Atlantic Yards and the Culture of Cheating (links)

I offer a framework to analyze and evaluate Atlantic Yards and the Barclays Center: Atlantic Yards and the Culture of Cheating.

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Barclays Center/Levy Restaurants hit with suit charging discrimination on disability, race; supervisors said to use vicious slurs, pursue retaliation

The Daily News has an article today, Barclays Center hit with $5M suit claiming discrimination against disabled, while the New York Post headlined its article Barclays Center sued over taunting disabled employees.

While that's part of the lawsuit, more prominent are claims of racial discrimination and retaliation, with black employees claiming repeated abuse by white supervisors, preferential treatment toward Hispanic colleagues, and retaliation in response to complaints.

Two individual supervisors, for example, are charged with  referring to black employees as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”

Two have referred to an employee blind in one eye as “cyclops,” and “the one-eyed guy,” and an employee with a nose disorder as “the nose guy.”

There's been no official response yet though arena spokesman Barry Baum told the Daily News they, but take “allegations of this kind very seriously” and have "a zero tolerance policy for any type of discriminatory behavior in the workplace. It is against everything that Barclays Center stands for."

Indeed, if the claims are valid, the lawsuit casts a shadow over the prominent promises of local hiring and the significant presence of black employees on the front lines.

The details

Five workers (four of them black) in food service at the arena have sued three white supervisors, Levy Restaurants, Levy Premium FoodService, and the Barclays Center (aka Brooklyn Events Center), charging racial discrimination, disability discrimination, retaliation, and a hostile work environment. See complaint at bottom.

Four of the plaintiffs are black, one of them blind in one eye. Another plaintiff, not black, has cerebral palsy and "moderately severe rhinophyma, a rare skin disorder causing abnormal overgrowth of nose glands."

The suit charges that the employees have been pushed toward less skilled positions. Levy Premium operates three kitchens at the Barclays Center: the 40/40 Club by American Express and the Calvin Klein Courtside Club, premium restaurants that demand more complex culinary skills than Concessions because of their upscale rather than fast-food menu.

One plaintiff is a Senior Supervisor, another a Lead--both in the middle of the hierarchy--and three have the status of “Cook 3,” at the bottom of the hierarchy.

From the lawsuit

The lawsuit states:

Beginning September 2013, the Individual Defendants [Aaron La Greca, Alphonse Lanza and Lisa Brefere] began to subject Plaintiffs to an intolerable hostile work environment by repeatedly assailing on black employees with outrageous profanity and racially offensive language and gestures. On a regular and continuing basis, Plaintiffs have heard Defendants Lanza and La Greca referring to black employees, inter alia, as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”
Similarly, in or around December 2013, Plaintiffs [Barnett] Valerie and [Sydney] Silvera, among other employees, heard Defendants Lanza and La Greca maliciously ridiculing Wendy Woolfork, the Human Resources (“HR”) Director at Levy Premium, by saying that she is “uppity” “because she is black and in management,” and claiming, in substance, that she was only hired for “show.”
Plaintiffs Valerie and Silvera have also seen Defendants Lanza and La Greca outrageously mocking Terrance Greenidge, a black employee, by making monkey gestures. In or around December 2013, Plaintiff Valerie saw La Greca and Lanza showing CK kitchen employees picture of “Beetlejuice,” a cartoonish character from the “Wack Pack” of the Howard Stern Show, who is played by an African-American man who suffers from microcephaly and dwarfism. See Exhibit A. [Here are photos from the web.] As they circulated the picture, La Greca and Lanza maliciously laughed and ridiculed Mr. Greenidge, saying “look at the black monkey,” “look at this little black nigger!”, encouraging employees to laugh, and telling all employees who were present that Mr. Greenidge resembles Beetlejuice.
 Defendants also have licensed other employees to revile Plaintiffs [Anthony] Peterkin, [Ramses] Graham and Valerie for being black. For example, Chef Elizabeth Degori, Sous Chef of the CK kitchen, has called Plaintiff Peterkin “stupid dumb fuck” in front of the CK kitchen staff, because of her animus against dark-skinned individuals. Chef Degori has also assailed upon Plaintiff Graham with egregious profanity, an excessively aggressive tone and specious write-ups. On one occasion, Chef Elizabeth Degori, gave Plaintiff Graham a write-up for allegedly pushing an employee although there were no complaints against Graham and there was no investigation into Degori’s allegations. Similarly, Plaintiff Valerie endured significant maltreatment by Darcy Tapia, Senior Catering Manager at Levy Premium, as Ms. Tapia was consistently and repeatedly aggressive, condescending and disrespectful to Plaintiff Valerie, because he is black. Upon information and belief, Ms. Tapia attempted to have Plaintiff Valerie removed from the CK kitchen due to her racial animus.
Defendants also force Plaintiffs to endure an abusive work environment by constantly mocking employees with disabilities, and subjecting them to egregiously demeaning name-calling. On several occasions, Plaintiffs have heard Defendants La Greca and Lanza referring to Plaintiff Peterkin as “cyclops,” and “the one-eyed guy,” because he is visibly blind in one eye. Plaintiff Peterkin also overheard Defendant La Greca asking “why is he [Peterkin] working here if he’s blind.” Similarly, La Greca and Lanza refer to Plaintiff Silverman as “the nose guy,” and constantly saying comments like “his mother so [sic] ugly.” Plaintiff Silvera, who supervises Plaintiff Silverman as Lead, was deeply outraged and helpless as she saw Defendant La Greca ridiculing Silverman, pretending to mimic Silverman’s nose deformity by placing a piece of bread on his nose, and attempting to mimic Silverman’s voice. Further, in one occasion, Plaintiff Silverman heard Defendant La Greca making fun of his uncontrollably shaky hand, which is a symptom of his cerebral palsy.

Charges of racial preference

The lawsuit states:

Further, at all times relevant hereto, Defendants implement discriminatory hiring and promotion practices. Upon information and belief, the only Leads at the 40/40 kitchen who are black are individuals who were hired or promoted prior to September 2013, before the Corporate Defendants hired Defendants La Greca, Lanza and Brefere. Plaintiffs Silverman, Graham, Peterkin and Silvera have been passed for promotions despite their satisfactory employment evaluations, while newly hired or promoted employees are exclusively Hispanic individuals of lighter skin, who are unqualified for their positions, as evidenced by their inefficient performance. For example, Fani Ualpa, Marco Pena and Sandra Ortiz, who are recently-hired light-skinned Hispanics, cannot fulfill their responsibilities, and create more work for others because of their inability to manage their tasks.
....Defendants also evidence pervasive racial discrimination in their enforcement of workplace policies. While Plaintiff Graham received one write-up for tardiness, Mr. Pena, a light-skinned Hispanic, has not been reprimanded or written-up for repeatedly being late.

Charges of retaliation

The lawsuit states:

Upon complaining about racial and disability discrimination in the workplace, and the hostile, unequal and unfair environment they are forced to endure, Plaintiffs Valerie, Graham Silvera and Silverman suffered callous retaliation from Defendants.
Plaintiff Valerie, who had never received a write up during his career at Levy Premium, began to receive specious write-ups after he persistently spoke to the Individual Defendants, to Ms. Woolfork and Mr. Loiselle about the unequal treatment of black and disabled employees. On March 10, 2014, Ms. Tapia harassed Plaintiff Valerie while he was following her orders, because of her racial animus. Ms. Tapia called three (3) Caucasian managers, including Director of Operations Greg Costa to the kitchen, to berate Plaintiff Valerie in front of the staff. Plaintiff Valerie was further humiliated as Ms. Tapia ordered the other managers to physically restrain Valerie, take his employee ID and escort him out of the building. Plaintiff Valerie was consequently suspended for four (4) shifts, although Ms. Tapia did not provide any reason as to why he was maltreated or why he was disciplined. On a meeting with HR following the incident, Plaintiff Valerie found out that Ms. Tapia and the managers had falsely accused him of using foul language.
In retaliation for his complaints about Defendants’ disparate treatment of black and disabled employees, Defendant Levy Premium demoted Plaintiff Valerie to the 40/40 kitchen and stripped him of all supervisory duties and responsibilities of running the CK kitchen, and of his pride in his work. Upon being transferred, Plaintiff Valerie was no longer treated as second in command. He was no longer responsible for providing guidance to employees, directing the production of all foods, or assisting other managers in creating setting employee schedules; rather, he only was in charge of preparing and making salads, although his title involved more complex responsibilities. By contrast, Mel Capellan, a light-skinned Hispanic, performed supervisory duties at the 40/40 kitchen, although he is a Lead and Plaintiff Valerie was supposed to be his manager.After demoting Plaintiff Valerie, Defendants continued to isolate and castigate him by refusing to support him in his management role of supervisor, in retaliation for complaining about the systemic discrimination at Levy Premium and the Barclays Center. For example, when Plaintiff Valerie raised concerns about Mr. Capellan’s refusal to follow his directions, Chef Tourtollet told him that Mr. Capellan is not required to follow his directions because Mr. Capellan is the “go to guy,” and that he needs to treat Mr. Capellan as a supervisor, although, as a Lead, Mr. Cappellan should be under his supervision. See supra ¶ 23. Instead of allowing Plaintiff Valerie to oversee and manage employees at the 40/40 kitchen, Defendants treated Mr. Capellan as the de facto supervisor. This dismissal of Plaintiff Valerie’s authority as a supervisor prevented him from fulfilling his responsibility to effectively manage the 40/40 kitchen. 

Defendants have also retaliated against Plaintiff Graham by giving him specious write-ups for complaining about maltreatment and the failure to promote him because he is black. 

Defendants also retaliated against Plaintiffs Silvera and Silverman by reducing their work hours for complaining about the flagrant discrimination against black and disabled employees at Levy Premium and the Barclays Center.

The lawsuit seeks at least $1.25 million on four claims, plus punitive damages, liquidated damages, lost wages, and attorneys’ fees.

Lawsuit against Barclays Center, Levy Restaurants

Correction: Forest City's plan is to build over East River Plaza, not Atlantic Center mall

I erred, and apologize:  Forest City informs me the plan is to build over East River Plaza, not Atlantic Center. See background here.

So please consider the below as background for the plan, if/when it emerges, to build over Atlantic Center. It is approximately the same amount of space.

Forest City Ratner has begun dropping hints that it's preparing to build 1 million square feet--perhaps in three towers--over the Atlantic Center mall, a long-hinted plan that was never formally part of Atlantic Yards but directly adjacent to it.

The Atlantic Center Mall is just north of the arena

That could add some 1,000 apartments--maybe all market-rate--to the coming density of the Atlantic Yards project, which would include 6,430 apartments in 14 to 15 towers, plus another tower (if ever built) devoted to office space

BisNow reported yesterday, almost in passing:

Forest City Ratner keeps interior design and construction in house, which makes taking on entitlement risk a little less scary, says the company's Melissa Burch. Forest City Ratner is starting the ULURP process to activate 1M SF of air rights over a retail center, she says.

The process is apparently still in the very early stages, with several questions--about scale, affordability, timing, construction methods, financing--yet to be answered. And while the "retail center" was not specified, the only potential location, as far as I know, is that mall.

It's also unclear if the towers would be residential, but residential is a far hotter market than office space right now.

[Updated and clarified] I contacted Robert Perris, District Manager of Community Board 2, who had not heard of a pending land use application. He in turn got in touch with the Department of City Planning, which informed him, “We are not currently aware of a ULURP application related to the project mentioned in the newsletter."

Photo of 2005 mode=

How ULURP works

The Uniform Land Use Review Procedure, or ULURP, begins with a filing sent "to the affected Borough President, Community Board and the City Council." It then must be certified by the Department of City Planning (DCP), which sends certified applications to the Community Board, Borough President and the City Council.

That triggers a public hearing, and a Community Board recommendation, then a Borough President recommendation, and a City Planning Commission hearing and vote to approve, modify, or disapprove. 

Then it goes to City Council, where the position of the Council Member--in this case Laurie Cumbo--usually steers modification or approval. The mayor gets involve only in case of a veto, which can be overridden by  2/3 vote of Council.

Pending questions

How many towers will there be--three? four? More towers mean relatively smaller buildings.

Where would entrances be: on the outer (mall) side or would the blank walls on the inner (Fort Greene) part of the mall be opened up?

Will any units be affordable? I'm not sure any affordability is required, but it might be prudent politics to include some subsidized units. Or if Forest City seeks any special privileges beyond its already established development rights, that could require some affordability.

I'd bet that local elected officials "win" a compromise that includes some affordability.

How will the towers be built? Forest City had said it wanted to build all of Atlantic Yards using modular construction, but, due to direction from its new joint venture partner/overseer, the Chinese government-owned Greenland Group, will build the next few using conventional construction.

That said, the kinks in the modular factory may be worked out by the time the Atlantic Center towers get built. And, eyeballing the site, it strikes me that, given the limited staging area near the mall, it might very much make sense to build modular.

How will the towers be financed? Will Greenland help? Maybe. Will Forest City use the ever-popular (and ever-sketchy) EB-5 program to get cheap financing by hawking green cards to immigrant investors, as it has with Atlantic Yards? I'd bet yes.

Past plans

As I wrote in May 2006, radio host Brian Lehrer asked then Forest City Ratner executive Jim Stuckey about the company's plans to build new towers above the Atlantic Center mall, which were hinted at by models displayed at a recent press conference

Stuckey replied that, when the Atlantic Yards Memorandum of Understanding was signed in February, 2005, "we signed a Memorandum of Understanding to build over the Atlantic Center mall as well." 

2006 model

What he didn't say was that the first MOU was announced publicly, and the second--which transfers some rights to build at Site 5 across Flatbush Avenue (currently home to P.C. Richard/ Modell's)--was not announced until Develop Don't Destroy Brooklyn discovered it through a Freedom of Information Act request.

Stuckey told Lehrer, "The fact is that this was studied in the downtown plan’s EIS." 

Well, the proposed construction was incorporated into the baseline condition for future downtown development, but the Environmental Impact Statement provided few details on how closely it was studied.

Past concerns

According to local activist Jim Vogel, as early as a neighborhood meeting concerning Atlantic Yards, held by the Park Slope Civic Council in March 2004, the mall towers and the Site 5 tower were in the models.

"When I saw the models I asked one of the 12 [Forest City] people at that meeting what I was looking at," said Vogel, who was representing Brooklyn Vision, which monitors development and planning issues. "At that point they said there would be four towers: two 12-story ones over the 'uphill' section and two 16-story ones over the Atlantic Avenue section."

Because no environmental review that addressed the new towers over Atlantic Center, Vogel--who was then Secretary of the Council of Brooklyn Neighborhoods--wondered how the Atlantic Yards EIS can accurately estimate their cumulative effect. "If they are serious about these towers they have to be declared and their effects in relation to the Atlantic Yards development properly evaluated."

Forest City's 2012 update

In a June 2006 article in the Observer, Matt Chaban pointed to Forest City's acceleration of plans to redevelop the Atlantic Center and Atlantic Terminal malls with revamped retail:

One piece in the possible architectural transformation of the two malls is more than a million square feet of development rights Forest City still holds on the property. Together, the two malls equal a little less than 800,000 square feet, meaning an expansion could more than double the space.
This does not necessarily have to be retail development, as the Atlantic Terminal building already has an office tower on top, known as 2 Hanson Place. As Norman Oder pointed out back in 2006, preliminary designs for the Atlantic Yards project revealed three towers atop the mall, tucked away in the background and unmentioned in discussions of the project.
Ms. Gilmartin said time would determine the best use of that extra square footage. “It’s a rubix [sic] cube of the grandest proportions,” she added. 

I'd bet that time is pointing to residential.

In EB-5 criticism, Daily News doesn't connect dots to Atlantic Yards; industry pushback on Fortune story leans on Buffett buff

Yesterday the New York Daily News offered this brief editorial, A wheely big deal, subtitled "$150 million from Chinese nationals to help build the Staten Island Ferris Wheel":

You know the enormous Ferris wheel project planned for the North Shore of Staten Island? It just got a huge cash infusion: $150 million, through a federal program that lets affluent foreigners and their families get temporary visas when they invest at least $500,000 in U.S. job creation. In this case, the lucky rich visa-holders-to-be are 300 Chinese nationals.
And you thought immigration policy was broken.

My comment: "Same goes for Atlantic Yards: $249 million. Through deceptive marketing."

Somehow the Daily News didn't connect the dots. But maybe that's because no other news outlet beyond this blog has reported on the Atlantic Yards deal, and the Staten Island news emerged last week.

On the New York Wheel

The Staten Island Advance reported 7/24/14, New York Wheel gets financial backing from Chinese investors through federal green card program:

STATEN ISLAND, N.Y. -- The New York Wheel project slated for Staten Island's North Shore will get some big bucks from foreign investors in China after receiving approval Monday for a federal green-card job program.
The Wheel will rake in a total of $150 million in foreign investment through a popular federal program known as EB-5, project CEO Rich Marin told the Advance Wednesday.
"There's nothing about it that isn't good for us -- this is good news for Staten Island," Marin said. "This is good news for the project. This is good news for everyone."
EB-5 provides temporary visas for affluent foreigners and their families if they invest at least $500,000 in job-creating enterprises. This can eventually lead to them receiving green cards if their investment creates at least 10 permanent jobs within two years.

The $150 million investment in the Wheel project will come from 300 foreigners living in China, each investing $500,000.

Note that this represents nearly 38% of the $400 million in total financing. 

Marin admits the rationale: "Without EB-5, we would have had to find another source of financing to fill that hole, which would have been much more expensive."

Duh. Which is why it's such a great deal for developers.

How many jobs?

The article states, "In total, the New York Wheel will create 350 construction jobs and 500 permanent, full-time positions."

But wait: the investment has to create 3000 jobs, at least on paper, at ten jobs per investor.

A 7/25/14 article in China Daily, NY Wheel reels in Chinese EB-5 investors, adds this detail:

According to job studies commissioned by New York Wheel, the project will create about 4,200 jobs, including 300-350 construction jobs and 400-600 permanent jobs.

And that's all it takes, even though the methodologies are dubious, as I've noted and as noted in a major Fortune magazine investigation published last week.

Industry pushback

On 7/24/14, IIUSA Statement on EB-5 Article in FORTUNE, the Association to Invest in the USA tried to push back:

As the industry trade association representing over 200 EB-5 Regional Centers across the country that account for well over 95 percent of all capital flowing through the EB-5 Regional Center Program (the “Program”), IIUSA has consistently supported Congress, regulators and other stakeholders to ensure the integrity and continued success of the Program. It is unfortunate that this week’s FORTUNE article used an old story of fraud committed by a criminal who has been brought to justice to characterize an entire industry that contributes billions of dollars to U.S. GDP, supports tens of thousands of American jobs, and generates hundreds of millions of dollars in federal, state, and local tax revenue – all at no cost to taxpayers.
No one is more committed to protecting the integrity of the Program than IIUSA and its members – which did not include Mr. Sethi. That’s why we filed an amicus brief in support of the SEC’s enforcement action and publicly stated our support for the enhanced inter-agency collaboration necessary to protect the integrity of the Program. That’s why we have developed industry best practices and traveled all over the world to promote them, and why we conduct regular compliance training for our members. And, that’s why we have consistently supported strong oversight by Congress and regulatory agencies.
The long list of successful projects ignored in the story demonstrate the reality of the Program as a 21st century economic development tool – nearly 800 jobs at new senior living facilities in rural Washington State, more than 400 at a science incubator in Milwaukee, over 100 building and operating a much-needed medical facility in Riverside County, California, in addition to larger projects like the San Bernadino Regional Airport and Philadelphia Navy Yard where thousands of jobs were created. Those are just a few of the EB-5 success stories creating jobs in local communities.
In the words of Warren Buffet, Bill Gates and Sheldon Adelson: “People willing to invest in America and create jobs deserve the opportunity to do so. Expanded investments of that kind would help us jolt the demand side of our economy. These immigrants would impose minimal social costs on the United States, compared with the resources they would contribute. New citizens like these would make hefty deposits in our economy, not withdrawals.” 

Like these titans of business, we stand with America’s job creators in support of EB-5.

The IIUSA has a partial point. The fraudster who was the focus of the Fortune investigation was an actual criminal.

The scandal regarding EB-5 isn't the illegal activity that sometimes arises. The scandal is what's legal, as I've noted.

As to "industry best practices" and "regular compliance training," well, consider the piously evasive Senate testimony by the IIUSA's Robert Divine.

And Fortune's Peter Elkind did point to solid evidence that questions all the industry claims:

Others who have examined the program view it very differently. They question whether it generates many jobs—especially in needy areas. A December 2013 study by the Department of Homeland Security’s inspector general found that the government “cannot demonstrate that the program is improving the U.S. economy and creating jobs for U.S. citizens.” A February 2014 paper by the Brookings-Rockefeller Project on State and Metropolitan Innovation concluded that “knowledge of the program’s true economic impact is elusive at best.”

And it's fairly clear that the "titans of business," as I wrote, don't know what they're talking about.

Is the marriage of Jay-Z and Beyoncé on the rocks?

Is the marriage of Jay-Z and Beyoncé on the rocks? It's tough to trust an extensive but anonymously sourced New York Post Page 6 article, headlined Inside the crumbling marriage of Jay Z and Beyoncé:

They are one of the most famous couples on earth, yet intensely private — rarely allowing a glimpse of anything but the picture of a marriage and partnership that is constantly, blissfully happy.
But a source who has been close to Beyoncé and Jay Z for years tells The Post that all is not well — and hasn’t been for quite some time.
This is the first peek behind the firewall that is Beyoncé and Jay Z Inc. — what drew them together, why they’re headed for a split and why love was never the thing that held them together.

If the allegations are ever confirmed, they'd remind us how the Jay-Z mystique, compounded by his mega-celebrity wife, was used to sell the Barclays Center, via their concerts and their paparazzi-drawing presence at the basketball sidelines.

At 10 MetroTech, some familiar complaints regarding Forest City construction methods

Maybe neighbors of 10 MetroTech need their own version of Atlantic Yards Watch, say 10 MetroTech Watch.

First, on 7/18/14, Fort Green Focus reported Rockwell Place Residents Concerned By Demolition & Dust At 10 MetroTech:

Continued demolition work at the site called 10 MetroTech Center (alternately 625 Fulton Street) is filling 1 Rockwell Place with potentially harmful dust, says a letter written by building residents to Public Advocate Leticia James.
The letter, which 1 Rockwell resident representatives Sandra Mullin and Laura Tucker say they are also sending to City Councilmember Laurie Cumbo, Speaker Melissa Mark-Viverito, andBorough President Eric Adams, alleges that site developer Forest City Ratner only began using wet methods to mitigate dust from the demolition after complaints were made–and that they believe FCR should pick up the bill for their apartments being cleaned of said dust. As the work includes demolishing an 1800s candy factory, residents are especially worried that the resulting dust could contain lead, asbestos, and other toxic materials. 

...However, FCR Vice President of External Affairs Ashley Cotton says dust containment methods were being used at the site the entire time.

On 7/24/14, the Brooklyn Heights Blog updated the story, with Forest City Ratner Again Focus of Local Residents’ Ire:

Ms. Tucker disputes FCR’s version of the situation.
“In terms of damage, noise and filth, my apartment is covered in a layer of fine grit,” said Tucker, whose apartment is directly across from the demolition site. “If I leave a window open, a paper towel used to wipe my kitchen table will come up black. Curtains washed in the late spring are grey with filth. It’s impossible to keep up with the cleaning. And we have absolutely no idea what’s in the dust.”

It's not clear whether there are any violations--and none have been found, according to the Department of Buildings web site.

Well, the pattern with Atlantic Yards has been that improvements in procedures--whether or not previous procedures were compliant with the law--have come about only after neighbors' monitoring and complaints. And Forest City Ratner has done better. But it's taken a while.

REBNY, the governor, and the enduring influence of big real estate on Albany (and an Atlantic Yards flashback)

Yesterday's New York Times investigation, Cuomo’s Office Hobbled Ethics Inquiries by Moreland Commission, concludes:

While the governor now maintains he had every right to monitor and direct the work of a commission he had created, many commissioners and investigators saw the demands as politically motivated interference that hamstrung an undertaking that the governor had publicly vowed would be independent.

The article describe how Gov. Andrew Cuomo's office shut down an effort to subpoena the Real Estate Board of New York, which ultimately provided information voluntarily (though it's not clear how much).

Investigators also discovered "an unusually direct memorandum sent by Steven Spinola, the organization’s president, asking members to donate to Assembly Democrats," and sought to highlight:

discovery of email correspondence from a major New York City builder, Extell Development, about a coming fund-raiser for Mr. Cuomo tied to his birthday. The email discussed what amounted to a perfectly legal sidestepping of campaign-donation limits: funneling money through a series of limited-liability companies.
“As you know,” Ms. Perry wrote, “I strongly believe we should include whichever docs we think will add the most value in the report and include them without fear or favor, as they say.”
The report did recommend closing the limited-liability company loophole. But it omitted any mention of the real estate board, the governor’s birthday party or Extell.

As The Real Deal put it yesterday, REBNY’s influence over Cuomo laid bare, and quoted a critic:

“It certainly makes very explicit what we believe was happening,” said Susan Lerner, director of Common Cause New York, a nonprofit that tracks connections between money and politics. Lerner was referring to an alleged pattern of campaign contributions in which lawmakers receive money from real estate interests shortly before a key policy decision impacting the industry is made.

The Atlantic Yards angle

As I wrote in June 2007, a reform of the state's 421-a tax exemption was amended, at developer Forest City Ratner's request, to exempt Atlantic Yards. The project was announced when the tax break applied to any market-rate construction outside Manhattan.

That tax break was too generous, so it was finally pulled back: the state, at the city's nudge, required affordable housing to get the tax break.

But Forest City had added condo buildings to the 50% affordable/50% market rental buildings. Instead of requiring those three or four towers to include 20 percent affordable units, as the tax break reform would require, the developer would be allowed to spread the affordability over the project as a whole—as long as the project met requirements written just for it.

The New York Observer reported: "Steven Spinola, the president of the Real Estate Board of New York, the leading industry trade group, told The Observer that he lobbied legislators for the special exception."

The bill, as initially written said projects would be “eligible for benefits… if in the aggregate twenty percent of the units in such development are affordable to… families whose incomes at the time of initial occupancy do not exceed 60 percent of the area median incomes [AMI]...” Then the AMI was raised to 70 percent.

Here's the bill:

... if in the aggregate twenty percent of the units in such development are affordable to and occupied or available for occupancy by individuals or families THE AVERAGE OF whose incomes at the time of initial occupancy do not exceed [60] SEVENTY percent of the area median incomes adjusted for family size and the rent for such units does not exceed thirty percent of eighty percent of the area median incomes adjusted for family size.

A lingering question is whether Atlantic Yards will still meet that requirement. For example, in the next two towers, 100% affordable, 35% of the units would meet that average. At the same time, two all-market condo towers are being built.

Average those two buildings together and the percentage of low-income units is under 20%. Presumably Forest City Ratner is keeping watch on the overall numbers.

Ultimately, in 2007, the tax break on the condo buildings was pared back, but the overall carve-out remained.

Fortune dissects EB-5: "The dark, disturbing world of the visa-for-sale program"

Fortune magazine today offers a deep investigation into the EB-5 immigrant investor program, The dark, disturbing world of the visa-for-sale program, by Peter Elkind and Marty Jones.

The narrative focuses at length on a notorious case in Chicago, “World’s First Zero Carbon Platinum LEED-certified and 100% Allergen Free convention center and hotel complex,” promoted by Anshoo Sethi, which was clearly fraud.
But Elkind's investigation confirms and deepens much of what I've reported: that the program itself is inherently suspect:

Today EB-5 commands bipartisan support—and it’s booming. Believers tout the program as a “win-win-win” that helps immigrants and U.S. workers, and provides valuable investment in American communities. A trio of billionaires—Warren Buffett, Bill Gates, and Sheldon Adelson—recently endorsed the program in an op-ed column in the New York Times.
But because the EB-5 industry is virtually unregulated, it has become a magnet for amateurs, pipe-dreamers, and charlatans, who see it as an easy way to score funding for ventures that banks would never touch. They’ve been encouraged and enabled by an array of dodgy middlemen, eager to cash in on the gold rush. Meanwhile, perhaps because wealthy foreigners are the main potential victims, U.S. authorities have seemed inattentive to abuses.
Certainly, there are thriving, completed successes... Others who have examined the program view it very differently. They question whether it generates many jobs—especially in needy areas...
There are two reasons for that. First, the government is exceedingly generous in its employment tally. It gives EB-5 investors credit for all the jobs theoretically spawned by a project even when EB-5 money represents only a sliver of its financing. Second, for many mainstream ventures, EB-5 money isn’t really creating jobs—it’s merely saving developers money for projects that would be financed anyway. (Indeed, those big companies are actually “hijacking” money from worthy smaller investments in hard-hit areas, argues Michael Gibson, a financial adviser who vets EB-5 investments.)

What changed

As explained, the 2008 financial crisis launched EB-5 as a source of cheap capital:

At the heart of the program is an unusual trade: Because the immigrants care far more about getting a green card than anything else (their families get visas too), they’re willing to accept a token financial return. In fact, when “administrative” fees of about $50,000 are added, they’re typically paying for the privilege of sinking $500,000 into a U.S. venture for five to seven years—with no guarantee that they’ll ever get it back. And in part because of distance and language barriers, the targets of EB-5 pitches seem ill-equipped (or disinclined) to assess the business risks.
Though the government issues the visas, private developers reap the benefits. After middlemen get their piece, the cost of EB-5 capital runs between 4% and 6% a year—less than half of what developers would typically have to pay for mezzanine debt or to equity investors. Raising $100 million through EB-5 can add $20 million to a project’s bottom line.
The growing demand for EB-5 financing is being met largely by new Chinese millionaires, eager for greater freedom and less pollution, or to send their kids to college in the U.S. More than 80% of the program’s applicants now come from China, making it the mother lode for EB-5 prospecting.

The article includes a visit to Brian Su’s glitzy annual “Invest in America Summit,” held in March in Shanghai. And, as described, "EB-5 fundraising is a messy process, more like pitching vacation timeshares than any normal form of deal finance."

The lack of safeguards

The article explains:

Despite the arrival of institutions like Related, EB-5 remains a wild and woolly realm. For starters, few of the usual safeguards for multimillion-dollar financings exist. EB-5 investments are typically sold through unregistered securities offerings and rarely involve broker-dealers, so deal documents receive no SEC scrutiny and face little due diligence. Even the corporate attorneys who prepare offering documents rarely check their clients’ claims or backgrounds, according to EB-5 lawyers and experts. Many EB-5 attorneys represent both the project and the investors, a clear conflict, and take undisclosed fees from developers—up to $60,000 per immigrant—to steer clients to particular projects.
The EB-5 program isn’t overseen by a financial regulator but by the U.S. Citizenship and Immigration Services (USCIS), part of the Department of Homeland Security. Accustomed to processing visas and conducting immigrant background checks, USCIS is ill-equipped to review business plans, job- creation studies, and securities offerings. The SEC retains the power to police fraud. What that means is the agency has no mechanism to sniff out a problem until it has exploded, at which point the agency can only clean up the mess.

Gaming the system

The article explains:

One essential part of gaining USCIS approval was crafting an acceptable “targeted employment area,” or TEA. The EB-5 law requires investment in a district that is either rural or has a jobless rate that is 150% of the national average. But after years of industry pressure, it’s now USCIS policy to automatically accept any state designation of a TEA, even though states routinely approve gerrymandered districts that tack on distant high-unemployment tracts to allow EB-5 endeavors in wealthy areas.

Will anything change?

The article concludes:

In the aftermath of the scandal—merely the biggest to afflict the EB-5 program—the SEC has brought a second fraud case; issued a formal “investor alert”; and opened a broader inquiry into the business, reportedly issuing subpoenas to more than a dozen regional centers. USCIS says it has beefed up its oversight, hiring a team of experts to more closely scrutinize business proposals. Still, the government hasn’t tightened the rules governing the visa program.
Industry practitioners such as consultant Wright seem to like EB-5 just as it is. As he put it in an email, the Sethi case “is an example of how the U.S. system works to protect investors. The SEC, FBI and [USCIS] stepped in to investigate this situation, and investors were able to recover their funds.”
For its part, the industry trade organization, the Association to Invest in the USA, has launched a new “legislative action center” to “empower EB-5 stakeholders to tell their stories of capital formation and resulting job creation to federal decision-makers in Congress.” Their goal is to lift the cap on visas and dramatically expand the program. Their slogan: “EB-5 is working.”

My posted comment

This very strong piece touches on most of the very troubling aspects of the EB-5 program, many of which I've dissected in my Atlantic Yards Report coverage:

It should be noted, however, that the deception involves not merely small-timers in Chicago.

Major, NYSE-traded corporations like Forest City Enterprises are involved, via the company's New York-based affiliate, Forest City Ratner. The first round of EB-5 funding was purported to go into the glamorous Barclays Center in Brooklyn, but had nothing to do with the NBA. The promoters at the New York City Regional Center admitted to Reuters some of their marketers were misleading potential investors, but disclaimed responsibility.

Actually, as shown in web video I captured from China in 2010, a New York City Regional Center representative misled investors directly.

Now Forest City is back promoting another Atlantic Yards investment, again misleading investors, as I've documented. And the pitch was apparently successful.

What's astounding/outrageous about this latest round of EB-5 funding is that Forest City is partnering with a Chinese government-owned investor, the Greenland Group. So it sounds like something out of The Onion, but it's true: the Chinese government would profit by hawking U.S. green cards to Chinese immigrants.

It's also worth noting how, just as the USCIS has relaxed its standards regarding Targeted Employment Areas (for Atlantic Yards, I called it the "Bed-Stuy Boomerang," given the shape), so too has it relaxed its rules regarding bridge financing, allowing EB-5 funds to substitute for higher-cost capital.

Dartmouth's John Vogel had a particularly insightful analysis last year:  "One of the oddities about the EB-5 program is that the U.S. government is giving out the green cards, but the entrepreneur who puts together the investment gets the money. This scheme seems inefficient and open to corruption. If our government really believes that it is a good idea to sell green cards, maybe we should drop the pretense that this is a job creation program. It might be more efficient to have the money go directly to the U.S. Treasury and reduce the deficit by billions of dollars a year. In fact, the U.S. government could auction off these green cards and perhaps raise even more money."

EB-5 gains much political support, because elected officials like "jobs" and "economic development." Few bother to scrutinize EB-5. Here's coverage of one Senate hearing.

But EB-5 is not really about immigration, or economic development. It's not a left- or right-wing issue. It's about good government. As Fortune's investigation shows, EB-5 deserves much more critical attention.

Rapfogel sentenced to 3 1/3 to 10 years in prison; questions remain unanswered about Forest City connections

From the press release yesterday, A.G Schneiderman And Comptroller DiNapoli Announce Sentencing Of Former Met Council Director:

Attorney General Eric T. Schneiderman and Comptroller Thomas P. DiNapoli today announced that William Rapfogel, former executive director and chief executive officer of the Metropolitan Council on Jewish Poverty (Met Council), has been sentenced to 3 1/3 to 10 years in prison and ordered to pay $3 million in restitution to Met Council. The Attorney General’s investigation revealed that Rapfogel and his co-conspirators stole approximately $9 million from the taxpayer-funded nonprofit organization in a 20-year grand larceny and kickback scheme. Rapfogel personally stole $3 million and used the money to fund a lavish lifestyle.

...From 1993 to 2013, Rapfogel served as the head of Met Council, a New York State not-for-profit organization that provides the poor and elderly in the New York City area with social, economic, housing, food and emergency financial assistance. Met Council receives funding through New York State and New York City grants, legislative member items and contracts. Before Rapfogel, David Cohen was Met Council’s executive director, and after Rapfogel took over in 1993, Cohen served as a consultant to the nonprofit.

The conspiracy began in 1992, when Cohen devised a scheme with Joseph Ross of Century Coverage Corporation in which the company would submit inflated invoices for insurance coverage to the nonprofit. Met Council knowingly paid the inflated premiums, and then Ross gave cash kickbacks to Cohen and Herb Friedman, Met Council's chief financial officer.

About six months after Rapfogel took over as executive director in 1993, he joined the conspiracy and began receiving kickbacks, either in envelopes of cash or through payments of personal expenses. Initially, Ross paid both Rapfogel and Cohen $20,000 to $30,000 annually, but the inflated amount on the insurance policies increased over time and so did the kickbacks, with Rapfogel ultimately receiving approximately $30,000 per month. 

As part of the scheme, Rapfogel and Cohen also directed Ross to make political donations to various candidates for elected office from Century’s accounts or from straw donors, using money obtained from the inflated insurance payments. These campaign contributions were made to politicians who Rapfogel and Cohen believed could help Met Council. Rapfogel obtained the largest share of the kickbacks. In August 2013, investigators from the Attorney General’s Office recovered more than $400,000 in cash that was hidden in Rapfogel’s various homes. 

Rapfogel, 59, pleaded guilty on April 23, 2014, to Grand Larceny in the First Degree (a class B felony), Money Laundering in the Second Degree (a class C felony), Criminal Tax Fraud in the Third Degree (a class D felony) and Offering a False Instrument for Filing in the First Degree (a class E felony). As part of his guilty plea, Rapfogel admitted that, while working with co-defendants David Cohen, Herb Friedman and Joseph Ross and with others, he stole from Met Council. Cohen, Friedman and Ross have all pleaded guilty in connection with the scheme.

And in court

Here's New York Times coverage, which noted that prosecutor Gary T. Fishman said in court that Mr. Rapfogel “attempted to mislead” investigators from the start and had demonstrated a “lack of contrition,” while Rapfogel read from a brief statement expressing regret for hurting the Met Council and admitting "what I did was seriously wrong."

His wife Judy, Assembly Speaker Sheldon Silver's Chief of Staff, was in court but made no comment, according to the Post.

What's missing

The announcements yesterday, on top of other information released in April (as I wrote), do not provide answers to a couple of potential Forest City Ratner connections.

While Rapfogel acknowledged giving $350,000 in stolen monies to "my son," the latter is not identified. (An earlier report had the gift at $100,000.) So it's not clear if that son was Michael Rapfogel, who works for Forest City Rater, or a brother.

Also, while William Rapfogel's co-defendent David Cohen asked their co-conspirator at insurer Century Coverage Corporation to make campaign contributions--using straw donors, in some cases--there's no explanation regarding specific acts.

As I wrote, it didn't make sense for College Point, NY resident Deborah Auletta, a Century employee, to give $175 to Delia Hunley-Adossa's longshot 2009 challenge to popular 35th District Council incumbent Letitia James, the leading Atlantic Yards opponent. 

Also not discussed are two more tangential angles, as I suggested last August:

• Given that Forest City Ratner joined with the Met Council on an unsuccessful bid to redevelop the Seward Park Urban Renewal Area, the departure of Rapfogel cast a shadow on that bid and raised questions about Forest City's closeness to the organization.
• The Barclays Center chose to give the Met Council--and a music camp--profits from a 2/28/13 cantorial concert. I thought investigators might look into any ulterior motives, like buffing the developer's relationship with Silver as a prelude to that Seward Park bid, but apparently they didn't go that far.