation (AY CDC), so I can amplify my previous coverage with some updated information and citations.

ESD hesitancy

What, asked AY CDC Director Gib Veconi, would happen on June 1? (As a leader of BrooklynSpeaks, he helped negotiate that penalty.)

ESD's Joel Kolkmann, Senior VP, Real Estate and Planning, referred to a question posed in February by Brooklyn Assemblymember Jo Anne Simon to ESD CEO Hope Knight at a hearing in Albany. 

Knight’s response, said Kolkmann, holds true: “absent us receiving a permitted developer package and proposal and a plan prior to that date, we obviously would have to move forward with pursuing liquidated damages.” (I thought Knight seemed less than enthusiastic.)

Those damages would be pursued against Greenland, which, given the postponements of foreclosure, remains the zombie developer of the six railyard sites.

However, it’s not clear if the Greenland affiliates responsible—which after all haven’t paid off the loans—would have assets for repayment, would seek a delay, or would forfeit the collateral. No Greenland representative attended the meeting.

(Another Greenland affiliate, which owns the rights to development at Site 5, catercorner to the arena, as well as the unbuilt B1, once slated to loom over the arena, does have an asset: a Site 5 development project involving two large towers. While that requires approval by the board of the gubernatorially controlled ESD, the state authority in 2021 signed an interim lease agreeing to support a project of that scope.)

“If we were to receive something in the very near term,” Kolkmann said, ESD would consider a delay on the liquidated damages, “with very clear milestones of what would have to happen in the very near term." 

Note that Cirrus Workforce Housing in March began lobbying ESD regarding Atlantic Yards. 

Is there a "permitted developer package and proposal and a plan" yet? Unclear, though it's more likely now than a few months ago.

What next?

Veconi raised a chicken-and-egg question: ESD previously had said a new plan couldn't be negotiated with a new developer before a transfer was completed. (A revised plan could include, as Greenland unsuccessfully sought in 2023, extended deadlines and bonuses like additional bulk, while promising additional affordable units.) “Can you explain what you mean by a new plan?”

“Not a fully signed-off plan,” responded Arden Sokolow, Executive VP, Real Estate and Planning, but a permitted developer package, “plus an engagement plan for engaging with stakeholders and contours of what their requests would be.” That was not specified.

Veconi restated that the sequence involves a vetted developer, a transfer of rights, and then the presentation of a plan. Kolkmann agreed, adding that there'd then be “community engagement around that plan leading to an eventual, whole fleshed-out plan and an environmental impact statement.”

As I wrote, it's hard to imagine that "community engagement" would significantly reshape the plan, given that the numbers must work, but it could help ratify and/or tweak it.

What about Site 5?

AY CDC Director Ron Shiffman, a veteran advocacy planner and former City Planning Commissioner, asked if that plan would be limited to the six platform sites or if it would include Site 5. 

ESD executives said they didn’t know what would be presented. 

Now that Greenland has retreated even more, without even a presence on the Pacific Park Conservancy, the chance that they have negotiated a transaction to transfer the Site 5 (and B1) development rights is higher. 

That would leave Atlantic Yards/Pacific Park in the hands of a third master developer--not exactly a confidence-inducing move.

Potential delays

Veconi returned to the timeline, noting the process of bringing a plan for ESD board approval could take more than a year.

Kolkman said “near term” meant a good-faith effort to proceed.

AY CDC Chair Daniel Kummer noted another issue: it’s likely that Greenland, if presented with claims for liquidated damages, might claim “unavoidable delay,” a term in the project's master Development Agreement.

It includes, for example, "governmental action or restriction," which, perhaps, Greenland might invoke regarding previous tense negotiations with both ESD and the MTA.

The requirement for 2,250 units is subject to both "unavoidable delay" as well the Development Agreement's updated Section 8.6(d)(i)(IV), which allows a developer to claim a lack of affordable housing subsidies. See below.

Veconi, acknowledging he’s not a lawyer, noted that he'd read the document and thought "unavoidable delay" might be difficult to claim. Kummer, a lawyer, said, “We're not the arbiters of that,” but suggested such claims were likely.

Veconi suggested that a new developer would ask about the penalties and the project’s new deadline. “It doesn't seem like those questions could be held” until the ESD approves a new plan," he said. “Where in this process do you see coming down to brass tacks with a new developer around something like that?”

The response from ESD was fuzzy.

Either way, the "right to refrain" leaves a lot of discretion.

Other escape hatches, maybe
 

The registration of the May 31, 2025 deadline and penalties was incorporated in an Omnibus Amendment, dated June 27, 2014, to the guiding Development Agreement. The relevant text states that the following shall be added to the Development Agreement as Section 8.8(i):

“Developer and Interim Developer shall construct 2,250 Project Site Affordable Housing Units, with temporary certificates of occupancy issued with respect to the same, by May 31, 2025 (subject to Unavoidable Delays and Section 8.6(d)(i)(IV) hereof). 

ESDC’s remedy for violation of the foregoing, at ESDC’s option and in addition to any other remedies to which ESDC may be entitled, shall be to receive from Developer and Interim Developer a payment on the first day of the month after such deadline and on the first day of every month thereafter, equal to the product of (i) two thousand dollars ($2,000), and (ii) the Affordable Unit Shortfall; provided, however, any such payment deemed payable by or to ESDC shall be payable and paid by Developer and Interim Developer to the New York City Housing Trust Fund, a fund administered by the NYC Department of Housing Preservation & Development. As used herein, “Affordable Unit Shortfall” shall mean, as of the first day of the applicable month, the positive excess, if any, of (i) 2,250, minus (ii) the number of Project Site Affordable Housing Units that have been constructed, with temporary certificates of occupancy issued with respect to the same as of such date.”

(Emphases added)

So a check is due June 1 or, more realistically, June 2, the first business day after the deadline.

Unavoidable Delay, defined

What are Unavoidable Delays, which can reduce the developer's obligation? Let's go to the Development Agreement:

Unavoidable Delays shall mean actual delays affecting the Project (after taking into account all reasonable measures that are taken or should reasonably have been taken by AYDC or BALLC to mitigate the effect of the following) caused by 

(a) acts of God, war, sabotage, hostilities, invasion, insurrection, riot, terrorism, mob violence, malicious mischief, embargo, enemy action, civil commotion, earthquake, flood, fire, explosion or other casualty, unusually severe weather conditions, governmental action or restriction, unknown physical conditions which differ materially from those ordinarily found to exist and generally recognized as inherent in the construction of large mixed use projects in Brooklyn, failure of transportation, public utilities or public infrastructure, lockouts, strikes, labor troubles, or the inability to procure labor, equipment, materials or supplies (exclusive of customary delays inherent in the ordering of long lead time items), which are not, in each case, attributable to the improper acts or omissions of BALLC, AYDC, Interim Developer or their respective Affiliate and

(b) any litigation which results in an injunction or a restraining order prohibiting or otherwise delaying the continuation of such construction or other acts, provided such litigation was not instituted, financed or supported by BALLC, AYDC, Interim Developer or their respective Affiliate. 

The passage goes on to enumerate restrictions on the ability to claim Unavoidable Delays:

Inability to (i) pay a sum of money, (ii) obtain or timely obtain (A) any Approvals (other than as a result of any failure of ESDC to cooperate as required by the terms of this Agreement or the Project Documentation) or (B) financing, (iii) resulting from any Stop Work Order (as defined in any Project Lease) or (iv) to obtain or timely obtain any approval or cooperation of a Recognized Mortgagee required by any Project Lease or any agreement among Landlord, such Recognized Mortgagee and any Affiliate of BALLC, AYDC, or Interim Developer, shall not, in each case, constitute Unavoidable Delay. The period of delay caused by any occurrence of Unavoidable Delay shall not be deemed to commence any earlier than ten (10) days before the date ESDC receives notification from BALLC, AYDC or Interim Developer of such occurrence; provided, however, that no such notification shall be valid unless BALLC, AYDC or Interim Developer shall substantiate the basis for any claim of Unavoidable Delay made therein within twenty (20) days thereafter. BALLC, AYDC or Interim Developer shall advise ESDC in such notice as to the measures taken or proposed to be taken by BALLC, AYDC or Interim Developer to mitigate the delay caused by such occurrence of Unavoidable Delay and thereafter to keep ESDC reasonably informed as to the status of such measures, and notify ESDC as to the termination of the occurrence of Unavoidable Delay within ten (10) days thereafter. Unimproved Parcels shall have the meaning set forth in Section 17.2(a)(v) hereof.

It's unclear that Greenland or any other entity has already tried to claim Unavoidable Delay.

Section 8.6(d)(i)(IV) details

What is Section 8.6(d)(i)(IV), which also can reduce the developer's obligation? A new such section was part of the Omnibus Amendment, indicating the ability to claim an absence of housing subsidies:

Section 8.6(d)(i)(IV) of the Development Agreement is hereby amended and restated in its entirety to read as follows:

“To the extent Interim Developer, or the applicable Tenant, is ready to Commence Construction of a Project Building and

(1) such Project Building is required to contain Affordable Housing, either because it is being built as required by Section 8.6(d)(i)(I), Section 8.6(d)(i)(II) or Section 8.6(d)(i)(III), or because failure to include Affordable Housing in such Project Building would prevent Interim Developer or an applicable Tenant from being able to satisfy the Phase I Affordable Housing Commitment, and

 (2) Interim Developer (or the applicable Tenant) substantiates per the written notification identified in Section 8.8(d)(ii) hereof an Affordable Housing Subsidy Unavailability, the then applicable Deadline shall be extended by one (1) year; provided, however, that once Interim Developer (or the applicable Tenant) has utilized an Affordable Housing Subsidy Unavailability to extend a Deadline, such an extension shall not be available again with respect to such Deadline unless another Affordable Housing Subsidy Unavailability can be substantiated after the date which is one (1) year after the prior Affordable Housing Subsidy Unavailability was evidenced.

Affordable Housing Subsidy Unavailability

What's an Affordable Housing Subsidy Unavailability? Let's go back to the Development Agreement:

Affordable Housing Subsidy Unavailability shall mean the inability of AYDC, Interim Developer or their respective Affiliates, successors or assigns, as applicable, to obtain 

(a) the Combination Housing Subsidies from the City for the first building (other than the Arena) constructed on the Phase I Property or 

(b) with respect to any building other than the Arena or the first building constructed on the Phase I Property, financing under such programs for Affordable Housing Units then generally available to developers of Affordable Housing Units, if AYDC, Interim Developer or their respective Affiliates, as applicable, satisfied the applicable Affordable Housing Application Requirements and such application is deemed by the applicable administering agency after good faith review to be consistent with then applicable program rules and standards; provided in each case such inability is not the result of 

(i) a Developer Specific Condition or 

(ii) with respect to the Combination Housing Subsidies, the failure of AYDC, Interim Developer or their respective Affiliates, as applicable, to satisfy any Affordable Housing Application Requirements specific to Combination Subsidies set forth on Exhibit V; provided, however, that if, in each case, financing for Affordable Housing Units are being made available but AYDC, Interim Developer or their respective Affiliates are unable to obtain any required matching debt financing from a Lending Institution (as defined in the applicable Project Lease) on then current market customary terms and conditions (including then market customary loan-to-value and other similar underwriting criteria) to construct the applicable building for reasons other than due to a Developer Specific Condition, then in such case a Market Financing Unavailability shall be deemed to exist. 

The period of delay caused by any occurrence of any Affordable Housing Subsidy Unavailability shall not be deemed to commence any earlier than ten (10) days before the date ESDC receives notification from AYDC or Interim Developer of such occurrence; provided, however, that no such notification shall be valid unless AYDC or Interim Developer shall substantiate the basis for the claim of Affordable Housing Subsidy Unavailability made therein per the written notification identified in Section 8.8(d)(ii) hereof within twenty (20) days thereafter. 

AYDC and Interim Developer shall advise ESDC in such notice as to the measures taken or proposed to be taken by AYDC or Interim Developer to mitigate the delay caused by such occurrence of Affordable Housing Subsidy Unavailability and thereafter to keep ESDC reasonably informed as to the status of such measures, and notify ESDC as to the termination of the occurrence of Affordable Housing Subsidy Unavailability within ten (10) days thereafter.

It's unclear that "generally available" subsidies have been unavailable. Rather, Greenland unsuccessfully sought additional subsidies.

What's a Developer Specific Condition? The Development Agreement describes it as the financial condition of the developer, not the general market.

In other words, if the developer can't obtain subsidies because of its own financial condition, it can't claim an Affordable Housing Subsidy Unavailability.