If Affordable Housing Over Railyards Doesn't Work, Are "Politicians & Activists" to Blame?

Columnist criticizes unrealistic goals, but New York State backed developer Ratner's unwise (and renegotiated) Atlantic Yards plans with dubious reports.

Columnist Erik Engquist of The Real Deal, the city’s leading real-estate publication, likes to admonish those deemed too myopic or ignorant to understand the real world of real estate.

In a June 10 column headlined Bad combination: Low-rent housing and rail yards, Engquist counted hard lessons from Atlantic Yards/Pacific Park (and other projects), suggesting logic behind Empire State Development’s decision not to collect $2,000/month damages for each of 876 missing Atlantic Yards affordable units from master developer Greenland USA.

“At the risk of oversimplifying things, this looks like an example of how a promise means little if the economics don’t work,” he wrote. “ To wit: putting money-losing rentals over active train yards.”

”Affordability was needed to get political support for Atlantic Yards, yet it is making it incredibly hard to build,” he wrote. “Affordable housing is desperately needed, but projects cannot be built on ideals. The numbers have to work. Yet for some reason, when it comes to expansive rail yards, politicians and activists demand a playground for the poor.”

The counter

Engquist’s overall framing shouldn’t be dismissed, but Atlantic Yards/Pacific Park doesn’t fit.

First, the “activists” he seems to be criticizing are in BrooklynSpeaks, the reformist alternative to the now defunct Develop Don’t Destroy Brooklyn (DDDB), not the housing activists at New York ACORN who embraced Atlantic Yards at the start.

BrooklynSpeaks negotiated the 2014 agreement, to which ESD agreed, setting the 2025 deadline for affordable housing, with liquidated damages that would support affordable housing nearby.

(ACORN’s successor, Mutual Housing Association of New York, has not commented publicly on the current state of the project.)

Importantly, project developer Forest City Ratner made unrealistic promises starting in 2003, gaining political support from both ACORN and the establishment. The 2005 Affordable Housing Memorandum of Understanding negotiated with ACORN promised:

• 50% of the housing as affordable (that became 50% of the rentals, excluding condos, so 35% of the total)

• 50% of the affordable units, in floor area, as family-sized units (that was ignored)

• only 20% of the affordable units as middle-income (that became 40%, then was ignored)

After the recession, Forest City in 2009 renegotiated timing, payment, and subsidy terms with both the Metropolitan Transportation Authority (MTA) and Empire State Development (ESD). The latter, once known as Empire State Development Corporation (ESDC), oversees/shepherds the project. Both state authorities are controlled by the governor.

The Housing MOU was incorporated into a much-ballyhooed, “legally binding” Community Benefits Agreement (CBA) signed with ACORN and seven other groups, most of them astroturf.

When ESDC negotiated the project’s guiding Development Agreement, rather than requiring the range of affordability seemingly promised in the CBA, it simply allowed any below-market unit participating in a government regulatory program.

That’s led to a skew toward middle-income units, enabled by the state’s 421-a tax break, which even real-estate figures agree was too generous.

Deflecting doubts

Let’s focus on the timetable, not the configuration.

In December 2006, after the project initially passed (and before the recession), I told ESDC Chair Charles Gargano that even a mainstream business supporter of the project, Kathryn Wylde of the Partnership for NYC, suggested Atlantic Yards could take 20 years, not the ten years professed. (“Not a chance,” she wisely observed of the official timetable.)

“We hire consultants to advise us on these issues,” Gargano responded, saying Turner Construction told ESDC “the project can be built over a ten-year period. We depend on experts in this area to advise us.”

Well, it was constructible, but “the numbers have to work.” So Forest City and its successor Greenland never built the expensive platform needed to support six towers (B5-B10).

Greenland since November 2023 has been poised to lose development rights to those towers in foreclosure, but retains development rights at Site 5, catercorner to the Barclays Center, and B1, the flagship tower once slated to loom over the arena.

The plans, as currently approved, likely will change.

Remember, developer Bruce Ratner, in 2011 promoting his plan for lower-cost modular housing, told the Wall Street Journal that his promised affordability plan—2,250 below-market rentals—couldn't "work for a high-rise building that's union built."

But that’s what Ratner promised, in part to gain support from construction unions. State officials approved it. Such unrealistic plans were given backup by official reports commissioned by ESDC/ESD. Those reports may have served perhaps less to guide public officials than to avoid legal potholes.

Developer deflection

These days, blasé Bruce Ratner deflects responsibility Asked last year by WNYC’s Brian Lehrer about the missing Atlantic Yards affordable housing, he responded, "We're getting fooled, frankly. It's got to be the government and it always has been."

However, Ratner purportedly guaranteed such housing via that MOU and CBA. The latter was supposed to have an Independent Compliance Monitor, but Forest City never hired one.

BrooklynSpeaks response

In response to Engquist’s column, BrooklynSpeaks—whose Twitter/X account is run by Gib Veconi of the Prospect Heights Neighborhood Development Council—wrote that new subsidy might be necessary, but Gov. Kathy Hochul, who controls the project’s future, “won't know without the independent financial analysis” that ESD has yet to do.

Veconi, from his personal account, quote-tweeted BrooklynSpeaks, adding, “It's been said the definition of insanity is doing the same thing over and over and expecting different results.” So ESD must “prove why gambling on another master developer at #AtlanticYards is a good bet for the public.”

BrooklynSpeaks, as I wrote last October, has previously called for such an third-party analysis of the project's financial viability.

What more?

I think such analysis also should address the profit in the likely increase in bulk requested, as well as the value of new LED signage at Site 5, catercorner to the arena, plus proposed below-grade retail.

Moreover, to echo a 2018 proposal from Jaime Stein, then a board member of the Atlantic Yards Community Development Corporation—the advisory body on which Veconi sits—why not have third-party planning, design, and construction consultants review the pending proposals to assess the tension between fiscal feasibility and neighborhood impacts?

I can anticipate the rebuttal from those preaching the new gospel of “abundance”: that slows things down.

Well, yes. But Atlantic Yards has a history of unrealistic, irresponsible assessments. Why not get things right?

What next?

Engquist, in a June 11 Daily Dirt column, Avoiding another Pacific Park development disaster, let BrooklynSpeaks argue why ESD should’ve collected the $2,000/month penalties.

He quoted Veconi as noting that master developer Greenland USA—facing foreclosure of its rights to develop six towers—has not declared bankruptcy. Indeed, Greenland, with ESD’s support, aims to monetize the bulk at Site 5 and the unbuilt B1. It has assets.

Veconi added that an affiliate of the project’s lender last June made an $11 million annual payment to the MTA for railyard development rights. (Note: payment terms and timing may be under renegotiation.) The argument for pursuing the penalties was furthered this week in a letter from ten elected officials to the Governor and ESD.

ESD, suggested Engquist, likely took note that Related Companies, a large company known for its Hudson Yards project, withdrew from a plan to develop the railyard sites in Atlantic Yards/Pacific Park.

“ESD may have figured that demanding fines now would scare off the few remaining developers willing to take on the massive project,” he wrote. “So ESD extended the deadline for the next team of builders.”

Well, maybe. But we don’t know exactly why Related withdrew. It could have more advantageous uses for its capital, or it didn’t want to work with other potential partners.

Also, if the entity paying the fine is not part of—or key to—the “next team,” maybe that wouldn’t be such a problem. Could ESD fear going after Greenland in court?

Does Brooklyn Speaks have a solution? Veconi told Engquist that the state should get an independent report on whether construction—presumably under the bulk already approved—is viable. (Engquist’s comment: “It’s rare to get such a reality-based answer from activists.”)

If it is viable, a new oversight authority could manage the project and evaluate prospective developers, suggested Veconi.

What if it’s not?

Their exchange didn’t get to what might happen if construction’s not viable.

New subsidies for infrastructure? Additional development rights, as Greenland once sought, to make the project “pencil out”? (If so, should that bulk be simply given away?) State cancellation of existing contracts and recovery of the land and development rights?

One alternative, which I’ll flesh out more elsewhere, is that the owners of the Brooklyn Nets and the arena company, who’ve gained enormous profits, could be made to pay significant sums for the privilege of making the plaza, crucial to arena operations, permanent.

That reflects the cross-subsidization that some envisioned.

“The numbers have to work”

On Twitter/X, I responded to Engquist’s first column, saying I agreed that the numbers have to work—but that he had blamed the wrong parties, not the government and its head-in-the-sand consultants.

I quoted a 2009 statement, regarding Atlantic Yards, “Given the lack of affordable housing in New York City, and its waiting list, it is reasonable to assume that low-income units at each building will be absorbed as soon as they are brought to the market.”

And, similarly, "Given the information provided in this report, it is probable that when the Subject Property’s units are schedule to come online it will be the ideal time for apartment renters/condominium sellers in the market place.”

In both cases, that was consultant KPMG, hired by ESDC. Was that to accurately inform government officials and the public? Unlikely. (If so, wouldn’t KMPG have put out a draft to receive criticism, then revise the blatant errors?)

The report was likely produced less to inform the public than to ensure that no judge could consider the state’s buildout timetable unrealistic.

Excerpt from 2009 KPMG report

Compounding erroneous assumptions, KPMG failed to anticipate the impact of the Downtown Brooklyn rezoning, which delivered numerous competing market-rate units, without the infrastructure costs associated with Atlantic Yards.

Who made the deal?

Though Engquist suggested that “politicians and activists” demanded the Atlantic Yards affordable housing configuration, the plan came pre-cooked with a promise of 50% affordable units—later modified to apply only to the rentals—from the start.

As I continued on Twitter/X, “who made a deal with ACORN for community support for state assistance to override zoning, eminent domain, subsidies, tax breaks? original #AtlanticYards developer Bruce Ratner. Who now disavows #affordable housing promises he made.”

Engquist responded that market-rate units cross-subsidize affordable ones, and “Projects that don't pencil out don't get built.” That didn’t advance the argument.

Who’s to blame?

I again pointed to the KPMG study, trying to convince him that state bureaucrats and the developer deserve blame.

”Bureaucrats work for politicians, who make the decisions,” Engquist responded. “So you could blame Pataki and Bloomberg, as well as Forest City Ratner and Greenland, + bad luck (2008 crash) and DDDB, for AY falling short of its promise. It's still an improvement over what was there.”

(Let’s put aside the debate about “an improvement over what was there,” because that discounts alternative scenarios and lost opportunity cost.)

I again challenged his framing, since the developer and allies promised too much from the start and New York State backed promises with dubious reports.

So Veconi’s argument for a new analysis, I wrote, has merit, but such a study should be credible, with a range of scenarios, not just the rosiest, with a draft subject to feedback and criticism.

When news of the foreclosure surfaced in late November 2023, BrooklynSpeaks, in a press release, recommended city and state investigations. “The public deserves a full accounting of how things have gone so wrong at Atlantic Yards,” stated Michelle de la Uz. They haven’t echoed that request since, but it remains sound. A full accounting remains.

What if?

In our desultory exchange on Twitter/X, Engquist went on to blame a range of factors. “It's likely,” he wrote, “that without such a long legal battle and a financial crisis, not to mention more capable developers, that residential towers with substantial affordability could have been built already at Atlantic Yards. Development involves risk. That's not a reason not to develop.”

I reverted to my point that New York State had proved itself untrustworthy. Remember how, in 2019, an ESD official, deflecting Veconi’s request for a new project schedule, claimed “the commitment of meeting the [affordable housing] goal that we set is nonnegotiable on our end."

Indeed, the more complicated the project and the more extravagant the promises, the more the risks compound—and factors like the ones Engquist cited become more likely.

Government should tell the truth, and better assess risks. So, if ESD plans to renege on—er, renegotiate—the current agreement, why should anyone trust any future promises?