Why valuable Site 5 ($250M-$400M+?) is key to restarting Atlantic Yards, and why New York State has far more leverage than it acknowledges

This is the second 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 third addressed whether Greenland has a case to protest the penalties. The fourth addressed plans for "community engagement."

 

As I reported yesterday, state officials justified an extension in suspending pursuit of affordable housing penalties by noting that a joint venture led by Cirrus Real Estate Partners and the development firm LCOR now aims to become the "permitted developer" for Site 5, the parcel catercorner to the arena, not just the six development sites over the Vanderbilt Yard.

So they need more time to analyze the application, which would involve financial partnerships with Greenland USA, the current master developer.

What was alluded to, but not discussed, was that the Site 5 parcel is immensely valuable, and may cross-subsidize not just below-market "affordable housing" but also--perhaps--the costly platform needed to begin development over the railyard sites.

That value, unspecified at the meeting but elucidated below, is unlocked, however, only if ESD pursues new public approvals, allowing a transfer of bulk to Site 5.

That would not only enrich the developers--keep in mind that Greenland USA has reneged on promises to build affordable housing and Cirrus has entered, essentially, as a speculator-- it would be immensely valuable to arena operator BSE Global.

By not building B1, that would preserve what's now known as Ticketmaster Plaza--key to arena operations and as a platform for advertising and promotion--in perpetuity.

So ESD has more leverage than acknowledged, as I wrote, both to gain value from both the developers and BSE Global.

Girls basketball camp on plaza, July 2024. Photo: Norman Oder

The state of play

Let's recap.

Greenland is expected to lose the right to develop the railyard sites in foreclosure, but, thanks to its embedded investment, to retain an ownership share, albeit with EB-5 loan creditors Fortress Investment Group and an affiliate of the U.S. Immigration Fund, the manager of the loan to immigrant investors.

Greenland is also expected to be a financial partner in the giant project planned at Site 5, currently home to the now-closed Modell's (being temporarily used for youth basketball) and P.C. Richard. 

While Site 5 was approved in 2006 for a 250-foot, 439,050 square-foot tower, the developers have long sought to transfer the bulk from the unbuilt B1 tower, long slated to loom over the arena, across Flatbush Avenue to Site 5.

Building on a 2016 proposal for a significant two-tower project, Greenland in 2021 gained ESD backing for an even larger complex with some 1.242 million square feet, and the taller tower rising 910 feet. 

It would contain residential space, a hotel up to 550 rooms, exterior LED signage, and retail, the below-grade component of which--swapped for underground parking--would not count toward the overall square footage, according to Exhibit K (right) of the interim lease.

What's it worth?

That's worth a lot. How much?

Well, in early 2022, I calculated that, at $263 per buildable square foot--TerraCRG's assessment of the 2020 investment sales market in Downtown Brooklyn--the bulk, then projected at 1.142 million square feet, could be worth $300.4 million.

Last August, I noted that Terra CRG’s 2023 investment report valued larger sites in nearby Downtown Brooklyn at $307 per buildable square foot (bsf).

That was before the new 485-x tax break, which triggers somewhat deeper affordable housing than its predecessor 421-a. A real estate broker told The Real Deal of sites trading for about $200/bsf, less than the previous $200-$250 bsf.

According to TerraCRG, the 30 transactions in the Greater Downtown Brooklyn area in 2024, totaling 1.413 million square feet (barely more than the Site 5 plan), sold for an average of $226/bsf, with significant variation among neighborhoods.

Drilling down

Site 5 surely deserves a premium, given its location, views, hotel, and revenue from the LED signage and below-grade retail. At $250/bsf, it could be worth $310.5 million. At $300/bsf, it could be worth $372.6 million. At $350/bsf, it could be worth $434.7 million. 

Looking south at Site 5. Photo: Norman Oder

Those numbers, of course, would come before encumbrances, such as required affordable housing, likely more deeply affordable than previously approved.

(How much was the B4 tower, the largest current tower, which benefited from the 421-a tax break? Well, the lease was valued at $194,745,462. Depending how the square footage was calculated--740,000, to YIMBY, or 809,220, to AFL-CIO HIT--that works out to $263 to $241 per buildable square foot.)

According to my analysis of Chinese-language audit, Greenland arguably valued Site 5 at nearly $606.7 million, which seems like a stretch.

It's worth getting an outside, credible assessment.

A "bailout" for Greenland

Greenland, nominal master developer, should be on the hook for the $1.752 million in monthly penalties for the 876 units of affordable housing not delivered by May 31, members of the AY CDC said at the meeting, after learning ESD had deferred not just the penalties but even calculating them.

"If there is any cost, it means Greenland will get less," Director Ron Shiffman, a veteran advocacy planner and academic. "Greenland's going to walk away with more money from the deal" to sell its embedded investment in the remaining parcels.

"It's a bailout," commented Director Gib Veconi, who successfully moved that ESD present the developer with a notice of damages due. (As a leader of the BrooklynSpeaks coalition, he in 2014 helped negotiate the new 2025 affordable housing deadline.)

"It's a bailout,""Shiffman chorused, "and we should not reward them for what they have not met."

It's unclear even a presentation of the accrued damages would happen. ESD, however, said that pursuing the liquidated damages, which would go to a city affordable housing trust fund, would lead to litigation, which could stall everything.

Recognizing the value

At one point in the discussion, AY CDC Director Drew Gabriel, a member of Brooklyn Community Board 8, made a rather small-bore ask, pointing out that meetings of that board lack a space that offers wi-fi. 

(The railyard sites would be in CB 2, and Site 5 in CB 6, while the southeast block of the project, plus B15, are in CB 8.)

So they might ask for a better space. "We want to hear all of this," he was told. But who's going to pay for it, he asked.

 

"I can't answer yet," responded ESD's Arden Sokolow, Executive VP, Real Estate and Planning. "We need to hear what the 'it' is and this will be part of the overall financial feasibility analysis."

ESD's Anna Pycior, Senior VP, Community Relations, added, "And I will say that one of the best parts of having Site 5 be brought into the fold and not be only speaking about the platform site is that it is much more solvent, and it helps the project overall."

"I agree." said Shiffman.

Parsing it out

I don't disagree that adding Site 5 makes the project more economically feasible and that negotiating with one main development team makes things easier for ESD.

But the devil's in the details, and failing to pursue contractual obligations casts doubt on future contracts.. 

We don't know any of the details of the financial transactions involving Cirrus, LCOR, and Greenland, much less the two parties--an affiliate of the U.S. Immigration Fund and Fortress Investment Group--that own a share of the railyard development rights.

We do know that Greenland knew--or should have known--when it invested in the project in 2014, after the arena had opened, that it might be a challenge to exercise development rights to B1, and would have to go through a public process to move the bulk.

Same, of course, for Cirrus.

Meanwhile, when Joe Tsai, main owner of BSE Global, invested in the arena company and the Brooklyn Nets and 2017 and owned them completely in 2019, he surely knew that a real estate company could build a tower, deeply interfering with arena operations. Meanwhile, the value of his holdings has skyrocketed.

In other words, they all took risks, and their investments, most likely, would have been at a higher cost without those risks.

Why should they be bailed out? Why can't there be a better balance of public and private benefits?