New Docs Suggest AY Project Riskier Than Thought

The odds of the Atlantic Yards project being a financial success (and therefore getting completed) look a little dicier based on the information contained in 660 pages of financial information released by the Empire State Development Corporation in response to assemblyman James Brennan’s and State Senator Velmanette Montgomery’s Freedom of Information lawsuit filed back on March 1, reports The New York Times. The documents confirm that the overall project is risky, said Brennan. This information should have been disclosed to the public before the project was approved. Developers and brokers interviewed for the article seemed to agree that Forest City Ratner’s assumptions for its construction costs were too low and its sales prices too high. Bottom line: Ratner’s counting on a continued rising market to bail him out. Regardless of the optimism built into the model, the biggest thing that comes out of the article is that any forecasts for a project this large that occurs over this long a time period have to be taken with a huge grain of salt. I could see this project taking many forms over the years, said RBC real estate analyst Richard Moore. It could go either direction, I imagine. All of this, according to the Atlantic Yards Report, prompts the following questions:

Would Forest City, after getting significant subsidies for infrastructure and the benefit of eminent domain, be required to build its project on any schedule, or could it leave interim surface parking lots indefinitely in Prospect Heights? What profit might the developer actually earn? Should the project be as big as proposed? Is the risk faced more by the public, or by the developer?

By the way, check out this cool photo map that Tracy Collins recently put together.
Official Sees Possible Risk in Big Project in Brooklyn [NY Times]
Murky Times Article on AY Financials [AY Report]

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  • PR from AM Brennan;’s office 07.01.07:

    “The Empire State Development Corporation (ESDC) and Forest City Ratner Corporation (FCRC) provided 660 pages of financial data concerning the Atlantic Yards Development project to resolve a Freedom of Information lawsuit by Assembly Member James Brennan (D-Brooklyn) and State Senator Velmanette Montgomery. Mr. Brennan argued the case before Manhattan Supreme Court Justice Joan Madden with the assistance of Corey Shapiro of the law firm of Wolfson and Carroll. Mr. Brennan introduced legislation in 2006 with four other area Assemblymembers that would have limited the size of the project to 5.8 million square feet, while preserving the affordable housing.”

  • Currently we’re at $2 billion in taxpayer subsidies and a proposed 17% increase in everyone’s utilities to make this happen.

  • “The documents confirm that the overall project is risky,” said James F. Brennan, a Brooklyn assemblyman…. “This information should have been disclosed to the public before the project was approved.”

    Of course any and all risks should have disclosed, but would disclosure have made any real difference? Residents (and taxpayer) questions & opinions were ignored or ridiculed, and simultaneously scoffed at by an exceptionally arrogant Ratner machine. Period.

    “This is disturbing, because the affordable housing was marketed as the main public benefit of the project.”

    “Disturbing” is too nice of an adjective to describe what may turn out to be almost no real affordable housing or at best very few units, built years down the line if even then. Is there any guarantee that ANY affordable units will ever be built? I don’t believe there is.

    Bruce Bender, Forest City V.P.: “We said we will do 50 percent of rentals as affordable for low- and moderate-income families, and we will. And we made it legally binding,” he added. “Find someone else who does this and let us know.”

    Um, I think as taxpayers we would have loved to have seen some “someone else” even get a CHANCE to make a proposal, but of course this was never designed to be open for competitive bidding.


  • I would just like to point out that none other than Cororan’s own Jerry Minsky is quoted in the Atlantic Yards documents released and prepared by the ESDC as saying that the projections for the sales and rentals of the proposed AY project are sound. They don’t quote him by name but they say all of his titles and that he works for the FG office of Corcoran and detail his past company affiliations and experience. So maybe somebody can ask Jerry wtf please.

  • ————————–
    Bruce Bender, Forest City V.P.: “We said we will do 50 percent of rentals as affordable for low- and moderate-income families, and we will. And we made it legally binding,” he added. “Find someone else who does this and let us know.”

    if there’s money to be made via tax brakes etc. anyone will do this.

  • Every new residential development outside of the Manhattan Core is subsidized in some way or another. I agree that it should end – it only really benefits landowners who will have to lower their prices.

    For the utilities though and infrastructure costs, these are all offset by the increases in the area economy, not to mention the revenue gained from the city income tax. It is in everyone’s best interest that the city continue to grow and be a world financial center. That simply cannot happen as long as there is a housing shortage.

    So your utility bill goes up $20 a month, but you have better job opportunities and better schools. You’ll probably end up making more money. You might even be able to make some money due to rising real estate costs.

    If you have a mortgage and if your house is your sole leveraged “investment” you will be in serious trouble if the economy begins to decline in the city. This is a real concern for employers. At some point, it makes sense to leave the city because you cannot pay employees enough to live here. That can lead to (and in fact HAS led to in the past) a domino effect where many employers pick up and go elsewhere.

    In any event, construction costs, while they have increased recently, are nowhere near as big of a problem as rising land costs. Because AY is being built on city-owned land that was acquired at a relatively low price, the success of the development is assured.

    So what if their income projections are overly optimistic – the demand is still strong. In the end, that’s all that matters. It WILL be profitable, the question is how much.

    In any event – a 9.6% rate of return for a safe investment like residential real estate in a prime neighborhood is not ridiculously low. It’s certainly better than many other investments. The discussion of architectural fees are inconsequential. The article makes the dubious claim that $369 a square foot is “below industry averages”, but for a residential building that is nonsense. I’ve personally seen construction budgets for many other towers in Brooklyn and they are quite similar. Forest City Ratner IS a developer after all – and there are going to major economies of scale associated with a project this size. Those construction costs are entirely reasonable. Overall, this NY times article is weak on criticism and was not written by someone intimately familiar with the market.

  • that Brennan press release posted above shows that for the 4 billion dollar project 1.35 billion will be equity investment and those investors will make….a 50% profit. That is the part of the story the Times somehow missed.

  • The press realease above doesn’t make any sense. Since when does cheap land assure us that AY is going to be an economic (to say nothing of environmental) success?

    The simple act of giving Ratner $2 billion and having our utilities go up 17% doesn’t assure us of anything at all. Given the scale of the project, 15 years of construction, increased pollution and a lot of other negatives, it’s entirely possible that the net benefit of this mess isn’t a positive number at all.

    Yes, AY will employ people. But we should all ask at what cost.

  • anon at 9:50 – how many years will it take to make a 50% profit? And what is the risk of making that profit? It sounds like this story is saying that if the market doesn’t continue up there may not be much, if any profit. So the risk is pretty high.

  • John, the article is talking about the economic success of the development, ie the rate of return on the equity investment.

    You may not know this, but the profit a developer makes on a building is essentially based upon the cost to acquire the land and construct the improvements, along with associated sellout costs if condo or the time necessary to achieve stabilized occupancy if its an apartment building.

    The land value is low, and the construction costs are known and easily managed by such a large developer. There is demand for housing. There is a housing shortage resulting in high prices/rents.

    If this property has a lower land cost than virtually any other successful new development in Brooklyn (and they are ALL successful) why would this project not be successful?

    The article makes the erroneous conclusion the rate of return is low enough it would not be a success, and this is false. The article further makes the claim the construction costs are unrealistically low – and this is also false.

    Right now, no one can reasonably make the claim the NYC economy is going to falter such that demand for housing is going to drop precipitously. Unemployment is at historically low levels, office vacancy rates are the lowest they have been in decades, and crime continues to be the lowest it has been in the post-1960s era.

    Obviously, no one knows the future – but this is about as safe of a real estate investment as you can get. A risky development would be constructing a housing subdivision in Arkansas. This development is simply not risky.

    As for the environmental issues – your points are simply false. The problem in this country is a lack of urban development. Projects like AY are the only way we can avoid continued pollution and environmental degradation. How can a high-density development above the nation’s largest transit hub be anything but a positive? Thousands of people who would otherwise drive will take public transportation. The average energy consumption per household for buildings like this is more similar to a third world nation than the average suburban house.

    What kind of pollution are you talking about? Obviously, it is not the use of fossil fuels for energy.

  • Erixi — the only rason this project is “simply not risky” as you put it is because of truly massive public subsidies. Little risk for the developer, but lots of risk for the public. There has NEVER been a good accounting of the return on these public subsidies. There has NEVER been an analysis of what the level of subsidy will be per “affordable” apartment, and there IS NO legally-binding requirement for FCRC to build the amount of affordable housing that the project will supposedly yield.

    You keep saying over and over again that high density over a transit hub justifies this project, as if density trumps EVERY other concern.

    You write:

    “For the utilities though and infrastructure costs, these are all offset by the increases in the area economy, not to mention the revenue gained from the city income tax.”

    One of the things that is so IRRATIONAL about AY is that the superblock design requires that the City MOVE a lot of under-the-street infrastructure from beneath Pacific Street — this is because the City does not allow water mains to be under private property.

    AY calls for Pacific Street to be demapped and turned into private property. Therefore, major infrastructure has to be moved, at great expense.

    As has been pointed out elsewhere, FCRC justifies the size of AY as necessary given the huge infrastructure expenses of such a project. If AY were not so over-sized, infrastructure costs would be significantly smaller. Once again, whether we are getting a good deal here or not has been completely obscured because moneyed interests and the politicians who cater to them have wanted it that way.

  • Plus, as has been stated so many times that it should print itself at mere mention, there are no plans to improve or expand any kinds of public transportation, let alone streets. AY cheerleaders seem to think that these problems either don’t exist or will solve themselves.

    Furthermore, the train lines under AY include the 4 and 5, which are among the most overcrowded lines on the entire system, from end to end. There comes a point where you just can’t cram anymore people into subway cars. Overcrowding causes delays, accidents, subway rider rage, and ultimately people who can, will abandon the overcrowded trains for their cars, which defeats the whole purpose.

    As we well know, any public transportation project takes years to “study”, and more years to implement. How long have we been promised the 2nd Ave line? If the MTA was going to do anything in time for the opening of any kind of AY project, it should be well past the “study” and into some kind of implementation. Umm – there hasn’t even been a conversation, as far as I can tell.

    Good luck with your urban hub, Euriximachus.

  • I’m not sure where I come out on this whole thing, but I do find it interesting that opponents of AC on one hand feel like Ratner is going to make too much money on the project and now this article comes out and opponents of AC are now complaining that Ratner may make too little on the project.

  • they are? where?

  • Sterling Silver:

    The subway system is not in as dire of a shape as you make it out to be. While the 4 and 5 trains are at maximum capacity, they are the only ones and this certainly isn’t true from Atlantic Avenue to Wall Street. Full automation of the transit system will increase the number of trains by 50%, and this system is very much under construction right now. Have you never heard of the L train?

    It is simply not accurate to think that people who will be living in the AY will abandon public transit, especially when every other line is far from maximum capacity.

    Brooklyn doesn’t need more subway lines, but it does need a renovation of the whole system as well as implementation of the automation system.

    I don’t know, your comments just strike me as a bit alarmist. I transfer at Atlantic Avenue every day for a 6th Ave train and service is fast and not overly crowded. A few thousand extra riders spread out over the many different lines at that station will not have much of an effect, and in 5 years when we have more trains running as a result of automation – there will be no problem at all.

  • The 4/5 from Borough Hall is packed form 7am till 9 every morning!

    and the fear re Ratner’s projecttions is that if he doesn;t make the planned $$$ upfornt on the luxury , the rest wil never get built (no matter what). he can get out of anything iwth a few busk spread around Albany….

  • Eryximachus, what a brave new world we’ll be living in then. Automation will solve everything! Yeah, I’ve heard of the L train, and the last time I was on it, which was only last week, it was pretty darn crowded, and that was during off peak hours, so I can just imagine what rush hour is like. I’m not seeing the benefit of automation here.

    There is no way they are going to fully animate the 4 and 5 anytime soon, so those extra trains are going to be a long time coming. I’m not convinced that full automation will speed things up as much as you think they will. Trains are full of people – people are not automatons, and cannot be regulated and scheduled to the extent that computer models have the traffic flowing. Do we really want to automate the busiest lines in the city? Is the technology able to handle all of the variables here, safely?

    In any case, the problem IS that there aren’t enough train lines in this city, especially in all of the outer boroughs. Far too many people have to take a bus to get to the subway. These “two-fare zone” people are in much of the Bronx, most of Queens, and half of Brooklyn. Most of them do work in Manhattan, and more and more people are being forced to live in these zones, due to lack of affordable housing closer to the city. These people are the fastest growing segment of NYC’s population, newcomers and immigrants, and they are most in need of public transportation. There will be waayyyyy more than “a few thousand extra riders”. It would behoove the MTA and city to start planning and working towards accommodating a much larger population using its services. That means hubs like AY will soon be far past their capacity on all lines. There will indeed be problems, lots of them.

    I’m not trying to be overly cynical or alarmist, or to pick a fight with you. I just don’t see where the MTA, or the city, FCR, or anyone else, has their ear to the ground here. They seem to love new tech, computer simulations and rosy projections much more than common sense, or the opinions of the common Joes and Janes who actually use these systems. You seem to have bought it, as well.

  • Jojo write:

    “…I do find it interesting that opponents of AC on one hand feel like Ratner is going to make too much money on the project and now this article comes out and opponents of AC are now complaining that Ratner may make too little on the project.”

    Jojo, here’s the thing — it’s not simply a matter of whether money will be made & how much. As usual, Atlantic Yards Report puts it best:

    The question isn’t, “Could the developer make a lot of money?” nor even “What is the public getting and what is the public paying?” but rather, “As things change in the future, who decides how the gains and losses are shared between developer profit and housing affordability?”

  • Sterling Silver:

    Automation works is trains can be run closer together, and thus more trains can be operated simultaneously. It really has nothing to do with the people, if someone is holding the train doors the system will slow down but it won’t reduce the extra capacity that is a result of running more trains. Even now, it is technology that alerts the train conductor doors are being held open. The only difference is a computer will keep trying to close the doors until they are clear. It is not unlike your average elevator which works just fine.

    Also, I’m not saying the L train is 100% operational. The technology is definitely in a testing phase – but it is coming. I’ve used the North East MRT line in Singapore that is fully automated and it works great. This isn’t particularly complicated technology – it’s just expensive and results in job cuts. There’s no reason to take a Luddite position on this issue though, especially when so much is at stake.

    As for the people outside of the subway system, most reports I have read indicate the people don’t want subway service as it will result in higher density. They want to maintain the suburban character of their communities. Are the people of Sheepshead Bay really clambering for an extension of the Norstrand Avenue line? This would seem like the easiest extension.

    There are people pressing for express F train service to continue again.

    I’d love there to be expansion of service, but that is a whole other matter and the politics involved are intense. It’s totally beyond the scope of this discussion.

  • Anon 4:06:

    The market makes the decision. Just as happened in Harlem a century ago, developers built too much “luxury” housing and there was no market for it – and thus the previously underserved black population got access to great housing that has lasted to this day.

    The lack of housing affordability is a direct result of the city’s oppressive zoning code that limits density and makes it extremely expensive to build housing. Rent stabilization and rent control also makes it difficult and expensive to replace obsolete, low-density buildings with newer higher-density buildings.

    This is not the Soviet Union – willing buyers and sellers determine how much profit someone makes in the market. Until the city changes their laws such that demand can be satisfied, we will continue to have high prices. Once again, the people at the AY report prove they are nothing but rich communists.

    I have a great way to solve the housing crisis, we should seize the townhouses of every rich liberal in the city who owns one and convert them into rooming houses for the poor. Your average townhouse can easily accommodate 12+ studio apartments.

    The poor pay higher prices because these fools have obscenely large homes.

  • Good point, JoJo 1:27. If Ratner makes a killing, it’s reason to complain. If Ratner makes a pittance, more reason to complain. Opponents will never be happy unless the project gets killed, which, of course, would never happen at this late stage. So, let us not allow Brennan’s press release to distract us from the most important point: the project has been approved and the opponents are failing miserably in court.


  • mr. DumbDeal, Brennan’s release and the Times article, if you read it carefully, do not who that Ratner is making a pittance. Why would Forest City Ratner embark on a project that makes them a pittance, i don’t think Forest City Enterprises’ shareholder would be too pleased to find out that’s what they’re up to.

  • Clearly it’s the 11th hour and AY opponents are getting pretty desperate. This is perhaps the dumbest story ever published in the NY Times. The editor should be fired.

  • The opposition is using the affordability component of this project to their own detriment. What happens if Ratner turns around and makes the ENTIRE project low income? Then we’ll have the Marcy project on steroids!! WTF?!?! I’d rather have 100% luxury housing then 40% low to middle income housing. Low income people are like roaches, before long they will take over the entire complex and make the surrounding neighborhoods unbearable.


  • Is this Communist Russia? Who gives an fuck how much Ratner makes on this project? He took the risk and should be handsomely rewarded! This is the United States of America and the last time I checked this is a capitalist society. You expect different? Move.

    I don’t care who builds AY. I just want instant gentrification and the utter displacement of anyone who doesn’t want to make the nabes east of Flatbush better. I don’t want to make additional housing for the poor in FG, CH and PH. The poor we do have is too much already. They add no value and simply suck the blood out of every community. KUMBAYA my arse people! Fruit salads don’t work in the real world!

  • Ratner didn’t take all of the risk. We took 50% of the risk – $2 billion on a $4 billion project. Do New York tax payers stand to get 50% of the upside? No, of course not. That’s why it’s called corruption.

    Eryximachus, I have no doubt that AY will be economically successful for the owners of AY – we New Yorkrs are footing half of the bill. If we underwrote half of most ventures in NYC the odds of economic success of the venture would be appropriately optimistic., The issue is not whether AY will be economically successful for Ratner – it will, I’d stake my life on it. The issue is whether it’s worth $2 billion to NYC taxpayers. It won’t be. And no amount of faux econmic commentary can change that.

    “How can a high density development above a major transit hub be anything other than positive?” – Me, I’d ask what the TOTAL cost of the development is before I claim it’s worth the money.

  • Tish tish whats the dish pull down your pants and make a pish!