Does developer Greenland USA have a case for Unavoidable Delay? Maybe, but ESD should have come clean sooner and seems wary of exercising power.

This is the third of four articles on the Aug. 6 meeting of the Atlantic Yards Community Development Corporation (AY CDC), which is supposed to advise the parent Empire State Development (ESD), the state authority that oversees/shepherds the project. The meeting was held at 55 Hanson Place in Brooklyn.

The first article concerned the state's suspension of affordable housing penalties. The second discussed why valuable Site 5 is key to the project. The fourth addressed plans for "community engagement.

For years, executives at ESD have known that master developer Greenland USA, unable to build 876 more required affordable housing units by the May 2025 deadline, would claim it should not face liquidated damages of $2,000/unit for each missing apartment.

They just never told the public about such citations of Unavoidable Delay, not until the meeting last week.

Consider the discussion at a March 25 meeting of the AY CDC. What, asked AY CDC Director Gib Veconi, who as an organizer of the Prospect Heights Neighborhood Development Council and leader of the BrooklynSpeaks coalition helped negotiate the housing penalties in 2014, would happen when the deadline was reached?

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.”

He didn't mention ESD's reticence, based on fear of Greenland suing, as acknowledged last week.

Knight, I observed at the time, seemed less than enthusiastic and, indeed, ESD has not only not enforced the penalties, it has not even let them accrue. (That failure led Veconi to propose  a motion, which the AY CDC Directors passed, to ask ESD to calculate the accrual. The impact, though, is unclear.)

Letting things slide

It's worth noting that, while ESD has since that Albany hearing received a permitted developer package for the railyard development sites and another for the Site 5 parcel catercorner to the arena, it has not received a full proposal and plan. 

Still, it's extended the deadline.

What if ESD had not received such applications? It seems likely, given threats of litigation by Greenland, that the state authority still wouldn't have pursued the damages.

That raises some unsettling questions regarding the past and future of Atlantic Yards/Pacific Park. Are project contracts even enforceable? Are promises worth anything?

Does Greenland have a case?

ESD officials at the recent meeting said they disagreed with Greenland's contention, but considered it too risky to pursue damages.

Does Greenland have a case? 

Given limited information, I can't fully evaluate it, but Greenland, as I wrote last August, had made several contentions when it was unable to get state agencies to pursue a plan to supersize the project and extend deadlines, making it more viable financially. 

(My reporting was based on a Freedom of Information Law request, not any public discussion.)

Presumably any developer would have a limited case for delay based on the initial stages of the COVID-19 pandemic, which stalled everything. However, it's not clear how much that was a factor in the issues described below.

The guiding Development Agreement defines Unavoidable Delay and Affordable Housing Subsidy Unavailability in complicated detail. Unavoidable Delay includes, for example, "governmental action or restriction," which Greenland presumably invoked regarding previous tense negotiations with both ESD and the MTA.

Greenland makes its case

In a Nov. 21, 2022 letter to state and city officials, as I reported, Greenland USA president Gang Hu said the project’s next phases were “imperiled” by the expiration of the 421-a tax break, the lack of housing subsidies, MTA delays, and “ESD's unwillingness” to enact the changes to expand the plan for Site 5.

That came on top of pandemic-related impacts, Site 5 delays caused by litigation from P.C. Richard, and soil conditions that required re-engineering of platform foundations.

All told, Hu wrote, the delays “put the next phases of Pacific Park on indefinite hold and jeopardize its long-term feasibility.”

So, citing the expiring tax break and the housing agencies’ policies, Hu claimed an Affordable Housing Subsidy Unavailability per the project’s Development Agreement, the 2010 contract between developer and state.

Also, he wrote, the MTA’s posture and “the inter-connectivity of the Development Agreement and the Platform Agreement” resulted in an Unavoidable Delay. A similar delay, Greenland asserted, was triggered by ESD’s foot-dragging on Site 5.

ESD pushes back

Responding April 10, 2023, ESD’s Arden Sokolow, Executive VP, Real Estate and Planning, was only partly encouraging, wanting Greenland to show more commitment. Before ESD moved forward, she wrote, Greenland would have to “fully resolve” outstanding issues with the MTA regarding the platform over the Vanderbilt Yard needed to support six towers.

Moreover, Greenland, which entered the project with original developer Forest City Ratner as their local partner, would have to identify a new partner with a local track record. It also had to provide ESD “a detailed analysis of the financial feasibility and sources and uses” of project funds.

In a separate letter, ESD denied Greenland’s claims of Unavoidable Delay and Affordable Housing Subsidy Unavailability, saying the developer had not substantiated them, as required, within 20 days.

Greenland responds

Greenland, in response, contended that the earlier letter sufficed.

Greenland felt pressure, perhaps because it saw the looming EB-5 debt, pointing toward foreclosure of an interest in six railyard development sites. On May 26, 2023, Greenland’s Hu wrote to Gov. Kathy Hochul, sounding both desperate and potentially litigious.

“MTA’s unreasonable requirements” regarding “the Platform project have resulted in damages to Greenland,” he wrote. He acknowledged “encouraging progress,” as Greenland had agreed to post a $180 million letter of credit with the MTA "and to pay the air right [sic] purchase price for Platform Block 1120”—between Sixth and Carlton avenues—in one installment.”

However, Hu wrote, MTA’s request for an additional bond was “unreasonably duplicative,” since, among other things, the $180 million letter of credit already “represents 1.18 times of the development cost of the Platform.” (That doesn't seem too much overage.)

Hu also wrote that delays scotched a plan to sell railyard development rights to another developer, which caused Greenland “substantial” losses.

Greenland even flew its Shanghai-based Chairman, Yuliang Zhang, to New York, to meet with Kathryn Garcia, a key Hochul aide, and others on July 25, 2023. Shortly afterward, Zhang sent Hochul a bilingual letter, warning that, without immediate action, the project would be at risk. 

Thus, he requested the state to “provide exceptional support”—direct subsidies?—and expedite the approval process, including a substitute for the 421-a tax break. 

That didn't happen. Surely there were more communications than shared with me.

Resistance, but only in part

It's worth noting that project developers--mainly original developer Forest City, though it benefits their successor--have a history of renegotiating terms with state agencies to allow more time and flexibility.

In this case, were ESD and MTA unreasonably intransigent, or were they pushing back on the developer's pursuit of extra privileges or, perhaps, approvals without sufficient assurances?

It's hard to tell. This kind of dispute could be resolved in the courts.

ESD's litigation risk, I suspect, would be tempered, first because state courts typically lean toward upholding state power.

Also, ESD it has leverage, as I wrote, that it hasn't publicly acknowledged or, as far as I can tell, tried to invoke: the power to approve Greenland's desire to move the bulk from the unbuilt B1 tower, long slated to loom over the arena, across Flatbush Avenue to Site 5.

Then again, a state authority aimed at promoting economic development might tread carefully to avoid being perceived as anti-business.

After all, as I've written, the project's guiding Development Agreement offers ESD 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.

A "bailout" and a boost

But by not enforcing the penalties, ESD is essentially making a concession--a "bailout" for Greenland, as Veconi indicated at the meeting last week.

Moreover, it's a boost for Cirrus Real Estate Partners, which has apparently negotiated Greenland's remaining share in the six railyard sites and in Site 5 and B1. (We could use a lot more clarity on those transactions and the current ownership percentages.)

"There is no justification for waiving those charges," Veconi put it at a press conference last month. "And the other parties in the deal are investors who have been speculating in the distressed debt of the current developer. They're sophisticated people. They understood that they were taking on something that has risk and liability in the form of these liquidated damages."

(Also, I'd argue, the parties took on risk because ESD has not yet approved moving the bulk of the B1 tower across Flatbush Avenue to Site 5, enabling a much taller and bulkier two-tower project than the single tower initially approved.)

That language was later echoed in a letter from ten local elected officials, led by Council Member Crystal Hudson, to Hochul.

"Our community has grown severely distrustful of this project, and our constituents deserve to know that their government is looking out for their best interest and delivering on promises made," the letter states. "The State has already set its own precedent of holding Greenland USA accountable, as the MTA has continued to collect its development rights payments from the firms speculating in Greenland's distressed debt."

The recent discussion

As shown in the video below, Veconi last week read the requirements to build affordable housing, noting that if the housing wasn't delivered, the project sponsors "will pay liquidated damages of $2,000 per month."

AY CDC Chair Daniel Kummer, a lawyer, noted that a clause said that requirement was "subject to extensions" in state documents, and they didn't have the ability to analyze them at the meeting.

Veconi asked whether Unavoidable Delay applied.

"We are giving... this new permitted developer process, a chance to play out," said ESD lawyer Matthew Acocella, and "we are postponing the implementation of the liquidated damages subject to them meeting interim milestones."

    

A separate disclosure?

"We have said in this meeting and in other meetings with you, Gib, that the developer has made numerous claims for unavoidable delay over the years which we don't agree with, but present legal complications and risks," Acocella added. "So in light of all the above, that this is the decisions we've taken for the time being."

That was interesting. Had Veconi been briefed separately by ESD? I asked him and he responded that he was wearing a different organizational hat:

BrooklynSpeaks representatives met with ESD in June to discuss the agency's response to the missed affordable housing deadline. That was the first time I can remember hearing about claims for unavoidable delay. We were not informed of the details.

If that doesn't necessarily pose a conflict of interest, according to state law, it does present an unusual situation. After I queried Veconi about a potential conflict, he responded:

What the Public Officers Law describes as conflict notwithstanding, it would not be appropriate for me to receive information from ESD related to the mission of AYCDC that was not shared with the rest of the board members. I asked the question about notices of unavoidable delay at the Wednesday meeting so ESD would answer it on the record.

Well, his question was a good one and Veconi has long been the AY CDC Director who's best informed and most focused on accountability. I think he could've been more transparent about it, though, acknowledging how he had gained that information.

It's worth noting that, in March, Kummer said such Unavoidable Delay claims were likely, which suggests he also might have been briefed as Chair and/or just had insightfully read my past coverage and other documents.

(Update: I should add that, at previous AY CDC meetings, a Greenland executive had previously noted that the pandemic caused delays and that the unavailability of financing could extend the deadlines.)

At the recent meeting, Veconi questioned ESD's trying to have it both ways: to dispute claims for Unavoidable Delay but then use that to give the developers an extension.

Kummer suggested the discussion might have to go to an executive session, and ESD's Arden Sokolow, Executive VP, Real Estate and Planning, said they could provide the legal rationale at that point.

Veconi then made the motion that ESD accrue the damages.

Elucidating the issue

The issue recurred later in the meeting

After Veconi said that it would be difficult to establish credibility when seeking community input to help shape the project's future, ESD's Anna Pycior, Senior VP, Community Relations, responded, "We would be hard-pressed to speak to them at all if we were mired in litigation."

"They have expressed that there's unavoidable delays that prevented them from meeting the affordable housing deadline," said ESD's Joel Kolkmann, Senior VP, Real Estate and Planning. "They have more or less expressed that should we seek the collection there would be litigation. And that would that stall the project."

(Unmentioned: the project has already been stalled for years not by litigation but by a foreclosure process.)

 

AY CDC Director Ron Shiffman, a veteran advocacy planner and academic, warned that this would bail out Greenland.

Kummer suggested they were choosing between scenarios. "We can choose one path that will move this pro"--he revised his phrasing--"has the potential to move this project forward," he said, "or choose another path that may satisfy the commitments, but that will essentially stall the project from moving forward."

Could they, he asked, potentially proceed on both tracks. Probably not, he was told by ESD.

ESD's Sokolow, as if pulling a trump card, then noted that Greenland controls Site Five, thus presumably gaining leverage. However, 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, as I wrote.

A neighbor's warning

In his public comment at the end of the meeting, Robert Puca, who lives on Pacific Street in a building across from the railyard, spoke disdainfully, saying, "I've been going through this for 20 years. It's all b.s."

None of the information from a community engagement exercise--I'll write separately about that--gets  incorporated, he said. "Whatever the developer wants, he gets." (Well, not always, as my article last year indicated, but generally so.)

He criticized ESD for not collecting the liquidated damages. "You have a settlement with Brooklyn Speaks," he said. "You're worried about being sued by Greenland because they're bringing up unavoidable delays, but you're not worried about being sued about by BrooklynSpeaks."

"I really really hope that BrooklynSpeaks sues you guys," he said, "because it's the only way that you listen." (Puca, as a member of the Prospect Heights Neighborhood Development Council, a component of BrooklynSpeaks, which threatened a lawsuit to gain the 2014 settlement.)

I asked Veconi about whether BrooklynSpeaks might sue, and whether they had a budget for lawyers or needed pro bono representation. His response:

BrooklynSpeaks has been represented by counsel since 2009. We will continue to both engage ESD toward honoring the 2014 agreement we negotiated in good faith, and evaluate legal options for accountability at Atlantic Yards.

Real reciprocity

In his remarks, Puca asked how bailing out Greenland would help the community: "I've been living next to this project, like I said, since 2002. My quality of life and everyone's quality of life in the neighborhood has gone downhill."

"You never hired a quality of life monitor," he said. "If you want to know what the community wants, the community would like someone they could actually speak to when there's a problem on the ground and they could call somebody and get it fixed in real time. That would be wonderful. That would be a first step."

(Puca's building, for example, saw street access cut off with little warning last December, as city officials ceded space for a gathering of the Satmar Hasidic sect.)

"The community wants the liquidated damages collected. They want that money to be put into affordable housing. That's what the community wants. It's an agreement." he said. "Stick to it."

BSE Global's Joe Tsai would get the plaza for free, he noted, echoing an argument I've made. "Why don't you have him pay to form a community quality of life group at least," he said, echoing a BrooklynSpeaks ask.

That, he said, could build trust, "because right now the community doesn't trust anything you say. Because with all due respect to everyone in this room, with all due respect to staff, I've been through so many different staff and it's just the same thing said over and over again,"

I'd note that Puca was the only person to comment publicly, which is a sign that 1) public meetings on weekday afternoons are unlikely to draw many people and 2) fewer people than in the past are exercised about Atlantic Yards--or, simply, they're burnt out.