Yards Becomes a Question Mark
Forest City Ratner pushes for faster public funding, private loan
extension as recession clouds future
The New York Observer. by Eliot Brown
In a Forest City Enterprises conference call last
week, the top executives at the real estate developer took a decidedly solemn
tone, addressing analysts and investors who have seen the company's share
price drop 92 percent in the past 18 months.
"I must confess, I've never seen anything quite like this,' Forest City's president, Chuck Ratner, said of the financial crisis. "We believe conditions will worsen.'
With the financial crisis swallowing planned developments around the city,
it has become very much an open question as to whether Forest City can actually
build Atlantic Yards, the massive mixed-use development and new home for the
Nets, planned for Brooklyn and headed up by its subsidiary Forest City Ratner
Bruce Ratner, the Brooklyn-based cousin of Chuck Ratner who runs Atlantic Yards, seems to be rushing to patch a leaky dam. According to multiple people familiar with discussions, his subsidiary company, Forest City Ratner, is attempting to cobble together extra money; trying to speed up tens of millions of dollars it is owed by public entities; delay tens of millions in payments it owes to both the public and private sectors; and tack on new subsidy programs for the housing piece of the project. Earlier this month, Bruce Ratner abruptly shut down preliminary construction efforts related to the NBA arena in an apparent attempt to preserve cash.
At a glance, Atlantic Yards would certainly seem a prime candidate for collapse.
TO EASE the financial pressures on the project, Forest City is attempting
to change some terms with various city and state agencies, according to multiple
people familiar with discussions.
The developer is due to owe the M.T.A.
$100 million when it closes on the three-block Vanderbilt rail yards, an
act that is slated to happen after the eminent-domain litigation is completed.
But financing is nearly impossible to find and Forest City is hardly swimming
in cash. Thus, according to one person familiar with talks, the developer
has asked the M.T.A. to restructure the payments so it does not pay the
full $100 million upfront.
The developer is seeking the converse from the
city, which owes Forest City a total of $100 million in direct payments
to be spread out over time. About $40 million of this sum has already been
paid to Forest City, and according to multiple people familiar with discussions,
the city is considering speeding up the payments on the balance.
As for the housing component, much of which
is for families with low or middle incomes, Forest City is in discussions
to add on additional affordable-housing programs or incentives beyond what
it outlined in 2006, bringing greater subsidy to the apartments. According
to the KPMG report from 2006, the developer outlined three main programs
to subsidize the housing: a tax abatement program known as 421-a; the Federal
Low-Income Housing Tax Credit Program, which is providing less valuable
credits than it did in 2006; and tax-exempt bond financing through a middle-income-housing
program set up by the city.
(Spokesmen for the M.T.A., Empire State Development
Corporation and the city declined to comment on negotiations.)
And in terms of the private sector, the developer is seeking to extend
a loan with Gramercy Capital on Forest City–owned property in the project's
footprint, slated to come due in February. The large bridge loan--a $152 million
loan from Gramercy was listed in property records--was originally intended
to be rolled into a larger financing package that Forest City would have obtained
before construction started, according to an executive involved with the loan.