Wednesday, October 8, 2008

The Subsidy Ball: The Rudin/St. Vincent’s Proposal

The trick to keeping tack of what is going on with the Rudin/St. Vincent’s Hospital development proposals now being evaluated by the city Landmarks Preservation Commission is to keep your eye on the ball. The ball is the special subsidy that would result if St. Vincent’s gets the new package of real estate rights it is asking for.

City Economic Development Corporation Testifies: Hundreds of Multi-millions in Subsidy

The LPC is having a series of hearing on this. At yesterday’s hearing, Michael Meola, an executive vice president of the city’s Economic Development Corporation, testified that if St. Vincent’s is allowed to tear down and replace with requested greater density the landmark O’Toole Building, St. Vincent’s would collect a $160 million subsidy. As we will explain, that subsidy would be at the expense of the Greenwich Village community. In addition, St. Vincent’s would garner even more subsidy at community expense on the site across the street if, as proposed, St. Vincent’s is able to sell it to the Rudin Organization for development with the additional increases in density it proposes. A precise value for the subsidy that might be collected on that second Rudin development site is hard to assess. It would depend upon how much extra density and building Rudin and St. Vincent’s are ultimately allowed in connection with the Ruden development. Rudin and St. Vincent’s seem intent on getting everything they can: They even have their eye on tearing down one of the buildings in the current St. Vincent’s complex Rudin would acquire so that they can max out the number of underground Greenwich Village parking spaces that can be built to bring them profit.

Plan Cannibalizes Greenwich Village Historic District to Create Density

The current revised coordinated plans Rudin/St. Vincent’s propose for the two sites involve shrinking the boundaries of the Greenwich Village Historic District by punching down from the north with two stabs of significantly increased density and modern construction. Five existing smaller buildings now owned by St. Vincent’s would be replaced with a 299-foot-tall medical building and (including those parking spaces) a 233-foot tall luxury condominium. Noticing New York testified at earlier hearings on the subject. (See: Friday, July 18, 2008, Rudin/St Vincent’s Proposed Greenwich Village Development, also Friday, July 18, 2008, Rudin/St Vincent’s Proposed Greenwich Village Development- First Proposals and the collected links related to Rudin/St. Vincent’s also available by clicking on “Rudin/St. Vincent’s” at the bottom of this post.)

Calculation of First $160 Million in Subsidy

Mr. Meola probably didn’t intend to state that St. Vincent’s would be getting a $160 million subsidy if it is allowed to extract the landmark O’Toole building from the historic district and replace it with a new building of much greater density. That might not have sounded as supportive of the project as he was trying to be. At the hearing, Mr. Meola presented a chart with information about other possible sites on which to build a new St. Vincent’s hospital. In response to questioning by the commissioners, he equated another possible site on his chart, “Site #5," with the O’Toole site.

The comparison that was made is where identification of the subsidy comes in. Site #5 was another privately-owned site that was fully compliant with the hospital’s needs in terms of location, real estate square footage and zoning. Mr. Meola’s analysis was that the entire package of real estate rights in connection with Site #5 package had a value and estimated purchase price of $225 million. By contrast, the O’Toole site, though it has a footprint similar to Site #5, is not zoned to permit sufficient density for what St. Vincent’s wants to build and is encumbered by the landmark building and historic district restrictions which affected the building when St. Vincent’s bought it and which St. Vincent’s now wants to remove. Therefore, not surprisingly, Mr. Meola said that based on an appraisal, the O’Toole site should be viewed as currently worth a much lower amount; only $65 million. Voila, in this comparison, you have the before-and-after picture you need to compare two sets of real estate rights. It makes perfectly clear that permission to extricate and exempt the O’Toole site from the historic district and rezone it for much greater density carries a value equal to the difference between $225 million and $65 million. $225 million is the value of the full set of real estate rights St. Vincent’s wants and $65 million is the value of what St. Vincent’s bought when it acquired, more cheaply, a landmark building in a historic district.

Support for St. Vincent’s from Officials Accountable to Mayor

As noted, Mr. Meola works for the Economic Development Corporation. That means Mr. Meola essentially works for and is accountable to (term-limited?) Mayor Michael R. Bloomberg. In Mr. Meola’s testimony we saw an effort to support the project, which support we attribute to the Mayor. We saw that support also in the testimony of Rima Cohen, Director of Health and Social Services in the Mayor’s Department of Health and Human Services. She testified why St. Vincent’s choice to build on the O’Toole site might be considered optimal. Seth Cummins, Chief of Staff of the City’s Office of Emergency Management, another mayoral agency, testified, among other things, about why St. Vincent’s choice of the O’Toole site might be desirable if we remind ourselves the city could be threatened with storm surges in the event of hurricanes. (The testimony, which stressed the perils of global warming, seemed interestingly out of sync with the lack of concern about storm surges that has been shown in connection with the new laboratory facilities being proposed for Columbia University as it expands into West Harlem: Columbia Ignores Peril, When Klaus Jacob talks, important people take action. Except the important people paying him, by Elizabeth Dwoskin, in the Village Voice, Wednesday, October 1st 2008.)

Alternatives: Scrutiny from the LPC Commissioners

Mr. Meola received scrutiny at the hearing in form of questioning from the commissioners. He was asked about why, as represented in his chart of comparable sites, EDC was only thinking in terms of other privately-owned sites since there are possible city-owned sites where St. Vincent’s might relocate and the city is very involved in a number of large-scale developments around the city. Atlantic Yards was mentioned but the nearer Hudson Yards, also talked about, is more apropos to this discussion. There was talk about the unfolding changes in the economy. We will probably be figuring out better over time what such changes mean. I doubt that people testifying at the hearing were really dealing with recent changes in view of the time lines that probably affected everyone’s preparations for the hearing. Think about it though: If we segue from an expanding NYC real estate economy into something else, folding different projects into each other to conserve effort and resources and concentrate development where it is most needed is likely to become an attractive option.

Supportive Testimony from State Department of Health

In addition to the city employees accountable to Mayor Bloomberg who testified in support of the Rudin/ St. Vincent’s plan, there was testimony by employees of the New York State Department of Health that also sounded supportive of the plan. The New York State Department of Health regulates hospitals and seeks to ensure that good health care is delivered throughout the state. At the same time, DOH also does everything it can to hold down the cost of health care. Noticing New York has observed that this is relevant when the Landmarks Preservation Commissioners considers the “hardship” part of St. Vincent’s application, which was the purpose of this particular hearing:

Hospital accounting in New York State is far from easy, counterintuitive and, at best, can only be understood by experienced insiders. Regulations involving highly complex reimbursement formulae force hospitals to operate constantly on the brink of artificially narrow and rather manipulable profit margins.

(See: Rudin/St Vincent’s Proposed Greenwich Village Development)

Temptation of a Seemingly Free Health Care System Subsidy

Also relevant to DOH testimony in connection with hardship is that when DOH considers the Rudin/ St. Vincent’s proposal, it has a rare and temptingly unconventional opportunity to infuse at least $160 million in subsidy into a hospital in its health care system at no cost to the state. Again, as previously noted, the amount could be substantially more than that $160 million, depending on what kind of comparable special subsidy is approved for the portion of the transaction involving the Rudin-developed parcel. The hundreds of millions are almost like free money except that it comes at the cost of the community giving up its strong interest in having historic district regulation to preferentially benefit St. Vincent’s. Also, while DOH may thereby see St. Vincent’s assisted in this way in this particular special instance, no such similar help will be available to other health institutions that are not similarly in historic districts that can be dismantled, chopped up and burned for the firewood of health care system subsidy.

Possible Awkward Precedent for Dismantling Historic Districts

Concern has been very legitimately raised that the Landmarks Preservation Commission will set a very awkward precedent that would apply to all non-for-profits if it approves St. Vincent’s hardship case. If permitted, it would be in the financial interest of almost any not-for-profit to shop for properties subject to historic district restrictions so that their not-for-profit status can then transform the value of such property by eviscerating the restrictions to which they are subject.

When asked about this at the last hearing, expert outside land use counsel for St. Vincent’s acknowledged the problem by suggesting that perhaps it ought to be addressed by creating a rule that if not-for-profit institutions bought historic buildings and held them long enough, aged their holding sufficiently, then buildings could be torn down. The exact structuring of this rule was suggested because it would serve to bless St. Vincent’s demolition of O’Toole. (I believe I remember that St. Vincent’s bought O’Toole 27 years ago, after the Greenwich Historic District was created.) Such a rule would be highly ironic. Our city buildings become eligible for landmarking and historic designation when and because they age; thirty years is the minimum. Should we have rules that say when buildings age sufficiently they will be protected, but then when they age for another good stretch of years they will thereby exit those same protections?

As for the question of not-for-profit ownership of historic district buildings eviscerating restrictions, at least most other not-for-profit institutions are not regulated by an institution like DOH or whose concerns about cost parallel those of DOH. DOH has a unique and vested interest when they testify concerning hopes to keep hospital construction costs down.

Consideration of Alterative Plans Under Hospital Owner’s Control; Not DOH’s

Testimony on behalf of the Department of Health was given by Director of the Division of Health Facility Planning Neil Benjamin and DOH architect Tom Yung. Mr. Yung’s testimony was the most pertinent and the most interesting.

Mr. Yung testified (remember, keep your eye on the ball that St. Vincent’s particularly chosen plan, if allowed, will garner it over $160 million in special subsidy) that the process of generating alternative proposals when a hospital construction proposal is being considered is a process that is left in the control of the hospital facility operators. He said that this is because health facility operators can run through the evaluation of alternatives quicker and more easily than DOH. If consideration of alternatives is a process left in the hands of the facility operator, then wouldn’t one expect an operator like St. Vincent’s to be biased toward a proposal that puts hundreds of extra millions in their pocket? In fairness to DOH, it is probably not used to dealing with the particular and unusual real estate temptations confronting St. Vincent’s in connection with the O’Toole site. If generating and comparatively evaluating alternatives is so complicated that facility owners have such an edge on DOH, then how does DOH ever expect to catch up if the facility owners slant evaluations they develop and present?

DOH’s Handling of Required Historic Review

Mr. Yung was asked whether DOH had done any evaluation of the proposal from a historic standpoint. That was a fair question because the job of the Landmarks Preservation Commission is preservation and the hearing was about the evaluation of historical assets. Mr. Yung said that it was a little known secret that he was the department’s Historic Preservation Officer. We must comment that Mr. Yung’s presentation revealed him to be excited and informed about the hospital’s architectural plans. He had obviously spent a lot of time visiting the hospital and assessing those plans and the hospital’s architectural needs. As for his attention to issues of historic preservation, when the commissioners asked, he told them that his first meeting about the project with the State Historic Preservation Office (SHIPO) had just taken place only the week before. (Review of the historical impact by DOH and SHIPO is required as part of state Environmental Quality Review Act, SEQRA, procedures.)

Well-attended Hearing

The Landmarks Preservation Commission has had multiple hearings about the Rudin/ St. Vincent’s proposal. All of them have been very well attended. As with prior hearings, the hearing venue was moved to a location that would allow greater public attendance. The Greenwich Village community has a fervent interest in blocking what St. Vincent’s is attempting to do. Yesterday’s hearing was at the New School’s Swayduck Auditorium (Fifth Avenue at 14th Street) which seats 215. When I arrived at the hearing, it was not easy to find a good seat. This was for a hearing where the community could only listen and not speak.

Credit Crisis and the Subsidy Ball

The hearing concluded with a tossed-out aside that, with the credit markets the way they are, maybe nobody will be building anything. Perhaps this was an off-topic effort to be topical. On the other hand, keeping one’s eye on the subsidy ball, difficulty in the credit markets could diminish Rudin’s nearer-term interest in developing its portion of the project. And if the city offered to move St. Vincent’s to other land it has available, St.Vincent’s might find the comparative attraction of the $160 million O’Toole site subsidy diminished.

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