Tuesday, June 23, 2009

Thoughts on the MTA’s Finance Committee Meeting Wherein Atlantic Yards Was Considered as an “Information Item”

There is much to tell about the Monday morning meeting of the MTA's Finance Committee where a new bailout edition of Atlantic Yards was the subject.

Best Account of MTA Finance Committee Meeting

As usual, if you want the best account of what happened at the MTA’s Finance Committee meeting on Monday wherein Atlantic Yards Was Considered as an “Information Item” you should go to Atlantic Yards Report. (See: Monday, June 22, 2009, MTA deal revealed: $20M down, 22 years to pay the rest; smaller yard may save FCR $100 million; some skeptical about rush.)

Noticing New York’s Testimony

If you want to know what we testified, it is true that we essentially reprised our post from early that morning about how all the changes swirling around and through what was theoretically once was “Atlantic Yards” have melted all other pretext away. Only one obvious fact remains. Atlantic Yards is being done not for reasons of merit. It is being done only because it is a “wired deal” where merit is irrelevant. (Our morning’s post was: Monday, June 22, 2009, Plus Ça Change, (The More Things Change,) Plus Une Chose En Particulier Ne Change Pas: La Transaction Fixée (The Wired Deal)!) We handed in our post as written testimony.

Emphasis of Noticing New York’s Oral Testimony

We did, however, adjust our oral testimony to make sure we led with something that was in direct opposition to the nonsense being peddled to sell the Forest City Ratner bailout. We pointed out that in an economic downturn the ability to negotiate a better deal should be in the public's favor, not the developer's. For more about this and our thoughts on the testimony of Kathryn Wylde of the Partnership for New York City, Joseph Chan of the Downtown Brooklyn Partnership see: Monday, June 22, 2009, More on Planning in Advance to Bail out Forest City Ratner Upon the Inevitable Arrival of an Economic Downturn.

Purpose of this Post: Supplemental Thoughts

This post is to offer our thoughts supplemental to all of the above.

Deal Sprung on the Committee is an “Information Item” Only

The Finance Committee was considering the revamping of the degenerating Atlantic Yards as only an "information item" because the committee members were only just seeing the item for the first time. As they had no time to absorb the information they were not being asked to actually vote on the item. That was small comfort because in two days time (on Wednesday) they would be asked to vote as part of the full board, apparently skipping a committee approval. This also presupposes that the ESDC would approve the very complex deal only a day later without making any changes. Such swiftness is, of course, indicative of the wired nature of the deal.

Transportation, Job One at the MTA, Suffers a Blow

As Atlantic Yards Report reported about MTA Chief Financial Officer Gary Dellaverson's stated priorities:

"Our interests are transportation first, financial second," Dellaverson said, implying that development over the railyard--and the removal of the blight the open railyard has been said to cause--comes third on the list.
Notwithstanding, it seemed clear that the most important news is that MTA’s ability to provide transportation will suffer.

The concessions to accommodate Forest City Ratner involve significantly diminishing the capacity of the railyard and doing so in a way that allows little or absolutely no flexibility to ever expand it again later despite the fact that the city is growing and such flexibility is valuable and highly desirable.

It was noted by Board member Andrew Albert only “a couple of weeks” prior thereto MTA Acting Executive Director Helena Williams had been “pretty clear about needing 9 tracks versus 7 tracks.” We had to wonder about the fact that Helena Williams was not at the meeting. Representations were made in her absence that she was now “completely comfortable” with the downsizing and lack of future flexibility the Ratner concessions would involve.

In her absence most of the information was being supplied by Mr. Dellaverson. It was interesting how Dellaverson had to be chased with successive rounds of questions to give a straight answer about the fact that the deal being proposed for Ratner would mean not only a railyard with less capacity but one that would also lock in the MTA, permanently preventing the possibility of further expansion in the future because once the yards were platformed over and supported by immovable pillars between the tracks no further change would be possible. Prior to actually admitting this, Dellaverson's evasions were described politely by a female board member trying to get a straight answer as "a lovely way with the English language."

Dellaverson finally responded that if the question was about possible expansion for a "more robust" railyard that, after the platform was built it would be a "real pain in the ass to enlarge." That apparently was not exactly accurate because further discussions indicated that it would actually be virtually impossible to enlarge the yard after that.

One board member commented how valuable MTA normally considered yards that provided capacity and flexibility for future growth.

The Blow to the MTA's Job One in Quantified Terms (For Starters)

From Atlantic Yards Report:

The new railyard would be valued at $147 million, while MTA Chief Financial Officer Gary Dellaverson said the previous iteration was worth $240-$250 million.
In just one blow, a quantifiable hundred million sweetening of the deal for Ratner. Of course that is just one of the sweeteners proposed as part of the "renegotiation" constituting the Ratner bailout. The value of other sweeteners need to be added to it.

A Board Member’s Outrage at a Last Minute “Railroading” Rush

One board member complained about the outrage of being rushed at the last minute on a complex deal. Here from the Times:

“It is one month shy of four years since the board accepted Forest City Ratner, and this committee is being given less than 48 hours to understand a complex transaction,” complained Doreen M. Frasca, who has raised concerns recently about the M.T.A.’s financing decisions. “I think that’s pretty outrageous,” she added.
(See: June 22, 2009, Developer Seeks to Defer Payments on Atlantic Yards Site, by Michael M. Grynbaum.)

Mr. Dellaverson was clear that the board members were being rushed because of the schedule the Forest City Ratner bond deal for the arena needed to meet. This is not to say that the last-minute rush was not manufactured. As board member Frasca had already pointed out, Forest City Ratner could have moved to go forward on this a long time ago. That being so obvious, we think the facts point to a conscious effort to short-change the board of the time needed to properly evaluate and think about the transaction.

Absence of An Actual Deal With Ratner

Politicians should also pay attention to the board's question and Dellaverson answer about whether the MTA was "contractually obligated" with respect to the “deal” with Forest City Ratner. Several times the “deal” was referred to by Dellaverson as "never papered over." Mr. Dellaverson’s answer on whether the MTA was contractually obligated: "Of Course not!"

So if politicians ever wondered how easy it would have been or is for the MTA to walk away from this deal, the answer is that it is no problem at all.

In fact, Mr. Dellaverson indicated that there were some aspects of the original deal he was not even sure he remembered and would only know about if he dug up notes he hasn't looked at recently.

Switching to Another (Perhaps More Solvent) Developer

Mr. Dellaverson was also asked by a board member about switching to another contractor. He was given the example of what would be possible if Extell (the developer that has previously offered the MTA more money than Forest City Ratner) came forward to indicate a current interest. He seemed to view that as an interesting but academic proposition. He noted that Extell had not approached the MTA. It was clear from what he was saying that the MTA had not bothered to contact Extell or anyone else. The MTA has thereby intentionally kept the idea of another contractor entirely theoretical.

Afterwards on WNYC there was a report where the MTA (Mr. Dellaverson?) was saying that the reason to accommodate Ratner was the MTA’s inability to find a replacement contractor.

Of course, it would be unlikely that Extell would come forward uninvited at this point. When last we heard from Extell with respect to bidding on the Atlantic Yards site, Gary Barnett, the president of Extell was invoking images of Casablanca with his references to being "shocked— shocked" not to have gotten the original bid when they outbid Forest City Ratner. (See: Thursday, December 27, 2007, Clear enough? Misreading the Extell interview regarding Atlantic Yards.)

It is, in fact, unlikely that any alternative contractor will bother to darken the MTA’s doorstep until the MTA sends out the signal that Ratner’s deal is no longer specially wired. Obviously, that is not the message now being telegraphed.

Multiple (Six) Development Parcels

One thing that has interesting implications in terms of bidding is the MTA’s division of its portion (40%) of the overall Atlantic Yards site into six development parcels. Here from Atlantic Yards Report:

Dellaverson said the MTA divides the rest of the railyard into six development parcels, as six buildings have been projected to be built. A parcel purchase price would be assigned based on the total payment for the "Air Rights Parcel" and the proportional density assigned to each of the six segements.

Regular payments of the total purchase price would be allotted proportionally to each development parcel, with that parcel conveyed to ESDC or FCR only when the proportional price was met.
We have always advocated dividing the site up into separate parcels so there could be separate developers and more bids. It seems the MTA is proposing to do the division without using the opportunity bid the property. (The six parcels may allow FCR more flexibility, especially of it runs into a financial fix where it is struggling not to go under). Ironically, later in the afternoon on an entirely separate matter the committee was reviewing recommendations about breaking propsective large MTA contracts into smaller bundles as a matter of principle in order to have more effective bidding.

Pricing of the First Parcel (the Arena Parcel) For Ratner

Dellaverson was noninformative when asked about how the first parcel being transferred to Ratner for the arena had been priced. Apparently it had been priced through the art of negotiation. Dellaverson said it had not been priced by the MTA based on calculations of the value of what could be built upon it. (We can’t imagine that Forest City Ratner ignored paying attention to this.) Dellaverson said that the MTA value of the land could not be set because the ESDC was doing the zoning override. This would seem to have some odd implications and, looking at the staff summary, we are not sure it is accurate.

MTA to Set Precedent By Selling Naming Rights to Subway: First Step in Commencement of a New Program?

Here from Atlantic Yards Report:

Also, in what represents the first MTA naming rights deal for a subway station, FCR would pay $200,000 a year over 20 years to have the name Barclays Center added to the various stations that make up the Atlantic Avenue/Pacific Street complex.

There were no comparables for that deal in New York, but Dellaverson said MTA staff did look at naming-rights arrangements in other cities.
We find this fascinating. If this is appropriate the MTA could sell off the entire subway system at $200,000 a year per station. Columbus Circle will now be the Columbus Circle/AOL Time Warner Station. Oops- - No AOL anymore, just Time Warner then. Grand Central could be Grand Central/Pan Am Station. Oops- - No Pan Am anymore, Met Life then. Given all the turmoil in the financial world, will Barclays be around for “20 years”? Maybe so. If they have been around long enough to have been involved in the slave trade maybe it can be argued they will be around for a few more years.

(Note: This post will be updated, including correction of typos.)

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