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September 30, 2010

KPMG's Fuzzy Math on Atlantic Yards

NY Observer, Op Ed
by Norman Oder

On Tuesday, Atlantic Yards developer Bruce Ratner surprised reporters with his candor, acknowledging that the timetable for the project, despite the officially announced 10-year time span, was "market-dependent."

After all, if the arena and all 16 towers take 25 years, as he acknowledged was possible, then the much-ballyhooed benefits (affordable housing, open space, tax revenues) would not arrive as promised. And the Empire State Development Corporation (ESDC), the state's economic development agency, might find itself with some egg on its face.

Damningly, the ESDC's then-CEO said in April 2009 that the project would take "decades." However, in an August 2009 report for the ESDC (below), consultant KPMG pronounced the 10-year timetable valid.

Given that Mr. Ratner apparently doubts the timetable himself, it's worth looking at how KPMG's numbers just don't add up. (In a somewhat similar instance, when buyers at the Trump SoHo Hotel Condominium New York became suspicious that the developers were inflating condo sales figures, they filed suit.)

If there were to be no sticks forcing the developer to build, the ESDC had to find some carrots. They had to find evidence that the housing market would be healthy enough to absorb 1,930 luxury condos—a good number wrapped around the arena. (There also would be 2,250 market-rate rentals and 2,250 subsidized rentals, although a good chunk of the latter would be at or near market rates.)

So KPMG had to find comps, other large Brooklyn condo projects that have been selling at a decent clip and at prices within plausible distance of the $1,217 per square foot (psf) FCR seeks in 2015. (The latter figure was revealed in the KPMG report, though it was supposed to be redacted.)

Consider the Toren condo building on Flatbush Avenue near the Manhattan Bridge, which KPMG, as of August 2009, asserted had been 98 percent sold. Some nine months later, the developer told the Times that the 240-unit building had reached the 55 percent mark.

How about the nearby Oro Condos, which KPMG claimed was 75 percent sold? An Oro press release this past March crowed that half of the units had been taken.

While real estate information is ever more transparent, KPMG in its report included no backing data, just vague references to obtaining "reference materials" from Forest City Ratner, "meetings or phone interviews with various Project sponsors" and surveying "numerous brokers, property managers and other market participants."

However dubious, the report remains crucial to the final Atlantic Yards court case. State Supreme Court Justice Marcy Friedman is considering requests from several community groups to force the ESDC to do an additional review of the project's longer-term environmental impacts.



Atlantic Yards Report, An op-ed for the Observer on KPMG's fuzzy math regarding the Brooklyn housing market

I've written a lot about KPMG's curious market study for the Empire State Development Corporation.

Now I've threaded some of those observations and analyses into an op-ed for the Observer online, headlined KPMG's Fuzzy Math on Atlantic Yards, and tweaked to incorporate this week's news....

Posted by eric at September 30, 2010 9:25 PM