Tuesday, January 17, 2006
Jobs at Atlantic Yards: overpromised from the start (and here's another reason)
First, the company calculated more jobs than would be standard for the available space. But there's another piece of evidence, one I haven't seen cited elsewhere: two weeks before the developer announced the project on 12/10/03, a city report on the rezoning of Downtown Brooklyn cautioned that only about two-thirds of the projected new office space might be filled--which meant that the additional space planned for the nearby Atlantic Yards project likely would add to a glut.
Had the press and public officials raised this issue, they might have questioned the "jobs" projections for Atlantic Yards. Today, as the New York Observer has recently reported, it's questionable that even the smaller amount of projected office space will be built in Downtown Brooklyn.
Trading office space for housing
Most of those projected jobs at Atlantic Yards have since vanished, as office space was traded for market-rate condos, a better economic bet for the developer. Forest City Ratner VP Jim Stuckey has fudged the latter explanation. At an 11/22/05 American Institute of Architects panel discussion, he said that, "As part of our meetings with the community, it’s become very clear, for a number of reasons, that we needed to do more housing, and less office." But the additional housing was 2,800 luxury condos, certainly not part of a request by ACORN, the low-income group that signed the affordable housing agreement. (Photo of Stuckey from FCR bio.)
Stuckey later in that session gave a more accurate explanation: "We took... what was planned to be office development, and we converted it to condominiums. And it’s a very simple reason why: because condominium development is… a higher land value, which then allows us to do the cross-subsidization" of the affordable housing." (I recently listened to a tape of the session.)
Stuckey also explained changes in the plan, in an 11/6/05 New York Times article headlined Routine changes or 'Bait and Switch'?:
"Projects change, markets change," said Forest City Ratner's executive vice president for development, James P. Stuckey. "When you do a project over a long period of time, it's very difficult -- unless you're Nostradamus -- to figure out what the market changes and land changes and all those things are going to be."
That explanation deserves challenge, because of the developer's initial calculations as well as the Downtown Brooklyn plan.
First, Forest City Ratner promised 10,000 jobs repeatedly, such as in this flier issued in May 2004, touting "10,000 new, permanent jobs." But the developer could promise that many jobs only by neglecting to factor in a vacancy rate and calculating 200 square feet per worker, while the industry standard is 250 square feet. (Stuckey told a 5/26/05 City Council hearing that "we use  based upon what we know to be the case of MetroTech.")
By contrast, the New York City Economic Development Corporation (NYCEDC), hardly a project critic, projected 7,100 jobs for the same space. NYCEDC, in its report, used the industry standard and also calculated a vacancy rate. Moreover, NYCEDC estimated that only 30% of the jobs would be new to New York, rather than moved from Manhattan, a pattern with the developer's other projects, such as the office space at MetroTech or at Atlantic Terminal.
The NYCEDC document, released 6/27/05, reflects calculations made more than a year earlier and stated in part at a May 2004 City Council meeting. But anyone could have done the math. Despite the example of MetroTech, the industry standard was even used by Andrew Zimbalist, the Smith College economics professor who produced a report for Forest City Ratner projecting economic benefits from Atlantic Yards.
Looking at Downtown Brooklyn
Also worth noting is a city report on rezoning for Downtown Brooklyn Redevelopment, completed in November 2003. The Draft Environmental Impact Statement (DEIS) is not online, but the hard copy I saw contains the same relevant text that appears in the Final Environmental Impact Statement, issued in April 2004. Notably, the Executive Summary states (page S-4):
The proposed actions are projected to stimulate approximately 6.7 million square feet of new development, including 4.6 million square feet of office space.
(This also appears on page S-4 of the DEIS. The Final EIS (p. 14) gives the timeline: A DEIS was prepared for the proposed actions, and a notice of completion for the DEIS was issued on November 28, 2003. The hard copy of the DEIS I have is dated simply November 2003.))
On page S-17, the FEIS explains that the figure of 4.6 million square feet derives from careful estimates:
Together, the projected and potential development sites could total approximately 6.7 million square feet of office development. However, the appeal of these sites is primarily for back-office operations, particularly for those that require larger floorplates. This segment of the market is more limited. Therefore, although it is theoretically possible to develop 6.7 million square feet within the project area by 2013, this is not considered likely....Based on the screening criteria, it is reasonable to assume that approximately 4.6 million square feet of office development would occur in the next 10 years on sites identified by the City...
(This also appears on page S-14 of the DEIS.)
In other words, the city was saying that, even though an extra 2.1 million square feet of office space could be built in the next decade, the market for it was unlikely. And this was before the Atlantic Yards announcement added an additional 2.1 million square feet to the mix. No press coverage I found compared the two projects. Part of that may be attributed to balkanization; at the New York Times, for example, the rezoning issue was covered by Brooklyn bureau reporter, while the Atlantic Yards announcement was covered by the metro real estate reporter.
Economic estimates ignore office glut
Six months later, the amount of projected office space had declined only slightly. Zimbalist, in his May 2004 report, Estimated Fiscal Impact of the Atlantic Yards Project on the New York City and New York State Treasuries, writes that the project would eventually create 1.9 million square feet of first-class office space to be added in equal increments in 2007, 2009, and 2011. He cites a "housing and commercial office space shortage in Brooklyn and New York City" and offers some questionable statistics:
Since 1988, downtown Brooklyn has absorbed an average of 600,000 square feet of new office space per year. As of early April 2004, the vacancy rate of class A office space built in Brooklyn since 1985 was less than one percent.
Zimbalist makes no mention of the Downtown Brooklyn Final EIS issued a month earlier. His report reads as if the office space at Atlantic Yards would be brought to a borough that desperately needed such office space, and as if no potential for similar space might be in the offing.
In a June 2004 critique of Zimbalist's report, ESTIMATED FISCAL IMPACT OF FOREST CITY RATNER’S BROOKLYN ARENA AND 17 HIGH RISE DEVELOPMENT ON NYC AND NYS TREASURIES, Gustav Peebles and Jung Kim pinpoint problems in Zimbalist's assumptions. For one thing, as they write in section 5.3, Zimbalist did not calculate a vacancy rate. Also, they note that Zimbalist's observation regarding the vacancy rate requires a huge caveat. Most of the Class A office space in Brooklyn is at Forest City Ratner's MetroTech development, which has relied heavily on subsidies and government tenants to fill the space.
The authors calculate that at least 55% of the Class A office space in Brooklyn was filled by the public sector or with the help of incentives to private companies. "The vacancy rate used by Dr. Zimbalist to generate 7,600 jobs is an artificial rate, inflated by government expenditures and nothing to do with what economists would call a 'market,'" they write. Because of that, they recommend lowering Zimbalist’s projections for new commercial income and sales tax revenue by up to ten percent.
Peebles and Kim could have further questioned Zimbalist's vacancy rate projections had they factored in the recently-released Downtown Brooklyn Final EIS. It cast doubt not just on the prospects for filling such a large amount of office space at the "less than one percent" vacancy rate, but also on the wisdom of building that much office space in the first place.
Responding to the market
Apparently Forest City Ratner questioned its own projections as well. By 2005, the company revised its plans, and at a City Council hearing on 5/26/05 announced a reduction in office space as part of two potential reconfigurations. Zimbalist, in a June 2005 update to his report, acknowledges those potential changes:
The FCRC Atlantic Yards General Project Plan will eventually create 1.2 million square feet of first-class office space. The Alternative Plan will create 259,078 square feet of new commercial space. Since 1988, downtown Brooklyn has absorbed an average of 600,000 square feet of new office space per year. As of early April 2004, the vacancy rate of class A office space built in Brooklyn since 1985 was less than one percent.
Even though Forest City Ratner had reacted to a potential downturn in the market--reducing an original estimate of 2.1 million square feet to a potential 259,078 square feet--Zimbalist remains nonplused. He repeats the same decontextualized citation regarding Brooklyn's "less than one percent" vacancy rate even though the developer by then was planning to cut 43% to 88% from the originally announced space. Again, he doesn't acknowledge any competing supply of office space, not from Lower Manhattan, nor from the Downtown Brooklyn rezoning.
Downtown Brooklyn today: housing
Today, even the estimates of 4.6 million square feet of office space in Downtown Brooklyn seem overoptimistic, since housing is a better bet. In a 1/16/2006 article headlined Office Builders Balking At Downtown Brooklyn, the New York Observer noted:
When city planners rezoned much of downtown Brooklyn 17 months ago, it was meant to make the city’s third-largest business district even larger. Now it is looking more and more like a bedroom community.
It is not just the half-dozen condo projects sprouting up around the edge of downtown, transforming weed-strewn parking lots into glassy towers.
Even the 10-block area envisioned as the “commercial core” of the new downtown is leaning residential. The developers of the two sites furthest along in the planning process are suggesting that as few as 200,000 square feet of office space might go up where two million square feet were once envisioned, with the balance going for hotel rooms and apartments. A third property owner wants to erect a hotel right in the middle of a site where a 20-story office tower was supposed to be built. An existing office tower in that central core—7 MetroTech Center, the 1930 Verizon building—was purchased last April to be converted into condos.
In other words, Brooklyn’s booming residential market has overtaken the supply of office space—making it harder for roughly 19,000 jobs that were originally seen as the fruit of the rezoning to find their way into the new downtown.
There's a silver lining, Brooklyn’s boosters told the Observer: Downtown Brooklyn (especially Forest City Ratner's MetroTech) has been called dead at night, but the area will gain much new life. Still, the rezoning was supposed to spur jobs more than housing:
In order to promote commercial construction in a borough that many still consider to be an unacceptable business address, commercial buildings in the core could rise 20 percent higher than apartment buildings. Yet the residential market is so strong—or the commercial market so weak—that that incentive has not tempted anyone to gamble on offices.
The difference is a Floor Area Ratio (FAR) of 12 for office space and 10 for residential space at certain parcels that have been rezoned to C-6.45. See p. 7 of the Executive Summary of the Downtown Brooklyn Redevelopment Final EIS.
Did Ratner just learn this?
The switch to housing led the Observer to cite a similar example, at Atlantic Yards:
Bruce Ratner, Forest City Ratner’s president and C.E.O., recently came to a similar conclusion. He originally proposed 2.1 million square feet of office space to be included in his Atlantic Yards complex, which lays adjacent to the boundaries of the downtown rezoning to the southeast. Then, last summer, he reduced that amount to 628,000 square feet and made up the difference with market-rate condos.
It wasn't a zero-sum trade, though, given that the project increased from an initial 7.7 million square feet to 9.1 million square feet this year, thanks in part to the addition of Site 5 across Flatbush Avenue. On that site, P.C. Richard and Modell's currently occupy a low-slung cinderblock complex; a 430-foot tower is planned.
But the bigger question is: did Bruce Ratner recently "come to a similar conclusion"? The company may have announced the changes recently, but, as noted, the addition of condos on top of the rental apartments came only a week after the affordable housing agreement was signed, which suggests the switch from office space had been in the cards for a while.
Could the switch had been considered from the start? That November 2003 Draft Environmental Impact Statement suggests that Forest City Ratner should have known that the market for additional office space was questionable, even office space well-located at a transit hub, as at the proposed Atlantic Yards. But the slogan "(Temporary Construction) Jobs, Housing, and Hoops" wouldn't work as well.
[Graphic from NoLandGrab.org]