He may even salute some well-publicized elements: an award to the 1 millionth visitor, a new gallery honoring black basketball in Brooklyn, a mural at the Dean Street entrance.
Surely he won't specify how much the arena has cost city taxpayers, and whether that money might have been directed at real public goods, things like open libraries and Head Start.
The city acknowledges $179 million in direct subsidies for land and infrastructure. But the city contribution is far greater than previously analyzed.
As I detail below, free land for the project has been vastly undervalued or not even counted, adding up to nearly $80 million, at least, and likely more than $124 million. The beneficiary: developer Forest City Ratner.
The first two lines in the graphic above regard property the city had long planned to give away. The third line--the streetbed of Pacific Street between Carlton and Vanderbilt avenue--was supposed to be paid for, at least initially. Now, neither the city nor Forest City Ratner will say whether anything was paid.
Beyond that, of course, there are numerous other public subsidies and tax breaks, including $100 million from the state, tax-free bonds, and the rights to develop the MTA's Vanderbilt Yard well below the appraised value, with the cash component of the bid well below that of the one rival bidder.
What we know: from IBO
Yes, people have a vague idea that something's wrong. Just yesterday, New York Times columnist Jim Dwyer made light of the fact that the Barclays Center, which is tax-exempt, was incorrectly listed on city tax rolls. (The New York City Independent Budget Office, or IBO, first pointed that out.)
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| From IBO 2009 report |
It concluded that the arena would be a net loss to the city over 30 years, as the costs to the current budget--including direct subsidies used for land and infrastructure--would exceed expected tax revenues by $39.5 million.
Beyond that, the city would lose $180.5 million in opportunity costs--mainly from unpaid property taxes on the arena.
That $180.5 million total includes $9.7 million in city property and streets transferred to Forest City. I estimate that number instead at $124.1 million, which would make the opportunity cost total $294.9 million.
Update needed
That report surely could use an update. For one thing, the IBO overestimated the savings--mainly on federal taxes, not city ones--to Forest City Ratner on tax-exempt bonds, because only $511 million in bonds were issued, as opposed to a projected $678 million.
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| From IBO 2009 report |
Costs missing
Then again, some significant costs were ignored or downplayed.
As the graphic at right indicates, the IBO valued the transfer of city property to Forest City Ratner at $6 million and city streets at $3.7 million.
Those numbers, as I explain below, significantly undervalue the properties. Moreover, the IBO made no attempt to assess the value to Forest City of other city streets transferred to the developer, because the IBO assumed that Forest City would pay fair market value for the land.
There's no evidence Forest City did so.
(Forest City's partnership with Russian billionaire Mikhail Prokhorov, who owns 45% of the arena operating company, means that the Russian oligarch now shares some of the costs and benefits.)
New York City Economic Development Corporation President Seth Pinsky, in testimony at a May 2009 state Senate oversight hearing, claimed, “Finally, the city has committed to contribute to the project at agreed-upon discounts certain real estate assets for which there are unlikely to be other opportunities for monetization."
Forest City paid dearly for property on the site, and the city just gives it away? Land on the arena block was very valuable--as detailed below--and land nearby is also valuable. Retail rents are skyrocketing. Consider that, as the Wall Street Journal reported 9/16/12:
RedSky Capital LLC paid $4.1 million, or $900 a square foot, for the building at the intersection of Flatbush and Fifth avenues that's housed Triangle Sports a retailer of shoes and sporting goods.Divide that sum by $900 and the total is about 4556 square feet over three stories, which suggests the plot itself is 1500 square feet. That suggests $300/sf for land. But you can't build high-rise there.
How much is land worth?
Land on the project site is likely worth well more than $300/sf.
At Floor Area Ratio (FAR) of 10--the same FAR used for the appraisal of the Vanderbilt Yard--and a price of $75 per buildable square foot (the assumption in the Vanderbilt Yard appraisal), the land is worth $750/sf.
Both those numbers need adjustments. The approved FAR of the arena block, according to the Land Use chapter of the Atlantic Yards Final Environmental Impact Statement (FEIS), is 8.6, including the streetbeds.
And land is no longer worth $75 per buildable square foot. In 2008, one developer said, the price per buildable sf (PBSF) sought by the city was $150. In 2008, a real estate professional told me, the PBSF was between $110 and $200.
In 2011, according to an analysis from TerraCRG, the PBSF for residential land in Downtown Brooklyn was $161, with an average of $125 for the overall category of Downtown Brooklyn and Park Slope. In 2012, according to TerraCRG, the numbers were $113 and $147, respectively.
Let's use $125 PBSF, a relatively conservative assumption given that the Atlantic Yards site is likely more valuable given its proximity to transit. That suggests land on the arena block is worth 8.6 times $125, or $1075/sf. For convenience, let's round down to $1000/sf.
The MOU's promise
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| From MOU |
Initially, the city property on the arena block underneath the adjacent "commercial office building sites"--now, mostly, housing sites--was supposed to generate cash.
Maybe. The MOU cited payment "fair market value... based on an independent appraisal," which took into account "any extraordinary cost" to the developer. In other words, a potential wash.
The IBO, in its first report on Atlantic Yards, in September 2005, low-balled the value of the property under the arena, valuing the streets at only $56,400, based on $20/sf Department of Finance values applied to adjacent land, applied to an area--clearly undercounted--of approximately 2,820 square feet.
The other land on the site, including city properties and streetbeds, was supposed to reap fair market value.
That didn't last.
The deal changes
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| From 2006 GPP |
However, the other city property within the Atlantic Yards site--the bed of Pacific Street between Carlton and Vanderbilt avenue-- would be acquired "at their fair market appraised value," paid by Forest City.
That didn't last, either.
The deal changes, again
In 2009, Forest City Ratner asked the MTA to revise the Vanderbilt Yard deal and asked the ESDC to agree to acquire the Atlantic Yards site via eminent domain in stages, thus saving the developer on land it didn't need.
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| From 2009 MGPP |
No longer would the other city property--the aforementioned streetbeds outside the arena block--be acquired "at their fair market appraised value." Alternatively, the payment would be for "such other value as shall be agreed to by the City and FCRC."
How much was the saving on arena block streetbeds?
Forest City wasn't saving just $56,400 on those streetbeds. In September 2009, the IBO updated its analysis:
The city will provide some property for the project at no cost. According to the latest modified project plan, this will include the street bed of Fifth Avenue between Flatbush and Atlantic Avenues and the street bed of Pacific street between Flatbush and Sixth Avenues, as well as a small traffic triangle at the intersection of Fifth Avenue and Pacific street. Based on recent sales prices in the area, IBO estimates that the 2010 sales value of this property is $3.7 million.How was that calculated? The IBO said:
The property amounts to approximately 61,625 square feet. The value is based on a price of $60 per square foot, which takes into account the citywide drop in property prices.The calculation error related to the square footage. But the valuation surely was a lowball figure, geared to a city assessment rather than any recognition of the market.
In IBO’s 2005 fiscal brief a calculation error led to a significant underestimate of the value of street beds to be transferred.
As stated above, the value was likely closer to $1000/sf, given the FAR of 8.6 and the $125 PBSF.
With property covering 61,625 sf--a bit more than 1.4 acres--that suggests the savings on streets is $61,625,000.
What about the other properties?
There were other properties on the arena block. The 2005 IBO report described the transfer of an FDNY site at Block 1127, Lot 33, valued at $93,800 by the Department of Finance.
City property records indicate that the plot was 25 feet x 110 feet, or 2750 square feet. Multiple that by $1000/sf, and the value is $2,750,000.
That sum doesn't looks out of line when compared with that another small property on Block 1127, Lot 20, purchased by Forest City Ratner for $3 million in 2006. (The payment was reimbursed via city taxpayers' $100 million subsidy for land.) Lot 20 looks marginally wider but not as deep.
A footnote in that first IBO report stated that another city-owned parcel at the tip of the site (Block 1118, Lot 6) was part of Phase 1, but appeared to "be outside the arena building footprint" and thus would be sold at fair market value.
Nope.
The 2009 IBO report acknowledged that the latter property would be included in the city's giveaway, and nudged up the value of the first site. It stated:
The city will also transfer two city-owned parcels to the Empire State Development Corporation (ESDC) at no cost, which will then be leased to FCRC, that appear to be included in the arena site. The first (Block 1127, Lot 33) is valued by the Department of Finance at $124,000 on the current tax roll, and the second (Block 1118, Lot 6) has a reported full market value of $5.8 million.That deserves an adjustment. Block 1118, Lot 6, according to property records, covers 13,500 sf, or about .31 of an acre. It's the tip of the arena plaza and the future tip of the area in front of the flagship office tower. It's a prime site.
Based on these market values, the value of the subsidy from ignoring the opportunity to sell these properties is $6.0 million.
Even the city, when it assessed the property at $5.8 million, valued it at nearly $430/sf. It's likely worth more. At $1000/sf, given the FAR, it's worth $13,500,000.
Adding it up
The savings on these two city properties is estimated at $16,250,000,
The savings on the streets is estimated at $61,625,000.
Estimated Phase 1 total savings: $77,875,000.
What about Pacific Street in Phase 2?
Another key piece of land is Pacific Street between Carlton and Vanderbilt avenues, demapped for construction staging (trucks line up there), access to the adjacent surface parking lot, and, ultimately, open space to serve the towers surrounding it. This is part of the Phase 2 site but integral to arena operations.
The approved FAR for the project site east of 6th Avenue (Phase 2) is 7.4, including the streetbeds, according to the Final Environmental Impact Statement. Multiply that by $125 PBSF, and the value is $925/sf.
How big is that stretch of Pacific Street (outlined in red)?
It seems roughly commensurate to the Phase 1 streetbeds (blue + yellow) that total 61,625 square feet.
However, just to be conservative, let's call Pacific Street 50,000 square feet, or about 1.15 acres. Multiply that by $925, and the estimated value is $46,250,000.
Total estimated savings: $77,875,000 + $46,250,000 = $124,125,000.
Of course, a different PBSF would adjust the numbers. Consider: a 20% decrease, with a value of $100 PBSF, would mean total savings of $99.3 million. A 20% increase, with a value of $150 PBSF, would mean total savings of $148.95 million. Also, of course, an adjusted total of Pacific Street square footage would tweak the formula.
How much did Forest City pay?
We don't know exactly what happened with this Phase 2 property. (That street was indeed condemned, addressed in a 9/17/09 board memo and a later legal petition.)
According to the 2005 GPP, other city property within the Atlantic Yards site was to be acquired "at their fair market appraised value." However, the 2009 MGPP offered a loophole, allowing payment for "such other value as shall be agreed to by the City and FCRC."
What was that value?
It's a mystery. My queries to the mayor's press office, the New York City Economic Development Corporation, and Forest City Ratner have been ignored. A Freedom of Information Law (FOIL) request to the Empire State Development Corporation returned no relevant documents. Other FOIL requests remain pending.
Maybe another city agency, or elected officials, can probe further.
For now, however, my working assumption is that Forest City didn't pay and that the developer, with its allies in the Bloomberg administration, has assumed no one would check.
Atlantic Yards General Project Plan, July 2006 by
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