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June 22, 2009

DDDB PRESS RELEASE: Expected New MTA Deal With Forest City Ratner Is Not In The Public Interest

A New Request for Proposals Must Be Issued

New York, NY — Today the MTA Finance Committee is expected to present, and recommend to the MTA Board, a renegotiated agreement with developer Forest City Ratner for the purchase of the development rights of the 8 acre Vanderbilt Rail Yard. The MTA Board is expected to vote on the new deal on Wednesday June 24. New York magazine’s Chris Smith reported that the developer has been lobbying Governor Paterson directly for approval of the new deal.

Such an approval would violate the Board’s fiduciary duty.

"Using the MTA to bail out Bruce Ratner's failing project is an insult to straphangers and taxpayers, who just rescued the MTA one month ago. It is irresponsible in the extreme for Governor Paterson to have the MTA make Ratner's sweetheart deal even sweeter in order to prop up the zombie Atlantic Yards project," said Develop Don't Destroy Brooklyn spokesman Daniel Goldstein. "The MTA must maximize its return on this piece of real estate by putting it up for bid in a proper, fair and competitive manner rather than reward Ratner for defaulting on his commitments."

THE PROBLEM

Forest City Ratner (Ratner) is defaulting on its commitments to the MTA and offering nearly nothing to the transit authority. Now the MTA seems prepared to makes deep concessions tailored to benefit Ratner’s bottom line (which still has not been made public.) while doing nothing for the public interest, transit-riders or taxpayers.

In September 2005 Ratner reached an agreement with the MTA to purchase the development rights for the 8-acre Vanderbilt Yards (VY), a portion of the proposed 22-acre Atlantic Yards project site. The MTA had appraised the development rights at $214.5 million after subtracting the cost of moving the active rail yard and building a platform over the new yard.

Despite a Request for Proposals (RFP) that came 18 months after the Mayor and Governor gave their support to Ratner’s project, and an attenuated bidding process, a competing developer, Extell Development Company, outbid Ratner $150 million to $100 million.

The justification for accepting the lower cash bid (and a bid less than half the appraisal) was that Ratner would build a new “state of the art,” 9-track rail yard at a cost of $180 million. Ratner was to pay $100 million cash at closing, decommission the active yards where the arena would, in part, be located and build the new, permanent yard.

Now, nearly 4 years after this deal was struck and nearly 3 years since the overall project was approved, Ratner is pleading poverty, with no explanation as to why they haven’t closed their deal with the MTA over the past three or four years.

Acting MTA Chairwoman Helena Williams stated at a May 29th Senate oversight hearing that there have been “sensitive negotiations” ongoing with the developer to strike a new deal overriding the 2005 deal. She stated that an agreement has been reached, at least in part, and will be presented to the MTA Board for a vote at its June 24th meeting. She did not explain why the developer needs or should get a new agreement.

Details about the new deal have not been forthcoming, but Ms. Williams and published reports have alluded to a $20 million cash payment at closing (or a $10 million payment) with an unknown delayed payment schedule, and a newly structured temporary rail yard that would cost substantially less than the $180 originally proposed by Ratner, and worse, would drastically reduce the train capacity from the current, active yard. It has also been reported that Ratner will not build a platform over the rail yards as committed to previously.

The MTA appears to be poised to approve a new deal where the developer will basically give nothing to the MTA and construct a temporary rail yard on the cheap.

The public and elected officials will have little time to evaluate the specifics of the agreement if it is introduced today and goes to a Board vote on the 24th.

There is no public interest in cutting this new deal with the developer, considering:

> The MTA needs more cash now; the value of such a deal—$66 million present value—is well below market, and the transit authority is not planning on testing the market.

> Ratner broke his 2005 commitment to the MTA, and future commitments have to be questioned.

> The promised state of the art rail yard has, apparently been scrapped

> The new yard, only necessitated by the arena, would have less capacity than the active Vanderbilt Yard

> The arena would be a money-loser for NYC, according to the Independent Budget Office (IBO).

> Promised office space has been scrapped entirely, reducing overall new revenues and jobs

> Proposed affordable housing is on backburner, Ratner required to build only 300 units over 12 years (there is no plan or timeline for Phase 2 where the bulk of the affordable housing and open space is proposed)

> The promised world-class Frank Gehry architecture has been scrapped for the whole project

> The “Urban Room” public space amenity has been discarded, and the privately owned, publicly accessible open space is all in Phase 2, which has no plan or timeline

> Empire State Development Corporation Chair Marisa Lago publicly stated that the project would take “decades” even though it was approved under a 10-year timeline. This would leave large demolished areas blighted for decades, nullifying the project’s stated goal of removing alleged “blight.”

THE SOLUTION

Now that Ratner is defaulting on its commitments the MTA must issue a new RFP and open a fair and competitive bidding process for the Vanderbilt Yards development rights

The current economy provides the opportunity, and necessity, for the MTA to divide the yards in parcels and issue a new RFP. This will bring more money to the MTA, spread the risk and lead to a much faster pace of construction providing affordable housing and construction jobs more quickly, and more of them.

The MTA, which needs money for both its capital and operating budgets, can ill-afford another below market real estate deal. $20 million for the development rights over the Vanderbilt Yards, surrounded by some of Brooklyn’s great neighborhoods and great public transportation, is unacceptably low, as was the $100 million Ratner had agreed to.

The MTA has a fiduciary duty to maximize the revenue from the disposition of the land, and minimize the risk that the development rights get developed. This would be accomplished by dividing the 8 acres into multiple parcels (likely between 4 and 8) and producing an RFP that invites multiple developers.

The RFP would be detailed and targeted to expedite the decision-making process and focus on the most pressing needs for Brooklynites and New York City — affordable housing, job creation and open space.

The RFP would be solely for Vanderbilt Yards as that is all the MTA has the authority to provide to prospective developers. It would not include the site proposed and drawn up by Ratner.

Financial, construction and management oversight should be in the hands of an ESDC subsidiary LDC under the responsibility of elected officials and community appointees. According the MTA’s 2005 appraisal (understanding a new appraisal will need to be done) the construction of a new rail yard and platform would cost between $56 and $72 million. Funding for a new rail yard (if necessary) and for a platform would be provided by the city and the state and paid back over time by the developers as the project(s) go up and to lease/sale.

Public money should be used for infrastructure such as a school and a park as described in the UNITY Plan (the community’s plan to develop Vanderbilt Yards – www.unityplan.org), it should not be used towards building thousands of units of luxury condos and luxury rentals, such as the 4,180 proposed by Ratner.

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Posted by eric at June 22, 2009 12:52 PM