Does collecting damages for missing affordable housing make "it less likely the project gets built,” as real estate consultant tells Gothamist? It's not so simple.

Gothamist's David Brand this morning reports, Why did NY waive $5.25M in Atlantic Yards fines? The developer threatened to sue.

While the article quotes Assemblymember Jo Anne Simon as saying the $2,000/month damages--adding up to $1.752 million a month for the 876 units, aimed at a city affordable housing trust fund--should be collected from developer Greenland USA, it ends with a defense of the status quo:

Other housing experts say they understand the state’s position and the threat of litigation, especially when it comes to a deal made under far different financial circumstances over a decade ago.

“It is not surprising that a developer is threatening to sue,” said real estate consultant Jordan Barowitz, a former city housing official. “But the problem with that project is it’s not economical. Collecting more fines just makes it less likely the project gets built.”

A neutral arbiter?

Wait a sec. Barowitz may be a former city housing official, but his Twitter/X bio describes him as "Barowitz Advisory, former VP of Public Affairs at The Durst Organization, former City Hall," and he's best known as a spokesman for that real estate company.

Today, as a lobbyist, he represents Silverstein Properties in its casino bid, according to the New York City Lobby Database.

So he might have been balanced by a consultant with a history of not representing developers.

What's the case?

Were Greenland the project's only developer, struggling to raise funds, the equation might be simpler. Still, Greenland could then default completely, and someone else could take over.

In this case, it's far more complicated, because of more complicated--and still unclear--ownership shares and rights.

Generally speaking, a transfer of the project to a joint venture led by Cirrus Real Estate Partners means that funder Cirrus and development firm LCOR should be mostly on the hook for future costs, and that dunning Greenland for payments wouldn't necessarily diminish the project's viability but rather the ability of Greenland to monetize its remaining assets.

The railyard parcels

For the six development sites over the Metropolitan Transportation Authority's (MTA) Vanderbilt Yard, a Greenland entity that borrowed money from immigrant investors via the EB-5 investor visa program has been on the verge of losing its collateral--the rights to those development sites--in a foreclosure auction, first announced in November 2023.

The collateral would then be owned by an affiliate of the U.S. Immigration Fund (USIF), the middleman "regional center" that helped raise the EB-5 funds, and the private equity fund Fortress Investment Group.

However--and it wasn't explained to the original EB-5 investors or the public--those rights are apparently subordinate to other ownership rights in the collateral retained by Greenland, apparently related to its embedded investment in initial work on the platform, needed to support those towers, and perhaps payments to the MTA for development rights.

(Complicating that is that USIF entities made at least one payment to the MTA.)

Greenland has apparently made a deal with Cirrus to sell its remaining stake. So penalizing Greenland would likely lower its return, rather than stall the project.

Site 5

Rights to develop the parcel known as Site 5, across Flatbush Avenue from the Barclays Center, is retained by Greenland, as are rights to develop the parcel known as B1, the tower once slated to loom over the arena.

Though separate towers at each parcel were approved in 2006 and 2009, the advent of the Barclays Center made building B1 less tenable.

Since 2015-16, the project developers--then Greenland Forest City Partners, later Greenland USA--have sought to transfer the bulk of B1 across Flatbush Avenue to Site 5, creating a giant, two-tower project.

The value of the combined properties, I estimated, could be $250 million to at least $400 million. Greenland would be a junior partner to Cirrus and LCOR, with the other two entities out of the picture.

So dunning Greenland for $1.75 million a month again would cut into its ability to monetize Site 5 and B1, rather than stall the project.

The big picture

To fully evaluate this, state officials should come clean regarding ownership percentages and planned (or enacted) partnership deals.

Cirrus, as Gib Veconi, a leader of the BrooklynSpeaks coalition that negotiated the penalties in 2014 and seeks their enforcement has observed, is essentially speculating on the project, as I wrote yesterday.

In other words, it made deals that came at a discount spurred by the risks that the state would impose the penalties and that the state would have to approve revised plans. 

We don't know Cirrus's deal with Greenland, but perhaps there are contingencies regarding the damages for missing affordable housing. Would only Greenland be on the hook? Would Cirrus absorb a fraction?

ESD, as I wrote yesterday, has significant power, given that courts typically defer to state authorities.

 

Moreover, the state's argument that Greenland controls Site 5 is not persuasive. Greenland does not yet have permission to move the bulk of B1 across the street to Site 5.

That offers ESD extraordinary leverage, if it were to use it, to gain concessions from both Greenland and arena operator BSE Global, which would gain enormously by not having the construction--and operation--of a giant tower interfering with arena operations.

 

After all, BSE Global, led by Joe Tsai, is the big winner (along with previous arena operator and Brooklyn Nets owner Mikhail Prokhorov) in the Atlantic Yards/Pacific Park project.

 

Given that their huge financial gains were enabled by state assistance, both direct and indirect, you'd think state officials would recognize they could require some reciprocity in the public interest.