Tuesday, April 20, 2010

ESDC/FCR say eviction delay past May 17 would "cripple" Atlantic Yards, but claims of continued losses and jeopardized benefits seem overblown

On the eve of a crucial court hearing regarding the fate of condemnees still in the Atlantic Yards footprint, the Empire State Development Corporation (ESDC) and Forest City Ratner (FCR) are arguing that the failure to evict those occupants by May 17 would cause "enormous harm" and significant financial losses to the developer.

It is unclear how many of the six households (15 people) and three businesses yet to reach agreements with the developer will resist the condemnation, but a response to those legal arguments--likely stating that this is unusually swift for a condemnation cast--will be filed tomorrow, before a 9:30 10 a.m. hearing before state Supreme Court Justice Abraham Gerges at Supreme Court in Brooklyn, 320 Jay Street.

According to my preliminary analysis, several ESDC/FCR claims overstate the damage anticipated, emphasize the costs without acknowledging significant subsidies, and fail to provide sufficient detail to establish the argument for speed.

(Also see my coverage of FCR's claims regarding Develop Don't Destroy Brooklyn's legal strategy and alternative condos offered project opponent Daniel Goldstein. Note that, beyond those totaled above, some other businesses and residents remain in the footprint, but have reached agreements to leave. Crain's totals 32 residents and three businesses.)

ESDC affidavit

ESDC attorney Charles Webb summarizes the argument made in an affidavit from the developer:
Delay in achieving vacant possession would halt work on the Project, causing enormous harm by (i) prolonging the time in which FCRC must carry the real property and the Project's overhead without generating income, which costs FCRC $6,700,000 per month, (b) prolonging the Nets basketball team's operating losses of approximately $35 million a per year arising from its New Jersey location, and (c) jeopardizing the delivery of 2,250 affordable housing units, and significant public amenities, including a new transit entrance and eight acres of publicly accessible open space.
$6.7 million in losses?

The $6.7 million figure doesn't add up. An affidavit in the package from FCR executive Maryanne Gilmartin explains that, among other things, it costs the developer $2.9 million per month to carry the property and $2.5 million per month to defray the Brooklyn Arena Local Development Corporation's liability to bondholders for interest on the bonds.

That $2.5 million cost will continue until vacant possession is achieved, and bond proceeds can be released. The bond sale would be rescinded if vacant possession is not achieved by 12/17/10, which is unlikely.

Subtract that new $2.5 million cost from $6.7 million and the total is $4.2 million. However, in an affidavit filed 1/17/08 in a separate AY case--long before bonds were issued, adding that new cost of $2.5 million--Gilmartin swore that the monthly carrying cost was already $6 million.

(Forest City Ratner lawyer Jeffrey Braun, unaccountably doubled down and claimed the tab was $12 million a month. Gilmartin's new affidavit draws significantly on standard language in that affidavit from 2008.)

Losses in New Jersey

The affidavits make no mention of the Nets' move from the antiquated Izod Center to the Prudential Center in Newark for at least the next two seasons.

While that location would not be as profitable as the expected Barclays Center, where the developer would gain the benefit from naming rights and other sponsorships, there's no reason to think that the team's losses would approach $35 million.

Affordable housing

The affordable housing would be slowed by a delay in arena construction only in the most general way.

The affordable housing units depend most crucially on sufficient subsidies, which is why the ESDC allows the developer to assert an Affordable Housing Subsidy Unavailability, part of a timeline that allows 25 years to build the project rather than the ten years officially announced.

Open space

As for the eight acres of open space, they're not due until Phase 2 of the project. Forest City Ratner has 12 years--plus extensions--to build Phase 1. And the eight acres wouldn't arrive until the project was completed--perhaps 25 years.

FCR investment: $280 million?

Gilmartin stated:
A failure to promptly issue the Writs of Assistance would cripple the Project, would be injurious to the public interest, and would wrongfully expose the Project's sponsors to enormous financial harm.
Forest City, according to Gilmartin, "has invested about $280 million in acquiring properties from willing sellers and carrying those properties."

Unmentioned: New York City taxpayers have contributed $131 million, nearly half that figure, to subsidize FCR's investment.

Bond fees

Regarding the $511 million in tax-exempt bonds issued to help build the arena, Gilmartin states:
The professional fees an other costs that were incurred for this tax-exempt financing by FCRC (which is responsible for the fees and costs of all of the participants in the transaction) are enormous.
Consider the savings Forest City Ratner gains via the tax-exempt bonds, which surely dwarf the "enormous" fees.

The New York City Independent Budget Office (IBO), in a September 2009 report that presumed $678 million in tax-exempt arena bonds, estimated that the federal tax break was worth $194 million. A commensurate percentage would make the federal tax break on $511 million worth $146.2 million.

One interruption

Gilmartin writes:
Furthermore, construction activities commenced at the Project site in 2007 and have continued with only one interruption since then.
To an unwitting reader, that "interruption" sounds like it might be a brief hiatus, a weekend or two. Actually, Forest City Ratner stopped railyard work in early December 2008 and didn't start back until the fall of 2009.

Need for demolition

Gilmartin's affidavit points to specific buildings in the developer's path, presumably occupied by the few people yet to reach agreements.

One is Goldstein's condo:
Furthermore, so long as the former Goldstein unit remains occupied, it is necessary to keep Pacific Street open to traffic to allow access to and egress from the building. Pacific Street occupies a large portion of real estate that is essential to construction of the arena because it runs through the middle of the arena site. Therefore, the inability to close Pacific Street and excavate the street for the arena, due to continuing occupancy of the former Goldstein unit, substantially impedes further progress on construction of the arena.
Another involves Henry Weinstein's building at 752 Pacific Street on the southeast block, Block 1129. Block 1129 will be used for construction-related activities, storage of machinery and materials, and parking for construction workers.

The package of legal papers lists two businesses, Freddy's Bar & Backroom and Pack It Away Storage, as not having come to agreements with the developer. Since then, Freddy's has reached a settlement.

Weinstein, however, is said not to have possession of his building and associated parking lots; he has since retaken possession, though the issue is in dispute.

Construction sequence

Gilmartin states that delays threaten an October 2012 arena opening, though a specific construction schedule is not included in the package of papers:
All of the various construction-related activities described in this affidavit are part of a carefully developed and very intricate sequence of work that is now intended to allow the Barclays Center arena to open in time to permit the Nets to play home games at the Barclays Center by the beginning of the 2012-13 NBA season Furthermore, it takes at least three to four months to commission an arena like Barclays Center--i.e., to test and refine the various buildings systems and the various operations (such as security and food services) that must be performing properly and efficiently before the arena can be opened for the professional basketball season. In other words, it is essential that the arena be completed by early July 2012, so that the commission process can be completed by the opening of the basketball season in October 2012. To achieve that goal, it is essential to now vacate the buildings required for phase 1 of the Project, because the critical path to completion of the arena on schedule requires prompt realization of vacant possession of those properties.
Order to Show Cause ESDC, Atlantic Yards Condemnation Case

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