Forest City Ratner is looking to glom onto an awful lot of housing subsidy with respect to its proposed Atlantic Yards megadevelopment. If you’re interested in knowing how much, this article attempts to close in on that figure. It’s in the neighborhood of about at least half a billion dollars, probably a fair amount more and the transaction has been set up so Forest City Ratner can blackmail the public for that money.
Atlantic Yards Report FOILs Atlantic Yards Arena Bond Sale Closing Documents
Thanks to the assiduous Freedom of Information Act work and analysis of Norman Oder, who is posting Atlantic Yards Closing documents on his Atlantic Yards Report, we are getting a much more detailed picture about how beneficial the mega-project deal is intended to be for Forest City Ratner. With each new unveiling of documents and the accompanying analysis we see more evidence confirming that the dominant purpose of the mega-scheme being effected by public officials is to serve the developer’s interest. See AYR’s January 26, 2010 (Tuesday) roundup article with it compilation of links, A round-up of news generated by the master closing documents (also covered by Develop Don’ Destroy Brooklyn: The Master Closing Documents, Revealed, 1.26.10), which links we are duplicating below (all seven articles were posted Monday, January 25, 2010):
• New documents hint at potential affordable housing dodge: "all-affordable buildings" with no low-income units, but subsidized units at market ratesSee also (more recently):
• Is new subway entrance to arena block worth $50 million (as MTA claimed)? New mortgage doc says $28 million covers entrance plus Carlton Avenue Bridge
• Did the city give Forest City Ratner $31 million more for arena land? Despite previous reports, the answer is yes (Updated)
• Gotta get paid: BALDC bond issue fee dwarfed by payments to bond counsel and underwriting counsel
• Finally, in landlord-tenant agreement, an official grant of arena naming rights; was there one in January 2007?
• Agreement says Forest City Ratner must reinforce subway supports on its own dime, but does anyone know how much it would cost?
• More details on the arena block, thanks to a new schematic, with building envelopes
• Wednesday, January 27, 2010, Despite promise of ten-year AY buildout, ESDC deadlines allow 12 years for Phase 1, 15 years to start platform, 25 years for full projectHDC’s $144 Million Second Mortgage Subsidy For Not Much Affordability of Units In Return
The first of those articles listed above is the one from which we obtained the “Combination Housing Subsidies”schedule appearing in the image at the beginning of this post. That schedule provides a better window than we have had before on the amount of housing subsidy Forest City Ratner will be angling to obtain by virtue of the control that government agencies are giving Ratner (without any true or effective bid) over a vast mega-monopoly of prime Brooklyn real estate. (Monday, January 25, 2010, New documents hint at potential affordable housing dodge: "all-affordable buildings" with no low-income units, but subsidized units at market rates.)
The “Combination Housing Subsidies”schedule sets forth a number of possible occupancy “scenarios” for the project but only one of those scenarios, “Scenario #1,” matches (with some discrepancies) the proposed occupancy of the mega-project that people have actually been talking and which was theoretically negotiated to the community’s benefit by ACORN. We say “theoretically” because the occupancy consists essentially of:
• Affordable low-income units that are required by the tax code and would have to be in the project anyway.See our own graphic above (click to enlarge) showing that occupancy. For more analysis on this (including the fact that neither Forest City Ratner’s Executive VP Mary Anne Gilmartin nor ACORN’s Bertha Lewis, currently the CEO, were willing to explain why an occupancy schedule so favorable to the developer was negotiated) see: Wednesday, July 29, 2009, First Day of ESDC Hearings on New Sight-Unseen Version of Atlantic Yards: Some Noticing New York’s Testimony and Questions Asked, Thursday, July 23, 2009, The Hit and Miss of Last Night’s Public “Information” Meeting on Atlantic Yards, Friday, April 10, 2009, As AMI climbs, a significant slice of Atlantic Yards "affordable housing" seems to track market, Thursday, April 2, 2009, Jane Jacobs Atlantic Yards Report Card #14: Project Creates Population Diversity? NO
• An income band (right above the income bands that the federal tax code will require) where families with incomes from $38,407.00 or 50% of AMI to $46,087 or 60% of AMI would specifically be ineligible to get affordable units in the mega-project, and
• Units above that specified income band that would be essentially what you could expect the market, unassisted by subsidy, to provide in the area.
(Below the official schedule of income and rents released in July 2006 by Forest City Ratner showing adjustments for family size and not explicitly showing the missing income band denied affordable housing. It uses earlier, lower, out-of-date income figures and rents. Click to enlarge.)
To read more about how ACORN essentially shilled for FCR by negotiating no real public benefit, see: July 24, 2008, Falling Acorn! How Far from the Tree? and Saturday, June 28, 2008, Selling out the Community for Beans (A Giant Wrong).)
How much is this so-called “affordable” occupancy that is so favorable to the developer going to cost public agencies in terms of the housing subsidies Ratner intends to garner by providing it?
Calculating $144 Million
The “Combination Housing Subsidies”schedule sets forth an example that lets us know about how much some of that subsidy from coming from the new York City Housing Development Corporation will be if you just do a little calculating. For a building of 400 units it will be $12,800,000. Since Forest City Ratner is actually supposed to build 4,500 non-condominium units receiving that subsidy the total cost of this particular subsidy would come to $144 million. That’s if Ratner fulfills its theoretical obligation to build these units. The “Combination Housing Subsidies”schedule contains at the top a mathematical example of how the subsidy would be calculated although the example contains an obvious typographical error that needs to be corrected with respect to the math:
For example, if the first tower built on the Arena Block contains 400 residential units under Scenario #1: where 50% of the units (200 units) would have rents set at market rate, 10% (40 units) at 150% AMI, 10% (40 units) at 120% AMI, 10% at 80% AMI (40 units), 17% at 48% AMI (68 units) and 3% at 38% AMI (12 units), and the associated subsidy would be $12,864,000 [sic, actually $12,800,000] in HDC/HPD 2nd mortgage subsidy ($65,000 x 40 at 120% AMI, $85 x 120 units at or below 80% AMI).Adding the $144 Million to the Total of Previously Calculated Subsidies
That, of course, is neither the total amount of the subsidy proposed to be going to Atlantic Yards nor the entire amount when it comes to just the housing subsidies. We have previously calculated the total subsides for at Atlantic Yards at between $2 to $3 billion, providing a schedule of known subsides in April of 2008 that added up $2,157,260,000 with additional unknown figures being identified but not added in. (See: Your 'Net' Loss: $2B in Taxes to Ratner, By Rich Calder, April 14, 2008.) At the time we had done some calculations of what this HDC second mortgage subsidy (which we expected) would be but we did not add in a figure for it because we were not reasonably sure what it would actually be. (We had conservatively calculated it at $110 million so we were not terribly far off from the $144 million figure it is now turning out to be.)
Arena Subsidy Calculation Needs To Be Updated
The overall schedule for all the subsidies that Atlantic Yards is proposed to be receiving needs to be updated though the $2 to $3 billion overall estimate is still basically correct. In particular, some subsidy costs respecting the arena need to be revised downward because tax exempt bonds have been issued in a lower amount than we used in our last set of calculations, while other arena subsidy amounts need to be revised upwards. The city has slipped more money to the developer, ESDC is advancing monies ahead of schedule, the MTA is getting a less desirable rail yard and it is a rail yard that may cost the MTA more in the long run because it won’t be flexible enough to meet the MTA’s real future needs, an additional $400 million in tax-exempt bonds was secretly authorized which may be used to bail out or to give the developer some extra gifts in the future. The MTA has also essentially given away for free to Ratner the right to name its subway stops in the area of the project.
Housing Subsidies When taken Alone
Let us then tally up just some housing subsidies including this new $144 million figure.
$261.25 million: We can still estimate that the cost of the tax-exempt bonds for the housing will be $261.25 million. That is the combined cost to the city ($11.47), state ($20.96) and federal ($228.82) taxpayers (NYC residents are all three) of the tax exemption of the bonds. (Unlike the calculations with respect to the arena bonds where local real property taxes are diverted to pay the bonds we do not need to include the cost of such a diversion in the total cost of the bonds to the public.)That then totals $638.67 million. It does not yet include the millions that might need to be included for sales tax exemption on the residential units. It does not include the millions the MTA has given Ratner by selling its rail yards to Ratner for substantially less than their value. It does not include the millions the state and the city are giving Ratner for infrastructure costs. Very importantly it does not include the almost inconceivably huge giveaways to Ratner by virtue of a.) allowing Ratner to acquire much of the land for the project by paying much less than its value through the abuse of eminent domain and then, b.) making Ratner the special beneficiary of a tremendous upzoning at the expense of his neighbors.
$18 million: Next we still include an estimated $18 million for Low Income Housing Tax Credit credits, based on conservative estimated basis of $320,000 per low income unit and LIHTC of $20,000 each for 900 units.
$39.37 million: Mortgage Recording Tax Exemption- Mortgage recording tax is 2.8% in NYC- At least the residential rental portion will be exempt from the tax.
$150 million: “Atlantic Yards Carve-Out”—the provision that gave Forest City Ratner a special bonus in the revision of the 421-a tax law.
The above figure also does not include any calculations with respect to a vague and complexly conditioned “commitment to build 600 . . for-sale units on or offsite is in the final development agreement.” The building of those units is predicated upon the receipt of an unspecified amount of subsidy. The amount of that subsidy would surely exceed another $15 million or perhaps even twice that. (If there were more such for-sale units, “1000" is mentioned as an upper limit, adjust those numbers proportionately.)
Is It Possible the Housing Subsidies Would Be Less?
It is possible (though perhaps not probable) that there could be circumstances where less housing subsidy would be delivered to the mega-project than Ratner is likely envisioning. As Atlantic Yards Report’s Norman Oder points out, these involve alternate scenarios (which can be seen in the “Combination Housing Subsidies” schedule) with the provision of less “affordable” housing than ACORN and other project proponents have been telling the public to expect. Atlantic Yards Report says:
It offers several more scenarios regarding affordable housing in the Atlantic Yards project, promising affordable units with no low-income units far less affordability to the constituents of ACORN, the advocacy organization that supplied the most foot soldiers at public hearings in favor of the project.
It opens up the possibility of subsidized buildings that are "100% affordable," with the majority of units aimed at households earning 165% of Area Median Income, or AMI.
Further, respecting the estimated $18 million in Low Income Housing Tax Credits, there appears to be another typo in the “Combination Housing Subsidies”schedule: It contains two statements apparently at odds with each other respecting whether Low Income Housing tax credits will be available to the project:
Scenarios 1, 5 & 6 assume that HDC will provide recycled private activity tax exempt bonds.(Meaning Low Income Housing Tax Credits will not be available.)
Scenarios 1, 5 & 6 assume that HDC will provide new private activity bond cap to generate as-of-right 4% Federal Low Income Housing Tax Credits on qualifying units.(Meaning Low Income Housing Tax Credits will be available.)
Diversion of Scarce Subsidies to Ratner
Here is what makes subsidies like the $144 million of newly calculable HDC 2nd mortgage subsidy, the $261.25 million in benefit from scarce tax-exempt bonds, and the Low Income Housing Tax credit sums going to Ratner especially important: Clearly Ratner is proposed to get more than a half billion dollars in scarce subsidies that could be going to other developers and better (actually worthwhile) projects. (In terms of scarcity, all or most of the $144 million HDC is providing is coming from a limited source: Monies that come from Battery Park City luxury, market rate units that were permitted to be built in lieu of the moderate rate housing that was originally supposed to be built there.)
The transaction has been set up to enable Forest City Ratner to blackmail the public to send those subsidies to Atlantic Yards at the expense of worthier projects. This is reflective of the way that the Atlantic Yards transaction has always been structured to give the developer an upper hand and the tactics are similar to the kind of negotiating Ratner has engaged in before with respect to its Beekman Tower project.
Ratner twice threatened to cease construction of its Beekman Tower project. The first time was in the summer of 2008. As reported then, Forest City Ratner threatened “to halt construction of the new school on Beekman St. unless they receive a 20-year tax break from the city.” Ratner was able to blackmail the community board to get its approval because the community was at that point already dependant on plans for the school. Not a nice form of payback since it should probably be considered that placing the school in the project was a benefit to Forest City Ratner in the first place. (See: Monday, September 8, 2008, Endorsements for Paul Newell for 64th Assembly District Seat.)
The second time Ratner made threats respecting a halt construction of the Beekman Tower it was the spring of 2009 and Ratner was threatening to build the building to half its originally planned height. Publicly the halt was to negotiate a better deal from the construction companies putting up the building. Because of a change in the economic climate Ratner was able rewrite the deal more to its benefit. Though it was never acknowledged, it is also possible that Ratner was having problems getting the credit in the credit markets it needed to be able to issue the final tranche of bonds to complete the project.
The tower was being financed by bonds issued by the New York City Housing Development Corporation (the same city-controlled public authority being asked to give Ratner the bonds and $144 million second mortgage subsidy). Although a spokesman for HDC told Norman Oder that it wasn’t a big deal if the building was only half completed, the truth is that HDC would then have gotten far fewer affordable units and far less bang for buck the in return for its financing and state tax exempt volume cap. (See: Friday, March 20, 2009, If FCR's Beekman Tower faces 50% cut, what does that say about Atlantic Yards promises (and designs)?)
Ideally HDC should have been in a position where its documents would have given it the right to object to the downsizing. There might have also been reason for HDC to object to an after-the-fact squeeze of the contractor since that kind of thing can lead to problems. There were, in fact, recent severe problems at the site during a January windstorm. (See: Tuesday, January 26, 2010, Forest City Ratner’s Two Buildings In Brooklyn Heights Need to be Condemned!)
Ratner Allowed to Blackmail For Housing Subsidy By Delaying Provision of Housing
If you look at 8.8 (g) on the page 24 of the Atlantic Yards Development Agreement (See below which is taken from: Wednesday, January 27, 2010, Despite promise of ten-year AY buildout, ESDC deadlines allow 12 years for Phase 1, 15 years to start platform, 25 years for full project)
you will note that while Ratner is not excused from building housing by a failure to get housing subsidies, the failure to get subsidies does entitle Ratner to delay in providing the housing.
Atlantic Yards Development Agreement Section 8
Specifically, Ratner is entitled to eight years of such delay in providing the housing just with respect to Phase I of the project. Here is the language (emphasis supplied):
G) Notwithstanding AYDC's and Interim Developer's obligations to Substantially Complete (or cause to be Substantially Completed) the Phase I Improvements by the Outside Phase I Substantial Completion Date, so long as the Affordable Housing Application Requirements have been satisfied in each case, any Affordable Housing Subsidy Unavailability with respect to a proposed residential building shall result in a one-year extension of the Outside Phase I Substantial Completion Date solely with respect to the gross square feet proposed for Affordable Housing Units in such building in the application for financing such Affordable Housing Units, up to an aggregate of eight (8) one-year extensions of such Outside Phase I Substantial Completion Date; provided, however the aggregate gross square feet eligible for such extension for Affordable Subsidy Unavailability shall in no event exceed 450,000 gross square feet in any year.Ratner’s Ability to Pay An “Option Renewal Fee” In Order To Not Complete Within Originally Specified Decades
While Forest City Ratner is theoretically entitled to a total of eight years delay in the delivery of housing with respect to the first phase of the project, this is only the delay that Ratner is entitled to without paying for the delay. As observed by Norman Oder in the above Atlantic Yards Report article, Ratner has not only been given a very long time* to complete the mega-project without any penalty, twenty-five years in all, in addition the amounts that Ratner then has to pay for failure to complete within this specified are negligible.
(Here is the AYR summary of the specified schedule:ESDC in its documents has styled the amounts that Ratner has to pay for failure to meet the very generous schedule above as “penalties” which serves as window dressing to the notion that ESDC is controlling the developer, forcing Ratner to meet a schedule, but given the very small amounts Ratner has to pay when not hewing to the schedule, the amounts could better be described as payments for an “extension of Ratner’s option on the property” (very small option amounts at that). Perhaps they should merely be thought of as “expression of interest” payments. As Atlantic Yards Report puts it:
• six years to build the arena
• three or four years to start construction of the first tower
• five or six years to start construction of the second tower
• ten years to start construction of the third tower
• 12 years to build Phase 1 (which can be much smaller than officially promised)
• 15 years to start construction of the platform over the railyard
• 25 years to finish the project (which can be much smaller than officially promised)
The damages Forest City Ratner faces in most cases--less than $10 million for an arena that's up to three years late, $5 million for each of three buildings if they're late--don't represent a lot of money, especially given that the developer just got a cash flow boost of $31 million to buy land.
That’s $5 million for a single building, for example the third tower on the arena block that would paid 18 years from now (the 10 years in the schedule above plus the 8 year housing subsidy extension), a “penalty” that will procure for Ratner an unspecified period of additional years. At most it would come to $80 million for all sixteen towers. Obviously, the present value of the amounts paid will be lower when paid so far in the future. We invite any of our readers to identify any time they know of when a smaller percentage has been charged for such a long-term extension of an option to develop land. Lastly, since Forest City Ratner could still threaten not to build the housing unless the “penalty”/”option renewal fee” was waived (or subsidy increased to pay for it) those amounts may never be paid at all.
Blackmailing Rather Than Bidding For More Than a Half Billion in Housing Subsidy
It is sometimes bemoaned by those who actually want sports arenas built in their cities (we think they are disastrous economic boondoggles) that the owners of sports teams make localities bid against each other for the “privilege” of having such facilities located in their cities. Conversely, normally when housing projects are proposed, their developers have to show that they would be more beneficial than alternative deals by other developers in order to claim subsidy, in essence a form of bid process. That’s the way it should be. (If ownership of Atlantic Yards were broken up it would be still be possible.) Here, however, ESDC has structured a deal where that process will be reversed. Forest City Ratner wants to lay claim to more than a half billion in housing subsidy that could (and actually should) be going to other developers. But Forest City Ratner won’t have to deliver a better project to get that subsidy. They can actually deliver a far worse, much more expensive one. Forest City Ratner won’t have to think in terms of “bidding” to get their project funded with subsidy. Because they have been given a multi-decade mega-monopoly they can blackmail the public for those subsidies. And partly because so much density has been piled on top of this site that will come with a mega-tab for the public to pay.