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On October 3, Atlantic Yards developer Forest City Ratner for the second time pushed back its obligation to formally start a new railyard to store and service Long Island Rail Road (LIRR) trains in Brooklyn near the Barclays Center.
The Metropolitan Transportation Authority (MTA) again asserts the deal “enhances the position of the MTA and LIRR,” because Forest City must post a $10 million guarantee to perform continuing work for six months, “with no change to the scheduled completion date [September 2016] or diminution of our underlying security.”
Then again, by delaying the official start date to June 2014 from December 31 of this year, Forest City gets six more months to post a full completion guarantee, which would put additional capital at risk. (The MTA would not specify the value of that guarantee, deferring to Forest City.)
The agreement also gives Forest City time to share the risk with the new investors it’s seeking for the overall Atlantic Yards project, which involves 15 additional towers beyond the one under construction. Indeed, as was revealed last week, the MTA deal was signed right after Forest City signed a memorandum of understanding (MOU) with potential investors.
While this is hardly the most dramatic renegotiation between the MTA and Forest City regarding Atlantic Yards, it’s another sign that deals can be reopened. That pattern raises questions about whether more weighty Forest City obligations—finishing the new railyard, paying off railyard development rights, and building the platform needed to exercise those development rights and thus construct all the promised affordable housing—will get renegotiated.
The LIRR railyard, which formerly operated in the western end of the MTA’s 8.5-acre, three-block-long Vanderbilt Yard, between Pacific Street and Atlantic Avenue west of Sixth Avenue, was moved east to a smaller, temporary yard when that western segment was used for part of the Barclays Center. A permanent, modernized yard is still required for trains serving the LIRR’s Brooklyn terminus at adjacent Atlantic Terminal.
Series of renegotiations
The deal represents one of several successful negotiations for Forest City with the MTA, which, controlled by a shifting cast of governors (and with a minority of board members appointed by Mayor Mike Bloomberg), has long been receptive to the Atlantic Yards project.
In 2005, one rival bidder for Vanderbilt Yard development rights emerged, offering more cash (though, according to the MTA, less in total benefits and, crucially, without an arena) than Forest City. Rather than asking both Forest City and rival Extell to revise their bids, the MTA chose to negotiate solely with Forest City, which doubled its cash bid to $100 million, a sum still less than Extell’s $150 million.
In 2009, after the economic downturn, Forest City renegotiated the timetable to pay the MTA that $100 million. Instead of writing a check in full, the developer paid $20 million for the segment needed for the arena, gaining 21 years to pay off the rest at a 6.5 percent interest rate, which one real estate analyst called “a real coup.”
Under that 2009 MTA agreement, Forest City was required to formally start the permanent railyard by June 30, 2012 and to finish it by September 2016.
The nature of the railyard also changed. In 2005, Forest City had agreed to build a nine-track permanent railyard with a capacity for 76 cars. MTA officials said that, as of 2009, that configuration would have been worth some $250 million.
But the authority in 2009 agreed to a smaller, seven-track new railyard with capacity for 56 cars, which it estimated was worth $147 million, though the current value is fuzzy.
To secure that obligation, Forest City agreed to put up an $86 million letter of credit. That sum clearly could not cover the full costs of a new railyard, but, if Forest City were to default, the MTA also would get back development rights for the railyard, over which Forest City plans six towers.
Shifting deadlines
That 2009 board resolution authorized the MTA Chairman to implement the project, so subsequent agreements do not require board approval. The recent change to the start date was the second such adjustment since then.
While Forest City was initially obligated to begin the railyard in June 2012, the developer that month got the MTA to extend the formal construction commencement date 18 months, to December 31, 2013. In exchange, Forest City agreed to do $10 million of work advancing the completion of the permanent rail yard, while posting a $10 million letter of credit to secure that obligation.
The new deal is similar. Forest City, in gaining an additional six months, agreed to do $10 million worth of excavation work until then to help bring the railyard to the same level grade, and to post a $10 million letter of credit. In both cases, the letters of credit expire after the work is finished.
The MTA gained one other small benefit. To pay off the equivalent of the remaining $80 million price tag for getting the right to build over the railyards in the first place, Forest City in 2009 agreed to pay $2 million a year for four years, beginning June 1, 2012, then $11 million a year for 15 years. As part of the renegotiation, Forest City agreed to accelerate the next required $2 million payment from June 2014 to December 2013.
Murky process
A hint of the latest renegotiation surfaced in an early September disclosure by parent company Forest City Enterprises to the Securities and Exchange Commission, which floated the possibility of an “alternative agreement” with the MTA rather than having to start the railyard by the end-of-year deadline or risk losing that original $86 million letter of credit.
When asked in early September about that hinted renegotiation, Lisberg could offer no clarification. On October 4, he forwarded a document summarizing the new agreement.
Forest City, for its part, obfuscated when queried at a September 26 meeting with area residents. One local asked if the developer would start the permanent railyard by the beginning of next year.
“There are four phases, and so terminology is not the best thing to use,” Forest City executive Jane Marshall replied. “Phase 3 and 4 are the pieces that are part of the permanent yard. The work that we’re doing now is also–the temporary yard is done, when we moved the tracks to start the arena. So, in some ways, ever since we started the arena, we’ve been working on elements of the permanent yard.”
On October 11, Forest City Enterprises announced that it had signed a non-binding MOU to sell a 70 percent stake in Atlantic Yards to Shanghai-based Greenland Group, which is owned by the Chinese government. The deal excludes Barclays Center and the first housing tower, but includes 15 towers—also planned to be built through innovative but untested modular technology—as well as infrastructure and the platform needed to deck the railyard.
The MOU, Greenland told Bloomberg News, was signed on October 2. That was one day before the MTA agreement was signed.
Forest City said the Greenland deal would speed construction of Atlantic Yards, which has faced criticism after the Empire State Development Corporation, the state agency overseeing the project, agreed in 2009 to a 25-year deadline for a project long promoted as taking a decade.
Still, it’s unlikely that the platform—needed to remove the blighting influence of the below-grade railyard, a main justification for eminent domain—will be built soon. After Forest City, perhaps with its new partner, builds two additional towers around the arena, it plans to leapfrog one long block east and build four towers on the southeast block of the project site, currently used as a surface parking lot for the arena.