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.
Review of the Plans Shows Affordable Units at Greatest Risk
“Forest City Ratner marketed Atlantic Yards to the public with affordable housing as the most appealing aspect of the project. But the internal data indicate that the 4500 units of rental housing, including 2250 units of affordable housing, show little profit initially and need rising real estate prices to assure a profit,” Mr. Brennan said.
“Local elected officials and community residents had sought guarantees that the affordable housing would be built but were turned down by the State and City,” Mr. Brennan added. Both the luxury condos and the rental units are at risk if the real estate market turns sour.
Mr. Brennan filed a Freedom of Information request on October 5, 2006 with ESDC seeking financial information about the Atlantic Yards development project before the project was approved. The Pataki administration initially denied the request, but the new Spitzer administration provided limited data, principally an analysis of the project commissioned by ESDC from a consulting firm.
The lawsuit was commenced on March 1. ESDC provided additional information, but acknowledged that it did not have a current Forest City Ratner business plan when it approved the project in December 2006 during preliminary negotiations.
ESDC moved to dismiss the lawsuit at a court hearing in April. Mr. Brennan argued that the business plan was a public record, since the plan was required to be submitted to ESDC by a State and City memorandum of understanding. After the court hearing, Forest City Ratner voluntarily agreed to turn over its business plan to ESDC, which then turned it over to Mr. Brennan. Judge Madden never issued any ruling in the lawsuit. The lawsuit was resolved by mutual agreement of the parties.
Analysis of Data
The data provide values for different elements of the project as if the team, the arena and the rental housing would be sold either in 2012 or 2015. It is not known if Forest City Ratner actually intends to sell these properties, but the data measure the projects on that basis. The Nets team and the arena are given a resale value around 2012, and the rental housing, including the affordable housing, is given a resale value around 2015. The condo units are sold as they are completed, between 2010 and 2014. The investors will put in about $1.35 billion, and would realize $2 billion through the revenues and projected market values of the project, for a net profit of about $650 million.
The data show however, that the overall project is financially risky. Most particularly, the rental units could be financially precarious if the rental market turns sour. The first rental units come on line in 2010 for a meager annual profit of 3-6%. The equity investment in the rental units is $400 million, and yields a modest sum of $74 million in profit between 2010 and 2014, but is then given a market value of $555 million in 2015. Documents show Tower 4 rentals come on line in February 2010 at market rents averaging $2,854 per month, including two-bedrooms at $3,784/month. Tower 10, by contrast, comes on line in December 2013 with market rents averaging $3,754/month, including two-bedrooms for $4,979/month. Rents increase 33% in 3 ½ years, about 10% per year.
Construction costs are enormous - $850,000 per unit for condos and $330,000 to $345,000 per unit for the rental housing – and those figures are from the same building, Tower 4, which is completed in 2010. Affordable housing units produced by the Department of Housing Preservation and Development (HPD) average $140,000 to $160,000 per unit. Even a slight decline in the real estate market resulting in lower prices for condo sales could hurt condo profits and the project as a whole.
“This is information that should have been available to the public when the Atlantic Yard Project was going through its approval process,” Mr. Brennan said. “However, any member of the public should now be able to obtain the data from ESDC, which includes the Forest City Ratner business plan. Better informed discussion and debate about the plan can now continue,” he added.
“The Empire State Development Corporation should reconfigure of the project with input from the community,” Brennan said. “A smaller project could reduce overall risk, while maintaining a rational balance with the environment. The State, the City and Ratner could restructure the project to guarantee the affordable housing at the same time,” he added.