Thursday, September 11, 2014

What Contemplated Price For Junior’s Says About Real Estate Value of City-Owned Pacific Branch Library and Adjacent Medicaid Office Site: Couldn’t Be Crony Capitalism Again, Could It?

Properties not very far away from each other  in Brooklyn, city-owned Medicaid office and adjacent Pacific Branch library, and, 11 minutes away, Junior's
Just this last June it was announced that the city-owned Park Slope Boerum Hill Medicaid Office building on Fourth Avenue had been sold to a mysterious developer.  It's the building next to the Pacific Branch library.

Park Slope Boerum Hill Medicaid Office building- 35 4th Avenue, Brooklyn, NY 11217
This sale was noted by Citizens Defending Libraries (of which I am a co-founder) in the course of reporting on June City Council budget hearings about the libraries (see below).  The reason to note the sale of the property next to the library is that Brooklyn and NYC libraries are being turned into real estate deals, and it has long been suspected that the Medicaid building would be sold to a developer focused on folding the library real estate into its plans:
As was expected by those reading the development tea leaves, the city is now selling the property immediately adjacent to the library, “one of Brooklyn's few Medicaid offices.”  (See: Park Slope Medicaid Office Building With Lots of FAR Sells for $25,000,000, by Rebecca of Brownstoner, 06/05/14)

Air rights could easily be sold and utilized on that adjacent site without incurring the expense of tearing down (or replacing) the landmark building.  But this doesn’t mean that the library would remain a library unless the community asserts itself.  As it is, Citizens Defending Libraries is getting reports that this summer the BPL is shuttling down programs at Pacific Street and refusing to do proper maintenance.

One has to wonder whether the $25 million that the Medicaid building sold for wasn’t rather low.  In a few weeks we will probably see what the sale of Junior’s site, a few blocks away, brings in for comparison.
(See: Report on Tuesday, June 3rd-9th City Council Hearing On Budget For NYC Libraries Plus Testimony of Citizens Defending Libraries.)  - Note the building is, indeed a de facto "landmark," but has never officially been been designated as such by the city despite community urging and a partially successful lawsuit to bring that about.

This week in the New York Times we have the awaited update on the value of the Junior's property, the site of the "legendary" cheesecake restaurant.  The update does make it sound like the amount the city sold the Medicaid building for was, indeed, rather low.  Despite the fact that the Times article reports that Junior's property will now no longer be sold, as was previously the plan, the story zeros in on what was likely to have been paid for the property:
Offers to buy and build an apartment tower poured in from Brooklyn, Manhattan and abroad. The highest bid: $450 per buildable square foot, well over the previous high for Brooklyn of $350, for a total of $45 million in cash.

* * * *

When Mr. Rosen, 45, put the site up for sale in February, he said he would insist that the buyer bring Junior's back to the ground floor of any new building. . .

* * * *

The $45 million offer would not have accommodated a ground-floor Junior's.

Mr. Rosen said he also received offers worth half that amount that would have allowed the restaurant to return, but after receiving disappointed calls from customers and talking it over with his longtime employees, his wife and his 81-year-old father, Walter Rosen, who still walks around the dining room some mornings, he decided he could not give it up.

* * * *

Robert Knakal, the broker on the not-quite-sale. . . . said he was consoling himself with the prospect of a couple of properties that would "probably" break the $500-per-square-foot barrier.
(See:  N.Y. / Region- Junior's, Legendary Restaurant, Is to Stay in Brooklyn- Owner of Junior's Rethinks a Move, by Vivian Yeesept, September. 8, 2014.)

So the figures from the story to work with are "$450 per buildable square foot" if the new owner can do whatever it wants with the site, half that, $225 per buildable square foot, if there were restrictions involving the owner taking back ground or lower floor space, or $500+ per buildable square foot if Mr. Knakal's boosterish ambitions could bear fruit.  Given that the city is apparently selling the Medicaid building free and clear of any restrictions that would lower the price, the "$450 per buildable square foot" is the comparable that should therefore apply.  If the mysterious developer believes that it has an inside track with the city to also buy the Pacific Branch or air rights from it, then there'd be reason to pay a premium for the Medicaid office building, raising the price even a bit higher.

Did the mysterious 35 Holdings LLC, buying the Medicaid office property get any kind of a bargain?  If Brownstowner is correct in reporting that the property has "up to 108,000 square feet in development rights" (being a "18,000-square-foot property") then the $25 million the buyer paid for the property means it paid about $231 per buildable square foot.  Yikes!  That only about half what the Junior's property was being valued at!
Walk from Junior's- 386 Flatbush Avenue Extension, Brooklyn, NY 11201
Maybe the low price can be explained?  Although prices are supposed to be shooting up in Brooklyn, maybe the Medicaid office location, just a few blocks and eleven minute walk away from Junior's (see above), is terrifically less desirable?  To be more specific, the library and the Medicaid office are yards away from the Ratner/Prokhorov so-called "Barclays" arena.  The library, itself, stands directly across the street from the Ratner Atlantic Yards footprint.  Does this short shift in distance depress prices that much?  Or, alternatively, could it theoretically depress prices to be so close to Ratner's mega-redevelopment?
Above, below: Pacific Branch (25 Fourth Ave. at Pacific Street, Brooklyn, NY 11217), down the street, yards away, the Ratner/Prokhorov "Barclays" arena

Wasn't the arena supposed to be giving a boost to the value of the properties next door?  Maybe not. See:  Wednesday, August 22, 2012, The arena effect or the "Brooklyn" effect? Top broker suggests the latter is more important.  Still, on the other hand, while the existing Junior's location is already notably close to the Ratner arena, the Junior's owner when contemplating his sale options considered establishing another Junior's even closer to the arena. 
Atlantic Yards footprint (PC Richards on left) and arena: Is it desirable to be located near them?
Why should an exceptionally low price for the city's sale of the Medicaid office attract our scrutiny?  Because it could be a strong indicator of a crony-capitalistic deal where property is being handed off to someone with an inside connection, shortchanging  the public of the value it deserves . . . just like the neighboring Atlantic Yards mega-monopoly itself, where public and eminent-domain-seized property property was handed off to Forest City Ratner without bid and at an apparent fraction of its true value.

And if the city's Medicaid office sale reflects a crony-capitalistic shortchanging of the public, then there is every reason to believe that any sale of the Pacific Branch library or its real estate development rights by the city likely to fold into that transaction, would similarly reflect such a crony-capitalistic shortchanging of the public.  What's more, when crony-capitalism drives deals there is never assurance that any of the underlying reasons for proceeding with such transactions make any sense at all, no assurance that such sales are undertaken intending to true public benefit in any way.
With two photos side-by-side you can see, left to right, Ratner property in Atlantic Yards (now euphemistically "Pacific Park") footprint across from library, the arena, Pacific Branch and adjacent Medicaid office. 
Is the Times article declaring that the original Junior's will not be moving and will be preserved, its intact value recognized, just publicity for a playing-hard-to-get ploy?  Would the Junior's owner really leave millions on the table and walk away?  The Times article article doesn't carefully parse all the options, but maybe one is that Junior's, remaining at this location to which the owner explicitly wanted to bring it back in the end, would remain in place, its historic heritage undisturbed, while selling its air rights to neighboring property owners.  The Times article doesn't say so, but that would be `a have your cheescake location and eat it too' option that could still scoop up most of the money now on the table. . . .

. . . .One thing is certain: Whatever deals are made, the property owner who might have sold Junior's is looking out for his own and his business's best interests.  That protection of the seller's interest is not at all assured (quite the opposite) when it comes to those in hurrying to sell off our public assets.

(Note: Additional photos added 9/12/2014.)

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