Sunday, October 23, 2005
The Observer on the Times/Ratner Tower: the market "mugged along;" parallels for Atlantic Yards?
A skeptical 10/24/05 New York Observer article on the new Times Tower on Eighth Avenue, headlined As New HQ Rises, Old Owners Cause Trouble Underfoot, points out the lingering disputes from the state Empire State Development Corporation's (ESDC) acquisition of 11 parcels via eminent domain for the project. The New York Times Company, parent of the newspaper, and developer Forest City Ratner, are partners in the Renzo Piano-designed building, and while the Observer makes no reference to Ratner's Atlantic Yards project, some parallels emerge.
Some of the issues have already been reported by the Village Voice, as I note in Afterword B of my report on Times coverage, but the Observer adds new details. Of the 11 landlords who lost their properties, 10 are suing, but here's the twist:
That’s because, according to the development agreement that paved the way for the condemnations, the Times Company and Forest City Ratner get to divert every dollar beyond that initial $86 million from the substitute tax payments that they’re making. [The Voice had reported this.] And the landlords claim that they are owed two or three or even five times what they’ve received so far. In essence, city and state taxpayers—who are already chipping in several millions dollars’ worth of subsidies—will also be helping out if the court appeals are successful.
But here the defense, which suggests that eminent domain is acceptable as long as the new use will bring more taxes, a point that Bill Batson warned about in his recent testimony at the ESDC hearing. As the Observer noted:
The Empire State Development Corporation, the state economic-development agency, defends the agreement because the Times Company and Forest City needed to know what their maximum outlay for the buying property would be before agreeing to the deal.
“It’s already paying more property tax by multiples than the previous properties were paying,” said an agency official who requested anonymity, speaking to The Observer. (The state has not, however, done an analysis comparing before-and-after tax revenues.)
Here's criticism, and the Times's defense:
“It might put an end to the taking of property, if they had to pay market value,” said Joe Wright, an advisor to community groups fighting eminent domain and a member of the national property-rights group the Castle Coalition. “They wouldn’t have to go through with eminent domain then, because they would get no economic benefit.”
Catherine Mathis, spokeswoman for The New York Times, said that the agreement on acquisition costs was part of a larger deal that would provide amenities to the public.
“The Times and Forest City Ratner Companies entered into a complex arrangement with the city and state to develop this property,” she said in a statement. “There are many components involved in the arrangement, including subway amenities, a publicly accessible auditorium, guarantees to build within set timeframes and make a payment in lieu of taxes.”
Similar issues could be raised regarding Atlantic Yards. Already the Metropolitan Transportation Authority has agreed to sell Forest City Ratner development rights to the Vanderbilt Yard for less than half the appraised value, in part because of the improvements FCR plans, as well as the potential tax revenue from the development. And if the project proceeds, and ESDC must acquire land from property owners unwilling to sell, will the agency pay market rate?
The Observer finds some compelling evidence that the Times Square property owners lost out:
“They gave us 20 cents on the dollar for what the property was worth,” said Sidney Orbach, whose partnership, Three O Realty, owned a 16-story office building on 40th Street. “Their initial offering was $7.2 million, and then they were required to reassess and ended up offering about $8 million. The appraisal we had done was for $35 million, and that’s on the lower side because of the way appraisals are done.”
The state’s appraisal comes to about $83 per square foot of space in his old building. The real-estate services firm Cushman & Wakefield—which isn’t working for either Mr. Orbach or the state on the Eighth Avenue appraisals—told The Observer that a square foot might have gone for between $250 and $300 three years ago.
And the Observer sniffs at the justification for economic development:
In fact, Mr. Orbach’s office building was so prosperous that the Empire State Development Corporation is saying that his rents were above market rate and therefore not a reliable way to calculate the true value of the property. A representative from the state agency wouldn’t elaborate because litigation is pending. Hmmm … if New York real estate isn’t worth whatever you can get for it, then why do we have this thing called capitalism anyway?
Oh, it’s not called capitalism; it’s called economic development. Sometimes the market needs to be nudged along, or else it will be mugged along.
The Observer points out that facts behind the recent 5-4 U.S. Supreme Court decision that upheld eminent domain don't quite fit the situation in New York:
However, property-rights advocates note that the Kelo case differs from the New York Times situation because in New London, a redevelopment agency seized the property first and then sought the best bid from any developer who wanted in.
Also, much of Times Square was redeveloped through an open bidding process. But the Eighth Avenue site was acquired by the state exclusively for use by The Times, which had said it was considering moving 750 jobs to New Jersey in order to save money.
The Observer doesn't point out that many people thought the Times's threat preposterous--would the New York Times actually operate from Jersey? The more important point: just as with the Times Tower site, the remaining portions of Atlantic Yards site would be acquired not through open bidding but for one developer. The New York Times, understandably, has not covered its own real estate deals as aggressively as have the Observer and the Voice. Will the Times, which is finally paying more attention to the Atlantic Yards project proposed by its parent company's real estate partner, notice the parallels between the Manhattan and Brooklyn eminent domain deals?
Some of the issues have already been reported by the Village Voice, as I note in Afterword B of my report on Times coverage, but the Observer adds new details. Of the 11 landlords who lost their properties, 10 are suing, but here's the twist:
That’s because, according to the development agreement that paved the way for the condemnations, the Times Company and Forest City Ratner get to divert every dollar beyond that initial $86 million from the substitute tax payments that they’re making. [The Voice had reported this.] And the landlords claim that they are owed two or three or even five times what they’ve received so far. In essence, city and state taxpayers—who are already chipping in several millions dollars’ worth of subsidies—will also be helping out if the court appeals are successful.
But here the defense, which suggests that eminent domain is acceptable as long as the new use will bring more taxes, a point that Bill Batson warned about in his recent testimony at the ESDC hearing. As the Observer noted:
The Empire State Development Corporation, the state economic-development agency, defends the agreement because the Times Company and Forest City needed to know what their maximum outlay for the buying property would be before agreeing to the deal.
“It’s already paying more property tax by multiples than the previous properties were paying,” said an agency official who requested anonymity, speaking to The Observer. (The state has not, however, done an analysis comparing before-and-after tax revenues.)
Here's criticism, and the Times's defense:
“It might put an end to the taking of property, if they had to pay market value,” said Joe Wright, an advisor to community groups fighting eminent domain and a member of the national property-rights group the Castle Coalition. “They wouldn’t have to go through with eminent domain then, because they would get no economic benefit.”
Catherine Mathis, spokeswoman for The New York Times, said that the agreement on acquisition costs was part of a larger deal that would provide amenities to the public.
“The Times and Forest City Ratner Companies entered into a complex arrangement with the city and state to develop this property,” she said in a statement. “There are many components involved in the arrangement, including subway amenities, a publicly accessible auditorium, guarantees to build within set timeframes and make a payment in lieu of taxes.”
Similar issues could be raised regarding Atlantic Yards. Already the Metropolitan Transportation Authority has agreed to sell Forest City Ratner development rights to the Vanderbilt Yard for less than half the appraised value, in part because of the improvements FCR plans, as well as the potential tax revenue from the development. And if the project proceeds, and ESDC must acquire land from property owners unwilling to sell, will the agency pay market rate?
The Observer finds some compelling evidence that the Times Square property owners lost out:
“They gave us 20 cents on the dollar for what the property was worth,” said Sidney Orbach, whose partnership, Three O Realty, owned a 16-story office building on 40th Street. “Their initial offering was $7.2 million, and then they were required to reassess and ended up offering about $8 million. The appraisal we had done was for $35 million, and that’s on the lower side because of the way appraisals are done.”
The state’s appraisal comes to about $83 per square foot of space in his old building. The real-estate services firm Cushman & Wakefield—which isn’t working for either Mr. Orbach or the state on the Eighth Avenue appraisals—told The Observer that a square foot might have gone for between $250 and $300 three years ago.
And the Observer sniffs at the justification for economic development:
In fact, Mr. Orbach’s office building was so prosperous that the Empire State Development Corporation is saying that his rents were above market rate and therefore not a reliable way to calculate the true value of the property. A representative from the state agency wouldn’t elaborate because litigation is pending. Hmmm … if New York real estate isn’t worth whatever you can get for it, then why do we have this thing called capitalism anyway?
Oh, it’s not called capitalism; it’s called economic development. Sometimes the market needs to be nudged along, or else it will be mugged along.
The Observer points out that facts behind the recent 5-4 U.S. Supreme Court decision that upheld eminent domain don't quite fit the situation in New York:
However, property-rights advocates note that the Kelo case differs from the New York Times situation because in New London, a redevelopment agency seized the property first and then sought the best bid from any developer who wanted in.
Also, much of Times Square was redeveloped through an open bidding process. But the Eighth Avenue site was acquired by the state exclusively for use by The Times, which had said it was considering moving 750 jobs to New Jersey in order to save money.
The Observer doesn't point out that many people thought the Times's threat preposterous--would the New York Times actually operate from Jersey? The more important point: just as with the Times Tower site, the remaining portions of Atlantic Yards site would be acquired not through open bidding but for one developer. The New York Times, understandably, has not covered its own real estate deals as aggressively as have the Observer and the Voice. Will the Times, which is finally paying more attention to the Atlantic Yards project proposed by its parent company's real estate partner, notice the parallels between the Manhattan and Brooklyn eminent domain deals?
# posted by Norman Oder @ 9:20 AM 
