Re: The Atlantic Yards Report of Our Wondering about Whether ESDC COULD Disapprove the Prokhorov Transaction

In one of Norman Oder’s Atlantic Yards Report posts today (The orchestrated timing of the Prokhorov deal: just after the main opportunity for public agencies to ask questions) he noted that we had wondered in our recent post (Friday, September 25, 2009, Should Public Agencies Approve Prokhorov as New Nets, Arena and Atlantic Yards Owner?) about whether ESDC would approve the Prokhorov transaction.

Mr. Oder wrote:

Effect on approval?

Michael D.D. White, in his Noticing New York blog, wonders whether the Empire State Development Corporation could disapprove the Prokhorov transaction and suggests it might.

I'm not so sure, given that the ESDC's agreement would still be with the majority owner of the Atlantic Yards project and arena.

He went on to provide further musing of his own respecting the issue we raised concerning the awkward situation that could be in store if scarce housing bonds and subsidies have to be approved with Mr. Prokhorov in place as an Atlantic Yards megadevelopment owner.

Noticing New York Comment on AYR Post

Here is the comment we made on the Atlantic Yards Report post which we republish here because we think it provides some worthwhile elucidation:

Regarding what is referred to as our Noticing New York wondering about whether the Empire State Development Corporation COULD disapprove the Prokhorov transaction-

The question of whether ESDC MIGHT disapprove the Prokhorov transaction is an interesting one worth coming back to.

Certainly, ESDC SHOULD be able to approve the transaction as in it OUGHT to be able to approve transfers. The extreme hypothetical example is that Ratner should not be able to transfer his project to well-known members of the Mafia. Information about Prokhorov is not yet fully unearthed, known or examined but the mention of possible ties to Russian organized crime certainly takes us part way down the road to dealing with this sort of awkward question.

Then there is the question as to whether ESDC COULD disapprove the Prokhorov transaction as in whether ESDC is ABLE to disapprove it. The scandal is that Ratner negotiated a provision in the documents that would seemingly permit FCR to transfer the project to anyone, well-know members of the Mafia, or to Prokhorov. This is typical of the extensive panoply of one-sided giveaways of which the Atlantic Yards transaction is comprised.

But we pointed out that that document provision is likely inoperative and academic in that there is probably no executed deal by which it would be enforceable. The MTA and ESDC boards have been so busy authorizing new freebies to Ratner worth hundreds of millions of dollars that it is doubtful that those deals have been fully written up and signed. Ergo, ESDC (and through it the City of New York) is not bound to go forward with the transaction. That gives ESDC the de facto right to approve the entrance of Prokhorov. It also give ESDC the opportunity to fix its documents to include proper approval of transfer provisions. The same is probably true with respect to the MTA.

Given ESDC’s (and the MTA’s) probable de facto ability to disapprove or approve Prohorov, the next question is whether ESDC, the MTA and the city will actually make sure to conduct a responsible review so as to exercise this right.

That gets us back to the question of whether ESDC MIGHT disapprove the Prokhorov transaction. Given ESDC’s perpetual habit of deferring to Ratner initiatives (that by definition is the construct AY is anyway) we can predict that ESDC, the MTA and the city would have an impulse to try to sidestep review and approval of Prokhorov. That, we submit, would be a sidestepping of normal public agency responsibilities that OUGHT NOT to happen. It is also fraught with the danger that if future news surfacing about Prokhorov turns out to be a lot worse than currently envisioned, the agencies will look like they were negligent and foolishly submissive to Ratner (and Prokhorov). . . not that this has ever troubled them before. Monday-morning quarterbacking pundits will criticize the agencies for a lot: not foreseeing the advent of Prokhorov, not having transfer provisions in place to kick start normal review routines and not acting to fix the situation when Prokhorov showed up to make those deficiencies pretty obvious. Better that the agencies conduct a review now and put in their files the reasons why they are approving or disapproving Prokhorov. Better that they do this even if they subsequently turn out to be wrong about approving him.

If ESDC, the MTA and the city do not follow their impulse to defer to the developer and instead conduct a review of Prokhorov and subject him to an approval process, we can predict what the agency approval process will probably be like: The agencies will almost certainly bend over backwards to approve Prokhorov. If the agencies discover incriminating things about Prokorov (and there probably will be things they discover that raise hard questions), they will probably go out of their way to find reasons why significant concerns should theoretically be dismissed. So, COULD ESDC disapprove the Prokhorov transaction as in MIGHT ESDC disapprove the Prokhorov transaction? It is highly unlikely that ESDC WILL “disapprove the Prokhorov transaction.” AYR is right to be dubious about that possibility.

Finally this: If it ultimately comes out, based on future disclosures, that approval of Prokhorov was ill-advised, don’t misconstrue anything in ESDC’s, the MTA’s or the city’s files about why the approval was given as documenting an honest defense. You can presume that, irrespective of what is in those files, the agencies were straining to read whatever telltale signs presented themselves just one way, that the agencies were looking to make sure that another request from the developer would be fully acquiesced to, completely unimpeded.

Orchestration Provides a Theatrical Clue

Of course in sussing out what ESDC might do in terms of approvals it is worthwhile to remember that, as Mr. Oder writes about in is post:

The timing of the deal with Mikhail Prokhorov seems clearly orchestrated, in the works but not announced until after the Atlantic Yards plan received its second approval, on September 17, from the Empire State Development Corporation.

* * * *

The project was approved September 17. The deal was announced September 23.

Was it orchestrated for such deliciously close timing just by Ratner without ESDC knowing? We think that despite what may be absent from the board materials, ESDC staff must have known what was being orchestrated. By wondering `who knew what and when’ (Mr. Bloomberg? Mr. Paterson?) you can get a pretty good inkling what this orchestration says about what is intended in terms of keeping Prokhorov in place.

Here is something else to wonder. We have noticed the absolute flood of articles being rushed out about Prokhorov in every conceivable publication. How much of that is due to public relations press feeds that were prepared well in advance of the orchestrated events?