What if Bruce Ratner never finished his gargantuan arena-and-housing development in central Brooklyn? Or, quite similarly but more likely, what if he put off fulfilling his commitment to affordable housing for years and years?
Construction schedules in a 1,400-page state study of the Atlantic Yards project show that Mr. Ratner is going to build the sexy and lucrative parts of his 22-acre mini-polis first, including a basketball arena for the New Jersey Nets and the tallest tower in Brooklyn.
More than four-fifths of the subsidized housing, as well as seven acres of open space, will begin construction only in the second phase, between 2011 and 2016.
That’s only if the project stays on schedule. State Assemblyman James Brennan, who represents neighborhoods to the west of the site, said he believes that Mr. Ratner, the chief executive of Forest City Ratner, will only follow through on the affordable housing if he makes enough money in the first phase.
“The point is that if the venture is not successful or not as successful as planned, much of the affordable housing will be at risk or not happen,” Mr. Brennan said. “The real-estate market is softening across the nation, interest rates have gone up, and three million square feet is a lot of feet to sell.”
In a Sept. 1 letter to Charles Gargano, the state official in charge of reviewing the project, Mr. Brennan asked the state to “enter into arrangements with Forest City Ratner to assure the public that the 2,250 units of affordable housing will be developed as planned and that construction of all of these units will be included in Phase 1 of the project, scheduled to begin in 2007.”
A spokesman for Forest City, Joe DePlasco, said that “FCRC is committed to building affordable housing as part of the Phase 1 plan.” Forest City would not comment further.
The draft environmental impact statement shows that 404 “affordable” units will be finished by 2010. Some of those units would cost as much as $2,658 a month, in today’s dollars, for a two-bedroom.
At the same time, Mr. Ratner is also getting approval for an alternative scheme that would replace some of the residential space with commercial, should the market shift. That version, according to the study, “would include fewer additional new low-to moderate-income units.”
As the project nears approval by Mr. Gargano’s Empire State Development Corporation, two newspapers, The New York Times and The New York Sun, have recently carried stories citing “government officials and executives” and “state officials,” respectively, saying that Mr. Ratner is planning to scale down the 8.66-million-gross-square-foot project by 6 to 8 percent, and that Mr. Ratner may even knock off a few feet from the tallest tower, Miss Brooklyn, now at 650 feet.
Mr. Ratner’s spokesman, Joe DePlasco, would not comment, but earlier told The Observer that all of Forest City, including the Atlantic Yards project director, James Stuckey, took the last week of August off for vacation, casting doubt on whether actual revisions, or even just talk of them, were underway.
At the same time, developers typically make token concessions when facing as much controversy as Mr. Ratner. Now that The Times has written that he is planning to reduce the project’s scale, he is in a tight spot.
The Mayor, for one, would be all in favor of the project getting a trim—which may explain the recent tone of coverage. He doesn’t have as much power over the project as Governor Pataki, but Mr. Bloomberg is the one who is sticking around come November.
“I think that some very modest adjustments may be appropriate,” Deputy Mayor Dan Doctoroff said. “It is one of the things we’re looking at right now. We don’t believe they need to be very major.
“We’ve had conversations with them and they have been receptive.”
Still, even an 8 percent drop would only bring Atlantic Yards in line with the eight-million-square-foot project Mr. Ratner first announced back in December 2003.
The small group of critics worried about Atlantic Yards’ financial viability see in its 22-acre footprint and 650-foot height not just an affront to the neighborliness of Prospect Heights, but rather a huge market risk that could fail, change radically, require a bailout, or take forever to finish.
Even though the entire project will be designed by Frank Gehry and Laurie Olin, it will also be, as The Observer’s blog, The Real Estate, reported in July, twice as dense as any residential neighborhood in the country. Right now, for example, the densest census tract is two square blocks in West Harlem occupied by a former Mitchell-Lama high-rise, with a density of 229,713 inhabitants per square mile. Atlantic Yards, with an estimated population of 15,000 to 18,000, will have a density of between 436,363 and 523,636 residents per mile.
“The question of whether people will buy these apartments is an almost impossible question to answer,” said Julia Vitullo-Martin, a senior fellow at the Manhattan Institute. “This project is going to have a lot of trouble covering its expenses.”
“When you add a projected 50 percent affordable housing—whatever that means—and when you include a money-hemorrhaging sports franchise, the economics of it are illusory to me,” an experienced developer who has done work in Brooklyn said. “But I hope it will happen.”
If Mr. Ratner builds 2,000 luxury condominiums and rentals and just a smattering of apartments priced below $2,000 a month in the first phase, as the schedules propose, then Mr. Ratner will make enough of a profit to see the project through.
That sort of market patience is exactly what makes Forest City Ratner, and its parent company, Forest City Enterprises, an attractive buy on the stock market. But it signals trouble for city and state leaders like Mayor Bloomberg and Governor Pataki, who have predicated their support on the $6 billion in tax revenues that the project is supposed to deliver. Much of that revenue is from the income taxes that will materialize only if the development brings thousands of new residents into Brooklyn.
“The quality that Forest City has is that they are very disciplined about moving forward in stages,” said Rich Moore, an analyst at RBC Capital Markets who covers Forest City Enterprises. “They build one office tower and see if they are doing well, and if they are not, there is always the option of waiting until the market catches up to them or of altering their plans.”
Mr. Ratner’s first major triumph in the borough of Brooklyn, the MetroTech Center office complex downtown, offers an object lesson in how long phased projects can take. When he first broke ground in 1989, his company expected to complete the 11-building complex within five years. But Mr. Ratner had a hard time finding tenants, and so construction slowed.
The final building in the complex, 9 MetroTech Center South, got underway in late 2001 only because of the Sept. 11 attacks, which chased Empire Blue Cross Blue Shield across the East River into the waiting arms of Mr. Ratner, who needed an anchor tenant.
Nine MetroTech Center South finally opened in late 2003, nine years after the complex was supposed to be finished. A subsequent tower, for the state court system, joined Mr. Ratner’s portfolio after Chase Manhattan Bank insisted on owning its own buildings.
The other object lesson is Manhattan Plaza, first proposed in the early 1970s by Richard Ravitch. Originally it was conceived under New York’s Mitchell-Lama program, which gave developers low-cost loans in exchange for keeping rents affordable for the middle class. But when construction costs soared, the rents that the middle class could afford to pay would no longer suffice to repay the loan. So the city’s housing department got special dispensation to use federal operating subsidies from the Section 8 program—which was supposed to benefit low-income families.
In other words, Manhattan Plaza was subsidized twice, and under one of the subsidies, upper-middle-class individuals—the complex’s tenants have included Larry David and Kenny Kramer, among others—got help with money intended for New York’s poor.
The late Robert Schur, a former deputy housing commissioner for the city, once estimated that the public would contribute $485 million over the 40-year lifetime of the deal. That was in 1977 dollars.
New York’s housing finance system has become more sophisticated in the intervening years, but Ms. Vitullo-Martin warned that if the second phase is abandoned or delayed, Prospect Heights will face an even larger hole than the railroad trench Atlantic Yards is supposed to cover up.
The project would also spread over four surrounding blocks, which together have more than 70 buildings that would be demolished, according to the draft environmental impact statement conducted for the ESDC. Some 410 residents and 27 business will be displaced, the study says. All evictions and demolitions will occur in Phase 1 in order to make way for construction staging areas and parking lots.
Mr. Ratner’s project is already behind schedule, and it has not yet cleared its first regulatory hurdle. The public comment period closes Sept. 29, and the ESDC board is likely to issue the first and most important approval some time later this fall.
When Mr. Ratner submitted his bid to buy the M.T.A. rail yards last summer, he predicted basketball could begin in the fall of 2008 and the entire project would be finished by 2013.
Since then, he has pushed back the first tip-off almost a year, to Oct. 15, 2009. The completion of the second phase, with most of the affordable housing and open space in it, has been delayed even longer, however, until Dec. 30, 2016.
The new schedule allows Mr. Ratner to build an additional office-condo building in the first phase.
Mr. Ratner must make a large upfront investment that may make him less willing to postpone the second phase, but it is not as large as it seems. Last summer’s bid to the M.T.A. said that it would cost $182 million to create a new train yard. Those relocation costs, though, will be offset by $200 million or more in cash grants from the city and the state.
And while his bid book dressed up the moving expense as part of Forest City’s lucrative offer to the M.T.A.—a way to construct a more spacious atmosphere for extracting sewage from commuter cars, which is apparently a primary function of the facility—it turns out that Mr. Ratner needed to get the yard out of the way for his plans. He is sinking the Frank Gehry–designed arena below ground, where the train yard currently is, and will construct a bi-level parking garage right next door, according to construction plans included in the state study.
Another major capital investment that the project requires—a $99 million train yard platform that will provide the base for rental buildings, including affordable units—will not be completed for another six years, according to the revised schedule included in the state study.
ACORN, the nonprofit housing organization that pushed for the subsidized housing, said it supports Mr. Ratner’s approach and is confident that all 2,250 units will be built.
“Right now we are absolutely comfortable with the phasing assumptions that are being used by the ESDC,” spokesman Jonathan Rosen said.
ACORN is widely seen as the bulldog that will keep Mr. Ratner true to his promise, in part because it stands to make money by marketing the affordable units. In May, 2005, Bruce Ratner and ACORN executive director Bertha Lewis signed an agreement designating the number of affordable units to be included—but that document does not mention when those units must be built.
In fact, a month later, Ms. Lewis and Mr. Ratner signed another pact that stipulated that “the developers may change the development phases in their sole discretion prior to commencement of the first development phase.”
Mr. Brennan, the State Assemblyman, wants to force Mr. Ratner into a binding agreement with the state—rather than a nonprofit group such as ACORN—to deliver those subsidized units.
He suggests providing Mr. Ratner with up to $590 million in operating subsidies, tax credits and free land over 30 years.
That would increase the government’s bill by $268,181 for each affordable apartment.
In return for that money, Mr. Ratner would scale down his project by 34 percent.