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March 15, 2012

Behind the sale of New Domino: an overextended developer (without Ratner's survival skills)

Atlantic Yards Report

It turns out that the proposed sale of the stalled New Domino project is just the tip of the iceberg. Last month, the developer defaulted on its $125 million New Domino loan, according to a blockbuster story by the New York Times's Charles Bagli.

The article explains how the Community Preservation Corporation, which historically used bank loans to build or rehab rent-regulated apartments, put way too much money into it condo projects, through its nonprofit arm, CPC Resources.

And personal ambition/greed seemed to be a spur:

The investments were spearheaded by Community Preservation’s longtime leader, Michael D. Lappin, whose salary and bonuses rose to $1.1 million as he pushed the group into riskier ventures. Some were financed by Community Preservation, others by its for-profit spinoff, which paid part of Mr. Lappin’s salary.

No wonder the developer went into business on New Domino with Isaac Katan, a developer whose track record generated significant criticism.

Bagli writes that nearly two-thirds of the condo loans were delinquent, and Lappin was forced into retirement. The organization has closed office, cut senior executives' salaries nearly in half, and fired 40 percent of its staff.

So, what didn't New Domino do that Bruce Ratner did? Get a low-interest loan from immigrant investors via the EB-5 program. And that--I speculate--is because there was no construction going on and thus no way to claim economic activity and job creation.

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The New York Times, Lured by Visions of Real Estate Profits, Nonprofit Group Stumbled

Posted by eric at March 15, 2012 12:37 PM