Manhattan District Attorney Cyrus Vance Scandals: Jared Kushner and Ivanka Trump- One! Harvey Weinstein- Two! Bill de Blasio Library Pay-To-Play Scandal- Three?

If you have been catching up with the news recently you know about the scandals involving Manhattan District Attorney Cyrus Vance.  . .

Vance's office was ready in 2012 to prosecute Ivanka, the daughter of Donald Trump and her husband Jared Kushner for real estate fraud, “allegedly duping prospective buyers in a failed Manhattan project dubbed Trump Soho” (a violation of the Martin Act).  Reportedly, against his staff's recommendations (and despite some damn good email evidence), Vance did not prosecute.  His receipt of campaign contributions was involved. . .   Now under the spotlight, Vance just gave back money, a $31,000 donation from Father (Donald) Trump's lawyer, Marc Kasowitz, he took in 2013 after dropping the case.  Another $9,000 from employees at Kasowitz’s law firm and $9,000 more raised at a breakfast hosted by Kasowitz was not returned.

That's one scandal!

Then there is the case of movie production mogul Harvey Weinstein whom a slew of women have now accused of sexual assault and harassment.  Vance made a decision not to prosecute Weinstein in 2015.  His decision not to prosecute was despite an very damning police sting audio tape that documented his harassment of an Filipina-Italian model Ambra Battilana Gutierrez in a Manhattan hotel.

Again, Vance's receipt of campaign contributions was involved.  . . The lawyer, Elkan Abramowitz, who helped Harvey Weinstein avoid charges (Vance's former law partner) reportedly donated $26,550 in campaign cash to Manhattan District Attorney Cyrus Vance Jr. (including $2,100 after Vance let Weinstein walk) plus, according to campaign finance records, his law firm gave Vance another $11,500, before Vance's Weinstein decision.

That failure to prosecute is scandal number two!

The media is beginning to notice and connect the two because of the similar behaviors on Vance's part.  The New York Times editorial board issued an editorial saying: "that eyebrows understandably soar skyward when a district attorney pockets cash from a lawyer who may have a client facing charges that could send that client to Attica.. . .  As lawyers might say, res ipsa loquitur. The thing speaks for itself."

Is there one more? 

. . . Now you might remember that until recently Cyrus Vance was working with US. Attorney Preet Bharara to investigate pay-to-play deals by Mayor Bill de Blasio.  And you may remember that one of those pay-to-play deals was the sale of the Brooklyn Heights Library.  Then Donald Trump fired Preet  (March 11, 2013) and just a few days later (March 16, 2013) all these investigations were dropped. . .  And?  We'd love to know more about what was involved.

Preet Bharara has since lifted the curtain to say that he believes that before he Trump fired him Trump was trying to “cultivate” a relationship with him where he'd be asked by Trump to do the wrong thing.

How hard do you think it would be to trace aspects of the Brooklyn Heights Library and other pay-to-play deals being investigated back to campaign contributions to Vance from those close to de Blasio or Democratic party operatives or involved developers wanting de Blasio's real estate favoring reign to continue undisturbed?:  The Times editorial noted that the list of Vance's donor's "is strewn with law firms and individual lawyers" some of whom "may have unsavory motives when they open their wallets."

But we don't even have to get to that kind of extensive cross-checking to bring us full circle to the Vance contributions we have already discussed.  We need only note that the Brooklyn Heights shrink-and-sink-a-public-library scheme replicated the previously executed Donnell shrink-and-sink-a-library and replace it with a luxury tower scheme.  That Donnell deal also involved a woefully lacking excuse for a valid "bid."  For both deals there was a significant overlap of people involved behind the scenes.  And, if you could have flipped people to get them talking, the trail led back to Trump son-in-law Jared Kushner as a principal financial beneficiary from the sale of Donnell . .

. . . It's probably not exactly what Trump supposedly had in mind when trying to "cultivate" a relationship with Bharara unless you want to think generally in terms of privilege exercised by a well-connected elite prone to take advantage of the commoners.

It's been suggested that an excuse for Vance's decision not to prosecute is that it is waste of his office's resources to prosecute the powerful who can fight back and bollix up prosecutions by hiring expensive lawyers and pay for 14 carat obfuscatory PR maneuvers regular folk can't afford.  (Similar to the Weinstein case, in 2011, Vance abandoned a sexual-assault case against Dominique Strauss-Kahn, the former managing director of the International Monetary Fund.). . .

. . .  On the other hand, shouldn't our first priority be to prosecute the powerful whose conduct entrenches corruption at the core of our system and warps our most important institutions?

Coincidentally or not, The New Yorker magazine got the ball rolling with major stories it respectively ran about both the Kushner/Ivanaka Trump and Weinstein failures to prosecute. . .

. . . We could hope that another New Yorker story might get the ball rolling on a third such story about the non-prosecution of de Blasio.  Maybe not: David Remnick, the New Yorker's editor is a trustee of the New York Public Library and investigating the Donnell Library sale or anything leading back to it would be unconformable for the NYPL trustees (and perhaps particularly Trump buddy Stephen Schwarzman).

Or we could hope that another prosecutor with power and authority, most obviously New York State Attorney General Eric Schniederman, could pick up the scent . . . But maybe not: It has been noted that Schneiderman also takes political donations from those he could or should be investigating-  How was it that the Times editorial put it about eyebrows understandably soaring skyward when a prosecutor  pockets cash from a lawyer who may have a client facing charges that could send that client to Attica?

Vance is running for office unopposed in the November 7th election.

NYS Attorney General Eric Schneiderman Is Taking Political Donations From Those He Could or Should Be Investigating- Despite a (Playboy) Model Being Involved This Is NOT A Model That Serves The Public Well

WNYC and News News 4 New York have partnered to report on Attorney General Eric Schneiderman’s office taking contributions from the potential targets of his investigations

You probably don’t come to read stories at Noticing New York for shallow analysis.

WNYC and News 4 New York have partnered to produce a pair of stories about how New York State Attorney General Eric Schneiderman’s office is often taking political donations from those they are investigating.  Although I don’t know what to think when not-for-profit news organizations increasingly “partner” with for-profit news organizations, these articles ought to grab public attention.  (Note: The more sensationally presented News 4 New York story had to conclude with a disclaimer of ownership relations between NBC and companies mentioned in their investigative story.)

    •    WNYC: Could Some Political Donations to New York's Attorney General Be a Conflict of Interest? Interview by Jami Floyd, February 18, 2016

    •     News 4 New York: I-Team: Why Did Former Playboy Playmate Donate $65K to Attorney General Eric Schneiderman?  By Chris Glorioso and Ann Givens, February 18, 2016

Both stories state that Attorney General Schneiderman isn’t being accused of any wrong doing.  Both stories also note statements from a Schneiderman spokesman that Schneiderman has investigated his own political donors, and in the WNYC report, Chris Glorioso states that the Attorney General’s office says this “evidence that he is unbiased and not swayed by these political contributions.”  According to Glorioso, the spokesman also said that in cases where donors stand to benefit from investigations that “those investigations began from the ground up, they began from New Yorkers who may have been wronged in one way or another, or from whistleblowers who called out wrong doing in the financial sector.”

Is the investigation of an Attorney General of his own donors evidence of a lack of bias, a lack of problems with receipt of the money received?

An uncle of mine was in the public relations business in the 1970s and there is a story I was privy to growing up told as a cautionary tale in my family about a fabled, wealthy publicist of the time.  I found it fascinating.  I won’t use names because I have never been able to find anything anywhere documenting the allegation although I did read that records that might have said something one way or another about the facts were burned after the publicist’s death.

The story was that when clients came to the publicist he told them that it was his job to tell the public everything good about the client, everything the client would want the public to know and everything it was the goal of the client to put out to enhance the client’s name and brand, but that he also needed to know what he would need to steer around. He explained that he needed to know all the client's secrets, the skeletons in the closets.  This man was recognized as being an exceedingly good publicist and did a good job for his clients, but if there ever came a time when a client thought about abandoning the use of his services, or if they began to think his fees verged on being too much, the situation could become uncomfortable. . .

. . . Was there reason for the client’s to be uncomfortable?  Was there ever an instance of private confidences having been breached?   I don’t know that there ever was.  I only know that the feelings of discomfort were part of the story that was told and that everyone knew from his flamboyant life style that the man’s fees were high.

I tell this story because it reminds me of another seeming paradox that might bring people up short when they first think about it.  Campaign finance reform expert and advocate Lawrence Lessig has written about how elected officials across the spectrum, both Democrat and Republican, “have an interest in extending the reach of regulation, because by increasing the range of regulated interest, you increase those who have an interest in trying to influence . .regulation.”  (This quote is from Lessig’s book, “Republic Lost.”)

Why do electeds benefit from regulation?  Is Lessig’s view that they necessarily want to enforce regulation?  No, it is that, as gatekeepers who get to collect political contributions in the money-in-politics “gift economy” that Lessig writes about, it’s good to have lots of “targets for fund-raising.”   Lessig tells us how federal lawmakers seek to be on certain “cash cow” committees which because of their regulatory power “primarily because members of those committees are able to raise large amounts of campaign money with little effort.”

Professor Lawrence Lessig appearing in the documentary, “The Internet's Own Boy: The Story of Aaron Swartz.”  Mr. Lessig's preface to the second edition of "Republic Lost" is a lamentation of our loss of activist Aaron Swartz.

In other words, Lessig quoting the work of Peter Schweizer and his book “Extortion,” describes an “extortion game.”  “What if politics is really largely about fund-rasing and making money,” is one of the quotes Lessig picks up from Schweizer.    

Later in analyzing what causes the campaign contributions, whether it originates with the hopes of the donor, or with the politicians and electeds soliciting contributions, and how much blame to put in the system itself Lessig writes:

Think about a more pedestrian version of this sort of extortion: We wouldn’t look to the failure of a local Mafia to give the victims of its extortion benefits as proof that there is no extortion. The victims are trying to avoid penalties; they’re not seeking special favors.

It’s particularly uncomfortable to apply this analogy to a state attorney general, because as Glorioso stressed in his WNYC interview:

Prosecutors are not just politicians, they are law enforcement officers.  They have subpoena power.  More than a law maker or a governor they can act unilaterally to penalize an entity, or to force an entity to cough up information.  So particularly here in New York where the Attorney general’s Office has been called the “Sherif of Wall Street,” a subpoena or a decision to investigate can have tremendous consequences in the market place.   

While, on one hand, there is a question of how things may turn out when there is competition between various moneyed interests, there is a bigger problem when you are the public with no money to pony up in the game.  Then you lose out entirely, in practical terms dropping off the face of the political earth.

Near the end of the NBC story Lawrence Norden of the Brennan Center Democracy Program says: “As a general matter there is political science out there that says that the donor class has more influence over policy than the general public.”

Bill Maher on his Friday, February 13th Real Time showing speaking about how the average American has "only a minuscule, near zero, statistically non-significant impact upon public policy."

That is essentially what Bill Maher said in far more blunt terms on his last show a week ago:

Bill Maher: I just want to read one thing I read before on the show, it's a study, I am sure you are familiar with it, by two Princeton professors who said this is an oligarchy:

The preferences of the average American appear to have only a minuscule, near zero, statistically non-significant impact upon public policy.

 . . And they wonder why there's a revolution!

The professors Maher referred to are Martin Gilens and Benjamin I. Page (from from Princeton University and Northwestern University) and their report, Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens, uses in some cases some very academic sounding language to say these things; while they speak of “U.S. government policy” you can readily believe that with money in politics the way it is locally and in New York it is also true of New York City politics:

Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence.

A summarizing preview was published (Oligarchy, not democracy: Americans have `near-zero' input on policy - report, April 15, 2014) containing these extracted quotes:

"Despite the seemingly strong empirical support in previous studies for theories of majoritarian democracy, our analyses suggest that majorities of the American public actually have little influence over the policies our government adopts,". . 

While "Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association," the authors say the data implicate "the nearly total failure of 'median voter' and other Majoritarian Electoral Democracy theories [of America]. When the preferences of economic elites and the stands of organized interest groups are controlled for, the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy."

If you are involved in a political fight and want something that a considerable portion of the moneyed elite with influence and access also want, you might have a chance of winning it. . .  And there are some good things that the elite might also want to pass.  There are no reasons why the elite shouldn't be almost equally on the same sides of certain social issues such as abortion or gay marriage.  A goodly portion of the moneyed elites might also not want there to be fracking in New York State where the NYC water supply could be poisoned or the environment of vacations homes surrounding the city ruined.

The influence of money has certainly been a problem when it comes to how the fossil fuels industry has frustrated appropriate measures to head off climate change.  That includes all the money spent on climate science denial.  Even so, there must to be a certain portion of the elite, a large one, that don’t want their children and grandchildren to live in world that perishes, ceasing to exist as we know it because of severe climate change.

Notwithstanding, Lessig in his book (where in the updated edition he also writes about the Gilens and Page study) cites issue after issue with documenting polls showing that the policy the government follows is what the elite, the top 1%, want, not what the majority of Americans want.

We normally think in terms of going to our elected officials to get government to do what we want it to.  But maybe that doesn’t make sense at all. Instead of beseeching and lobbying our elected officials, the public probably ought to be at the doorstep of the moneyed elites trying to influence their viewpoints given the documentation (and Lessig includes graphs in his book) that “as the percentage of the elite supporting a proposal goes up, the probability of that proposal raises,” but “as the percentage of average voters show support an idea goes from 0 percent to 100 percent, the probability that idea will be adopted doesn’t change.”

$65,100.00 from 2010 Playboy Playmate of the Year tops Schneiderman's contribution list?

The WNYC and News 4 New York stories pointed out mysteries and lack of public access to information about what was going on with the contributions coming in.  The hook for both the stories was to ask the question why a former Playboy model from Texas, Hope Hope Dworaczyk, now Hope Smith, the 2010 Playboy Playmate of the Year, contributed $65,100.00 to become the largest political donor to Attorney General Schneiderman this January.

Ms. Dworaczyk recently married private equity billionaire Robert Smith who has contributed a lot of money, $150,000.00,  to Schneiderman over the years with much of the cash contributed to Schneiderman after he launched a probe, and then closed that probe, into the fees that private equity firms charge their clients.  The print version of the News 4 report explained that Smith is “the founder of Vista Equity Partners, a private equity fund that has attracted nearly $1 billion in investments from the New York Common Retirement Fund, a public pension, over the last seven years.”

Compounding the problem of mystery and its deepening the appearance of impropriety, News 4 interviewed James Tierney, a former Maine attorney general, now directing Columbia University's National State Attorneys General Program who, News 4 said explained that:

hedge funds and private equity firms are not transparent about their investments. That means the funds can allege some sort of wrongdoing about another company - and it is impossible for prosecutors to know if a resulting investigation could be seen as posing a conflict of interest.

Would you like to consider yet one more layer of complexity?  With all the money and ownership interests affecting the press there is, similar to the situation with elected officials including Attorneys General such as Schneiderman, the question of what gets investigated by the press . . .

Part of the News 4 story related how Schneiderman has investigated and now halted in New York the Fantasy Sports Gambling industry (See the Frontline Report: The Fantasy Sports Gamble,
February 9, 2016).  NBC’s investment in this industry necessitated disclosure in its report, but there is money on both sides of the deal because NBC reported that Schneiderman has also taken money from the local regulated gambling industry which competes with fantasy sports gambling.

As noted, the WNYC and News 4 New York reports both make clear that, when all is said and done, the Attorney General’s office, despite how troubling all of this must necessarily be, is not being accused of any wrong doing.  Indeed, while part of the purpose of this article to deepen the analysis points out that it is simplistically naive to believe the assertion of Attorney General’s office when it says that Scheiderman’s investigation of his own “political donors” is “evidence that he is unbiased and not swayed by these political contributions,” that doesn’t change that fact that nothing written here concludes that Schneiderman doesn’t strive to do the right thing in a troublingly warped and problematic system.

We can note in more detail here the questions about how elected officials including state attorneys general are essentially gatekeepers to benefit that can be politically derived, essentially collecting tolls, but one would expect or hope that, because an attorney general's office is comprised of attorneys with the licenses and personal integrity on the line, it would ensure that the office operates within legal bounds and mostly according to Hoyle.

Tim Wu during the Teachout/Wu campaign for Governor and Lieutenant Governor from this Citizens Defending  Libraries gallery of events page.

Further, it must certainly serve as an inherent check and balance on the office that so many attorneys working there have no doubt gone to work in the office precisely because they hope it is a place where they can do the right thing and accomplish idealistic objectives they likely came equipped with.  A recent case in point is that, this fall, Tim Wu, the Columbia Law Professor and highly influential open internet advocate (and Tweeter par excellence), joined the Eric Schneiderman’s office.  Mr. Wu is also recently famous by virtue of his political foray to become lieutenant governor as running mate of Zephyr Teachout.  It was a campaign that was startlingly effective.  Ms. Teachout is a protégée of Lawrence Lessig and a central tenet of the Teachout/Wu campaign was the overriding need for the kind of campaign finance reform that this article is about.

Still, in the final analysis, how does our warped system serve or not serve the public?  When it comes to moneyed interests being on the scene does Schneiderman stand on the side of the public if all the money is on the side of private moneyed interests?   Or does our state attorney general fulfill predictions of professors Gilens and Page that the actual interest of the public will have “only a minuscule, near zero, statistically non-significant impact upon public policy”?

Here is a perfect test case with a now escalating profile.  The New York State Attorney General regulates charities and is supposed to "to police fraud and abuse" and, for instance, the office was recently even given additionally clarified  powers “to bring judicial proceedings to unwind interested-party transactions."

A complaint about such fraud and abuse by the Brooklyn Public Library was recently filed by a newly formed group, Love Brooklyn Libraries, representing the public interest.  There is, however, a lot of private industry money on the other side, particularly real estate interest money that would like to see Brooklyn public libraries sold for a pittance, far less than their value to the public.  Part of the problem is that the composition of the board of the Brooklyn Public Library is extremely ill-suited to upholding the public interest with far too many competing agendas at odds to the public’s.  This is exactly what the Scheiderman’s office is supposed to be regulating.  He is supposed to prevent and insulate the public from exactly that kind of harm.

Read about the composition of the board of the Brooklyn Public Library and competing agendas at odds to the public’s.

Point of disclosure: I am a co-founder of Citizens Defending Libraries which has similarly brought such matters to the attention of the Attorney General’s office, not only with respect to the BPL and its trustees, but also with respect to the NYPL and, for instance, its sale of the Donnell Library.

Now if one were plotting it on one of those professorial graphs we talked about, it is important to know that the public almost universally opposes the sale and shrinkage of our libraries, the elimination of books and librarians and the deliberate underfunding of libraries in a time of plenty being being used as an excuse to do so.

The breaking headline news now escalating the status of this story: The New York Post has just come out with an eviscerating story about the sweetheart details of de Blasio's giveaway of the Brooklyn Heights library.  The developer to whom the de Blasio administration and the BPL trustees regulated by Schneiderman’s office wasn’t the highest bidder; his bid was 20% lower than another of the two bids that surpassed him.  It was an inferior bid in other respects as well.  See:  New York Post: Developer with ties to de Blasio scores job, despite being outbid, By Aaron Short, February 21, 2016.

The new facts in the Post article are further evidence of what Scheiderman needs to be investigating.  But even this needs to be put in context: David Kramer (of the Hudson Companies) was the low bidder for a library that should not even be sold.  Kramer and the other developers were only bidding for the value of the library site as a vacant lot.  There were being asked by the BPL and its trustees to bid only for the “tear-down” value of the library.  These bids were in no way related to the value of the library to the public from the public’s perspective, because de Blasio and the BPL trustees were selling off the library with no appraisal of the value of the library from the public’s perspective.  And it is important to remember that what we are speaking of is a recently enlarged and fully upgraded library that would cost more than $120 million to replace.

So that is the test case that the New York Post has now given an escalating profile: What Schneiderman does in this instance, a matter that the public cares about intensely, will tell us much about exactly how worrisomely warped our system is.

Citizens Defending Libraries on Thursday night outside an event where Mayor de Blasio and economist Paul Krugman were to discuss income inequity in NYC.

Update On Cuomo Corruption Investigation’s Nonissuance of Subpoenas- More Subpoenas Are going Out, Just Not To REBNY

Earlier this month, October 14th, I wrote here in Noticing New York:

sometimes what is most important for you to know about government is not what’s being done, but what is not being done

I was writing about reports that New York Governor Andrew Cuomo was restraining the 25-member Moreland Commission he had created to investigate corruption and misconduct of Albany public officials from issuing subpoenas to investigate exactly what the commission was created to investigate.  See: Monday, October 14, 2013, Governor Andrew Cuomo Quashes Moreland Commission’s REBNY Subpoena and Other Follow-The-Money Subpoenas Hitting Too Close To Home.

Well, I am going to say it again: There is an update to the situation I reported on back then, but it is still true that sometimes what is most important for you to know about government is not what’s being done, but what is not being done.

At almost the exact same time I put up my Noticing New York analysis of the situation the New York Times ran a Michael Powell column similarly assessing the situation.  See: Gotham-Governor’s Crusade Against Corruption Comes With Too Many Asterisks, October 14, 2013.

Mr Powell observed how the representations that the commission would be the “the best, the grandest ever” and that “Anti-corruption, campaign finance, transparency and courage would be its watch words” came with too many undermining asterisk exceptions when tested against the reality being delivered.  Powell noted, as had Noticing New York, the Governor’s interference with the issuance of the following subpoenas:

    •    “the Real Estate Board of New York, which helped lobby for multimillion-dollar special tax abatements” apparently, “a rude step too far”

    •    “the state Democratic Party committee, which represents the politicians who control two and a half of the three wings of New York government.”  Mr. Powell observed that, by contrast, the investigation “will scrutinize accounts belonging to the Senate Republican campaign committee and Independence Party.”

In addition, Powell (not Noticing New York) noted the absence of a subpoena for:

    •     “the governor’s Committee to Save New York, the fund-raising vehicle by which the state’s larger corporate, real estate and gambling barons raised $17 million to express their adoration and support for Mr. Cuomo’s efforts to cut taxes and promote casino gambling. Purely by chance, this committee shut down its operations less than two months ago, which means there is no longer an organization to subpoena. `We felt our mission was accomplished,’ the committee’s director said.”

Noticing New York (but not Powell) noted the absence of a subpoenas for the:

    •    Ethics Commission and the Legislative Ethics Commission- (This subpoena employed the smart strategy of looking for prior complaints against legislators as pointers to what needs to be looked into).

A lot of good investigative reporting work pursuing the trail of the quashed subpoenas has been done by Ken Lovett, Albany bureau chief for The Daily News, a fact alluded to in Powell’s column.  The last Noticing New York article on this subject included a very good interview of Mr. Lovett by WNYC’s Brian Lehrer.  Even Mother Jones jumped onto reporting bandwagon.  See: Andrew Cuomo's Much-Touted Corruption Watchdog Is Beginning to Look Like a Joke, by Andy Kroll, Oct. 8, 2013.

In addition, (previously overlooked here) the New York Times editorial board weighed in the day before the excoriating Powell column: Editorial- Will New York’s Political Watchdog Pass the Test? By The Editorial Board, October 13, 2013.

All this reporting and focus may have gotten a reaction from the Governor.  The day after the Noticing New York and Powell pieces ran the Commission reconsidered and decided to move forward in issuing the subpoena for the State Democratic Party that Cuomo was previously reported to have suppressed, together with “subpoenas to some businesses that employ legislators.”   (See: Panel to Investigate State Democratic Party, by Thomas Kaplan, October 15, 2013.)

According to the Daily News:

The actions by the commission took place just hours after Attorney General Eric Schneiderman--who deputized the 25 members of the commission--told public radio that the panel should not be interfered with when asked about the Cuomo reports.

"To succeed, the commission has to be independent and has to follow the money wherever it goes," Schneiderman said.

(See:EXCLUSIVE: Anti-Corruption Commission Sending Subpoenas To Gov. Cuomo-Tied Entities- Gov. Cuomo’s anti-corruption commission has reversed itself and will now send subpoenas to the state Democratic party and other entities tied to the governor, the Daily News has learned, by Ken Lovett, October 15, 2013.)

All of this is well enough, but as I began by saying, what is likely most important to look at is what is not happening, and that is the subpoena to REBNY, the Real Estate Board of New York.    Said the New York Times in its October 13th editorial:

What’s distressing about this news is that the commissioners got off to a good start. They were investigating developers of high-end apartments to find out how lucrative tax breaks were mysteriously slipped into budget bills. Then, suddenly, the commission stalled.

The Times went on to worry that the commission’s Cuomo-induced omissions would:

destroy the confidence of an already wary public that anything meaningful can be done to curb the way money corrupts politics in Albany.  

The previous, more in depth, Noticing New York article noted speculations about where a REBNY subpoena would lead: very important places, including possibly to Assembly Speaker Sheldon and maybe Senate Republican Leader Dean Skelos, among others.  The multi-million dollar tax exemptions that were granted are a massive money trail.

The latest?  As of the beginning of this week Cuomo was dressing himself up as a hero with respect to the subpoenas the commission has issued, predicting they would be fought by an antagonized legislature.  See: Gov. Cuomo Expects Challenges To Anti-Corruption Commission Subpoenas, by Ken Lovett, October 21, 2013.

So, with the latest news the commission is investigating and subpoenaing the State Democratic Party, the Senate Republican campaign committee and the Independence Party, but still not REBNY.  By taking our cues from what is not being done, does that mean that REBNY, the Real Estate Board of New York, as the last untouchable, is more powerful than the Democratic, Republican and Independence parties?  Surprise, surprise!  There are, after all, those who would have always maintained that the way things are run in New York REBNY must be the real power in charge.

Governor Andrew Cuomo Quashes Moreland Commission’s REBNY Subpoena and Other Follow-The-Money Subpoenas Hitting Too Close To Home

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More Thoughts On Valuation And What The NYPL Should Have Received As Recompense For The Public When It Sold The Donnell Library

Two November 7, 2007 NY Times stories about real estate deals that turned out to be connected

On January 12, 2007 “the most expensive building sale in U.S. history” closed: Tishman Speyer’s $1.8 billion sale of 666 Fifth Avenue to the Kushner Companies (owned by Jared Kushner, who also owns the New York Observer.)  My last Noticing New York article included information about how this related to another real estate transaction that also occurred in 2007 (through sale of rights to build a bigger building) just a few doors down, the New York Public Library’s sale of the five-story Donnell library, newly renovated and in excellent condition with additional basement space to boot, for a net of $39 million.

This small net to the NYPL is after taking into consideration of its plans to get back a less than one-third size underground `replacement’ library by perhaps 2015, the plans for which were thoroughly discussed in that article.  The basement library space will be at the bottom of the 50-story luxury hotel and condominium building going up at the site of the former Donnell.  See: Friday, May 24, 2013, Previews Of The Proposed New Donnell Library: The NYPL Unveils Its Version Of The “Silk Purse” Libraries It Envisions For Our Future.

Since there was newly turned up information in that last article I wrote I thought it would be worthwhile to come back and reconsider the amount that the NYPL sold Donnell for, in light of that information.  How good or bad a deal did the NYPL structure for the public?

Based On Other 2007 Transaction For Nearby Property Did NYPL Get Less Than One-Third Of What Donnell Was Worth To The Public?

First off, 666 Fifth Avenue on the same block and just down the street from Donnell according to the Real Deal was 1.45 million square feet so its purchase price of $1.8 billion comes out to $1,241.38 per square foot.

If the recently renovated Donnell was a valuable asset and worth keeping for the public (as I and many others believe it was), then by the measure of $1,241.38 per square foot for real estate in that area the 97,000 square foot, Donnell might have been worth $120,413,793 to the public, more than three times the $39,000,000 that was netted for the library system when the NYPL sold it.

But maybe that isn’t fair: The $1.8 billion that was paid for 666 Fifth Avenue was reported to be too high a price, the result of “reckless underwriting” according to the New York Times.  The office rents didn’t fully support the value paid (rents covering only 0.65 percent of the debt service on the loan that was put together by Barclays).  So perhaps the estimated value of the public keeping Donnell if done through the kind of calculation above should be adjusted downward a bit.  A bit maybe, but in the relative scheme of things not by all that much: Read on.

Did somebody know when 666 was bought that there was other potential value in the building?  We will momentarily get to what the sale of rights to the new Donnell site owners brought in to the 666 Fifth owners. 

November 7, 2007: Two Real Estate Transactions Written About In the Times With Link That Public Doesn’t Realize

Again, the two November 7, 2007 NY Times stories about real estate deals that turned out to be connected

In coincidence that stands out as strangely interesting the New York Times ran an article describing what a very bad deal the purchase of 666 Fifth Avenue was on November 7, 2007, the very same day that the Times first reported the surprising news that the Donnell had been sold.  At the time, nobody (at least nobody on the outside) knew that the two deals would wind up being related when the 666 Fifth owners would sell the owners of the new Donnell site the right to build taller at that site.

See:

    •    Financial Ground Has Shifted Under a Record Deal, by Terry Pristin, November 7, 2007.
http://www.nytimes.com/2007/11/07/realestate/commercial

    •    New York Public Library’s Donnell Branch to Share Space With Hotel, by Robin  Pogrebin, November 7, 2007

Foreseeable Future: Doom and Gloom?

Maybe the Times description of what a bad deal the record-setting 666 Fifth avenue transaction was helped put aside the question of whether recent prices for real estate in the neighborhood were significantly better than what the NYPL was being paid for Donnell.  The Times November 7th doom and gloom article about the 666 Fifth deal (“666 Fifth `was the poster child for what was not right in the underwriting,’ said J. Larry Duggins, an executive managing director of the Centerline Capital Group”) toys intriguingly with some (mitigated) foreboding about the then ongoing real estate bubble that was, in fact, going to burst the following year (before NYC real estate prices again resumed climbing):

Many people in real estate worry that the subprime mortgage debacle could lead to sizable layoffs in the financial services industry, emptying a lot of office space in Manhattan and causing rents to fall. But Mr. Konsker said a number of tenants outside that industry are currently looking for space. And so far, although the pace of leasing has slowed, there is no evidence that asking rents have declined.

At this month’s May 8th NYPL trustees meeting NYPL president Anthony Marx apologized for only one aspect to the Donnell sale, the long delay in the provision of a `replacement’ library (now projected to be complete in 2015) that was originally supposed to be provided in just three and a half years (after 2008), telling the trustees about the delay:

Of course none of us could foresee that the economy would change and change the schedule of this. . .

NYPL Offers Reasons To Sell Donnell

The Times November 7th article about the sale of Donnell does not mention any thoughts about how good or bad the real estate market was at the time of the announced sale or whether the NYPL was getting a good price for the Donnell.  All it said about the NYPL's decision was:

    . .  said it had little choice because the branch, built in 1955, was in dire need of renovations that the system could ill afford.

    * * * *

The library says Donnell is in serious need of repairs, with the oldest elevator of any branch in the system and outdated air-conditioning, heating and electrical systems. “It’s not in great shape, to say the least,” Mr. LeClerc said, adding that the library had to have pieces specially made to repair the old-fashioned air-conditioning system.

The assessments above are subject to question given that there was a history of recent and substantial Donnell renovations and the reflexive habit that library officials have of conjuring up extraordinary air conditioning repair costs whenever they want to sell real estate.

The Times November 7th report on the sale was also misleading in not sufficiently indicating by how much the $59 million gross sale price would be substantially reduced (by $20 million) to build a `replacement’ library, thus allowing the reader to infer a greater likely benefit for the NYPL:

“We looked into the opportunity to capitalize on the asset itself, build a gorgeous new state-of-the-art collection and have a whole lot of money left over for other branches,” said Paul LeClerc, president of the New York Public Library. (Proceeds from the sale are to go toward other branches’ building needs.)

Profits Make 666 Fifth Avenue Purchase A Good Deal After All?

Was the 666 Fifth deal realy not a good one?  By January 17, 2012, Terry Pristin, the New York Times reporter who had reported November 7th 2007, on the 666 Fifth financial woes was reporting that, with a restructuring that involved the entrance of Vornado realty (Bloomberg LP’s landlord), and the sale of the additional building rights to the Donnell site, the purchase had weathered the financial crisis and was again on solid footing.  See: Surviving a Big Risk on Fifth Avenue.

Building ownership value was unlocked by buying out low rent leases and until the restructuring was put in place, reserves that had been set up in advance were drawn upon covering the deficient cash flow.  Several months later The Real Deal ran an article (August 01, 2012) with calculations of how much everybody in the real estate industry made from 666 Fifth Avenue deal: Tallying who won at 666 Fifth Avenue- Ranking winners, losers in wake of Vornado $707 million purchase of the trophy tower's retail condo, by Adam Pincus.

    •    Kushner Companies: Estimated profits of about $100 to $120 million on the retail side offset by a “loss” or infusion of new equity on the office rent side of more than $200 million- So that amounts to at least $80 million as an additional forced investment of capital.  The Real Deal does not specifically mention whether its calculations took into account Kushner’s sale of rights to the Donnell owners to build extra floors which, according to the Times brought in at least $30 million, potentially reducing that aforementioned $80 million figure for the infusion of capital.

    •    Carlyle Group (partnering with Crown Acquisitions): Estimated profits of $200 to $230 million on retail condominiums within the complex.

    •    Crown Acquisitions: Estimated profits of $25 to $50 million

    •    Lenders: Estimated interest payments of $113 million

    •    Brokers: Estimated $7.5 million in commissions on the retail side.

    •    Retail tenants (Brooks Brothers, Hickey Freeman and the NBA Store): Estimated $74.9 million for lease buyouts

Missing from the calculation is what Tishman Speyer (and other parties) made in the original sale when selling the building for the high $1.8 billion price: According to the Times the building was sold for “more than three times what the building fetched in 2000.”  

Note- In writing about Mayor Bloomberg’s business conflicts of interest Wayne Barrett has written about the mayor’s relationship with Tishman Speyer: Bloomberg Keeps His Billions Separate From His Mayoral Obligations? Yeah, Right!, by Wayne Barrett, Tuesday, Sep 1 2009

Donnell Bid Process And Sale

Following the Donnell sale through to an actual real estate closing is a bit of a saga.  The November 2007 sale was to Orient-Express Hotels but they ultimately transferred their right to buy before closing.  NYPL Chief Operating Officer described the initial sale to Orient-Express as a “private transaction” that `wound up' as a competitive process, but explained that Orient-Express had “an almost unique interest” in the property because they owned the 21 Club restaurant on an adjacent 52nd Street lot, which would mean they could use that restaurant’s kitchen to build a hotel.  Said Mr. Offensend:

We reached out. . . or we didn’t reach out, but our financial adviser reached out to several other parties who we thought might have specific reasons . . . so there were quite a number of developers in the development community who were contacted to see if they wanted to compete with this process and we did end up with a competitive process.

The closing of the sale of Donnell was July 27, 2011 to Tribeca Associates and Starwood Capital, who bought the real estate contract from Orient-Express and closed, according to Offensend, with the NYPL’s approval.

Based On Information About “Air Rights” Transactions, Was Donnell Sold For Many Millions Below Its Value?  Perhaps Hundreds Of Millions Less?

The Tribecca Associates’ website says that “air rights” comprised 50,000 square feet, or about 15%, of the building rights (50,000 out of 340,000 square feet).

In 2011, Tribeca Associates LLC, in partnership with an institutional partner, acquired 20 West 53rd Street from the New York Public Library System, as well as approximately 50,000 square feet of air rights and a light and air easement to develop this 340,000 square foot mixed-use project.

The Partnership intends to develop a landmark 120 key, 5-star hotel and approximately 130,000 square feet of luxury residential condominium units that will feature hotel amenities.

With a Plaza District location directly across from the MoMA, this building will feature unrivaled access to the city’s finest shopping, dining, cultural venues and will be in the heart of the midtown office market.

Are the 50,000 square feet of “air rights” the rights purchased (15% of the buildable rights) from the 666 Fifth owner? . . . . The original deal with Orient-Express was described in the Times in November 7, 2007 as a deal to build an 11-story hotel (making the low price paid to the NYPL perhaps a trifle less startling) but the building now going up is described in the Daily News as 50 stories and sometimes reported elsewhere as being 45 stories.  That hardly accounts for the difference between 11 stories and 50 or 45.

The 50,000 square feet of “air rights” probably includes, but is not exclusively comprised of, the rights purchased from the 666 Fifth owner.  March 6, 2012 The Real Deal reported on the acquisition “air rights” by Starwood Capital and Tribeca Associates to go to 45 stories: $30.825 million for air rights from the owners of 666 Fifth Avenue (just slightly over the figure mentioned in the Times), and $16.6 million for air rights from Orient-Express from the 21 Club (probably dating back to the July 2011 closing).  See: Starwood, Tribeca move forward with Midtown condo and hotel.

At $47.425 million for 50,000 square feet, that would come to $948.5 per square air rights foot, that would seem to be high for the market.  If the 50,000 feet is just what was bought from the 666 Fifth owner (treating the $16.6 million acquisition from Orient-Express as part of the overall land cost) per square air rights foot would price at $616.5 probably close to the market.  If the 50,000 feet is what was bought from Orient-Express per square air rights foot would price at $332, which might be considered rather low for the market across from MoMA.

Some comparison figures:

    •    $600/square foot at 43 East 60th Street (15 CPW Developers Pay Record Price for UES Air Rights, Tuesday, February 26, 2013, by Sara Polsky)

    •     $400 and $500 a square foot in 2007- "Two years ago [2007], demand for air rights was, well, through the roof. `For residential use at the peak of the market, [air rights] were between $400 and $500 a square foot,' said Stuart Siegel, executive managing director at commercial real estate firm Grubb & Ellis." (Air rights, once coveted, plummet in value, September 01, 2009, By Katherine Dykstra)

    •    $450 a square foot- “in recent years the norm in prime neighborhoods has crept toward $450 a square foot” ( The Great Air Race, by Robin Finn, February 22, 2013)

    •    $500 a square foot - 508 W. 20th St., next to the High Line - very close in time to the announced purchase of rights for the Donnell site. (The $ky’s the limit High Line air rights fetch $500/sq. ft., by Annie Karni, March 4, 2012)

    •    $450 to $550 per square foot- Churches in the vicinity of Donnell. Houses of the holy- (A look at the religious institutions lobbying to get inside the pearly gates of a rezoned Midtown East and cash in on air rights — and their spiritual counterparts who’ve already sealed deals around NYC, by Hiten Samtani, March 01, 20130)

    •    $430 per square foot - Park Avenue and East 60th Street in 2005.  ($430 a Square Foot, for Air? Only in New York Real Estate, by Charles V. Bagli, November 30, 2005.)

I am reviewing these figure in order to back into the buildable rights value of the Donnell site prior to addition of the air rights.

    •    If the very high $948.5 per square air rights foot was paid for 50,000 feet of air rights then the NYPL sold the owners the remaining balance of 290,000 buildable square feet.  If  those square feet are multiplied by $948.5 per square foot figure then perhaps the NYPL should have sold Donnell for $275.07 million.

    •    If the more probable $616.5 per square air rights foot was paid for 50,000 feet of air rights from the 666 Fifth owner, then maybe another 26,764 square feet in air rights would be attributable to the $16.6 million Orient-Express transaction, leaving the NYPL with 263,236 buildable square feet to sell, which at that price would sell for $162 million.

    •     If the very, very low $332 per square air rights foot was paid for 50,000 feet of air rights from the Orient-Express, then maybe another 92,846 in square feet was bought from the 666 Fifth owner leaving the NYPL with 197,154 square feet to sell which, at that very low price, would have sold for $65.46 million.  But, setting aside the concept of air rights to simplify this calculation, The Real Deal in October of 2007, around the time of the NYPL’s Donnell deal, was pricing real estate in Manhattan at a much higher buildable square foot price: $650 (nearby 62nd Street and CPW)  $1,050 (12-story prewar 823 Park Avenue at 75th Street) $400 (from 60th Street to 86th Street, between First and Lexington Avenues).  See: Developers see land prices jump, October 17, 2007,by Juliette Fairley.  So even if we went down conservatively to a price of $450 per square buildable foot based on these figures that would mean that 197,154 buildable square feet should have garnered the NYPL at least $88.7193 million.

NYPL Transaction of a Kindred Spirit

Prior to the 2007 Donnell deal, the NYPL was criticized for lack of “transparency” and failing to structure a proper bid process to sell off  NYPL property of special value to the New York City public.  Back in 2005 this transaction was also during the tenure of COO David Offensend, who started at the NYPL in 2004.   The criticism was that there was “a hasty and secretive process” suggestive of the fact that “the people in charge of the sale knew perfectly well” there something particularly unusual going on.  The NYPL as seller was represented by a broker who had a conflict of interest relationship since it was also an adviser to the buyer and, in another conflict of interest, an adviser to the NYPL was both an adviser to the seller and connected with those who made the failed competing bid.  No matter, the “swiftly organized” “closed bid” was clearly set up to favor the particular wealthy buyer in play.

The NYPL wound up garnering only $35 million for the property in question, $4 million less than the NYPL netted through its sale of the Donnell.  In this case the property in question wasn’t real estate but a painting: “Asher B. Durand's `Kindred Spirits,’ one of the great Hudson River School landscapes, a civic treasure.”

The criticism came from various quarters but the criticism quoted above and published in the New York Times came from Michael Kimmelman, who has since become the Times architectural critic and is also a strong critic of the NYPL’s Central Library Plan, essentially a convoluted real estate deal with strong similarities to the Donnell transaction in how it shortchanges the public.  See: Critic's Notebook: Civic Treasure: A Need for Transparency, Not Secrecy, by Michael Kimmelman, May 18, 2005 and Critic’s Notebook- In Renderings for a Library Landmark, Stacks of Questions, by Michael Kimmelman, January 29, 2013.

Kimmelman’s 2005 statements with respect to the sale of Durand’s “Kindred Spirits” readily apply to the Donnell and Central Library Plan real estate deals:

It's time for transparency. Increasingly, we demand it from government, the media and Wall Street, in response to dwindling public faith. The same should apply to libraries and museums, which also regularly test our trust.

Former NYS Attorney General Louis Lefkowitz

Kimmelman goes on to invoke the spirit of former New York State Attorney General Louis Lefkowitz who, as Kimmelman points out, “stepped in” in the early 1970's when the Metropolitan Museum's private sale of works by van Gogh and Henri Rousseau and others caused a scandal:

Public institutions must avoid even the appearance of impropriety when selling art. That's why the New York attorney general in the 70's, Louis Lefkowitz, responding to the ruckus over the Met's private sale of pictures, recommended that museums sell through open (not closed-bid) public auctions. That still makes sense. Public auctions or some other public process, obligatorily announced loudly, widely and well beforehand, plus the chance for local museums to match prices after a sale, would mean greater visibility and precious time to gain public faith.

The reason Lefkowitz stepped in when he did is because the New York State Attorney General is charged with overseeing and ensuring proper conduct of the state’s charitable institutions like libraries and museums.  Kimmelman’s reference to Lefkowitz may be viewed as an invitation to the Attorney General of the time to step in and investigate the sale of the Durand painting.  Had that happened perhaps many further ensuing events like Donnell might also have been halted.

Former NYS Attorney General Eliot Spitzer in Frontline documentary “The Untouchables” about the impunity of NYC financial titans when it comes to misconduct  

The New York State Attorney General who did not swing into action in May of 2005 was Eliot Spitzer, the “Sheriff of Wall Street,” then running for governor and now, after his early exit from the governorship, is a talking head in such documentaries as Frontline’s “The Untouchables” where by narrating to prove he knows how to investigate (“I’ve always believed that you start at the bottom up”) he helps prove that a conscious lack of investigation is currently treating big fish on Wall Street as being immune from prosecution for fraud.  Although there is a fair amount of overlap between some of those involved in the Wall Street financial crisis and those involved in the real estate industry, Spitzer, form a real estate family himself, never took on New York City’s real estate industry.

Andrew Cuomo was NYS Attorney General when the Donnell sale unfolded

 The New York State Attorney General who was in office when Donnell was unfolding in the fall of 2007 was Andrew Cuomo, now the Governor of New York.  The current New York State Attorney General who could still be looking into what happened when Donnell was sold, especially as it pertains to the currently unfolding Central Library Plan real estate deals and the fact that NYPL President Marx and COO Offensend apparently view the Donnell deal as model for what is to be done with library real estate throughout the system, is Eric Schneiderman who took office January 1, 2011.

Side Note: Lest there be some confusion for those not remembering the sequence of things, Kimmelman’s Durant piece includes the following:

The Metropolitan Transit Authority recently auctioned off development rights over the Hudson rail yards on the West Side. It accepted what was not necessarily the highest bid, saying the lower bid was in the public's interest.

The bid being discussed goes back to the time the Bloomberg administration was trying to push through the West Side Stadium for the Jets.  It was not the 2007 bidding process which Tishman Speyer initially won in March of 2008 and then failed to follow through on (so that the Yards wound up going to the Related Companies.)

How Many Hundreds of Millions More Keeping The Donnell Would Have Been Worth To The Public, Calculating Based On The Value Of What is Being Put Up In Its Place

Even had the NYPL sold Donnell for a figure like $89 million (the conservative low figure calculated above based on buildable rights), thereby netting on the order of only $69 million after building a much smaller replacement library, the question is whether it would have been a suitable deal in terms of the assets the library system was thereby giving up with such shrinkage and retrenchment in the face of city growth.

We can also look at the value of assets at that address in terms of the value on what is being built to replace the Donnell on its former site.  The 7,381 square foot penthouse in the building going up there is being offered for $60 million: Cut Glass: Baccarat Wants $60 M. For Its Crystal Penthouse, by Stephen Jacob Smith, Feb 26, 2013.  That’s a value of $8,129 a square foot.  According to that measure the old Donnell would have been worth about $789 million to the public.

It is, of course, much fairer to look at the average total asking price for the building’s 61 condominiums occupying a total of 130,000 square feet: $523 million, about $4,023 per square foot, making the Donnell’s 97,000 square feet worth about $390 million to the public.

No matter which way you cut it, the NYPL’s sale of Donnell gave up a valuable, nearly irreplaceable asset belonging to the public.  In its place will stand a building with 61 condominiums occupying a total of 130,000 square feet valued at $523 million and a luxury hotel with maybe 151 rooms in the remaining 210,000 square feet, which all totaled will be worth perhaps to $1.4 billion to its owners.   . ..

. . .  This is why New York's citizens are having such difficulty fending off the real estate industry to protect our publicly owned property.