Who Owns What In the Project? What Are the Project's Real Variables?
When I asked about ownership, I got the runaround. Previously, a risky structure undermined the project. Plus: doesn't public investment require more financial transparency?
Note the upcoming Atlantic Yards Community Development Corporation meeting on Dec. 2. where questions about the project—beyond this article, issues of scale, open space, affordable housing, and payment for development rights—might get ventilated. Also note panel Dec. 15 on public-private partnerships.
Does anyone, outside of the principals, know the ownership stakes in Brooklyn Ascending Land Co., LLC, the legal entity that apparently owns Atlantic Yards while the “permitted developer,” a team involving funder Cirrus Workforce Housing and the development company LCOR, steer the project?
When I asked Empire State Development (ESD), the state authority overseeing/shepherding the project, a more basic question about whether all four entities involved in the project had stakes in what seem to be two separate parts, I got a yes.
Then, when I asked Cirrus, I got a “no comment.” When I returned to ESD for re-confirmation, they told me to query the developer. That’s a recursive loop into a black box. Only later did I review evidence that suggests a more complicated structure.
Why it matters
Why does this matter? First, Atlantic Yards is supposed to be a public-private project, with the development team seeking public concessions like new bulk, subsidies for affordable housing, and financing for infrastructure. Given that investment, the public deserves more candor.
(It also deserves new accountability measures and, perhaps, a stake in project success, factoring in some of the variables below.)
Second, without knowing the intricacies of ownership, New York State may be blessing another risky structure, just as a plan approved in 2014—financing via the EB-5 investor visa program, rather than a bank—helped stall the project.
Moreover, the ownership structure might, as I’ll suggest, involve litigation risks. So if ESD doesn’t fully know, it should gain clarity. If it does know, it should come clean.
Simple variables?
Relatedly, without knowing more about the project’s cost structure, and the expected returns, how can we assess the value of the public assistance sought?
In other words, the variables are not as simple as the developer portrayed during the Nov. 18 workshop on height and density.
Affordable housing and open space depend not just on height and density but, crucially, on public resources, the factor at right in the horizontal bar.
Such public resources might include direct subsidies, tax breaks, tax-exempt financing, and additional development rights. Also, the state’s willingness to allow fractional payments for affordable housing penalties might be seen as an additional “public resource.”
That public investment requires reciprocal candor, hence my annotations.
After all, some key parties might be termed speculators, as I discuss below.
(Yes, I left out another variable: the cost of infrastructure, which surely ties into the request for public resources.)
Different owners for different pieces?
Last year, when Hudson Yards developer Related Companies considered taking over development over the Metropolitan Transportation Authority’s (MTA) two-block Vanderbilt Yard, ESD envisioned a two-track process regarding the project’s future: one for the railyard sites (B5 through B10), and another for parcels B1 and Site 5, at the arena block and across Flatbush Avenue.
That’s because Greenland USA, the former master developer ready to lose (some) railyard development rights in foreclosure, still controlled B1 and and Site 5. (Greenland succeeded original developer Forest City Ratner, after a short-lived joint venture.)
Now that Cirrus is on board, having acquired Greenland’s debt outside of the EB-5 deals, then allying with those EB-5 creditors, it’s all one process, which ESD has welcomed.
But there are apparently two joint ventures, one for the railyard sites, which rely on a platform, and one for B1/Site 5.
Regarding the platform sites, “we at ESD have been presented with a permitted developer package from a joint venture that includes Cirrus Real Estate Partners, LCOR… USIF [U.S. Immigration Fund] and Fortress [Investment Group], and Greenland,” ESD executive Joel Kolkmann said, on video, at an Aug. 6 meeting of the Atlantic Yards Community Development Corporation (AY CDC).
“We recently did receive a permitted developer application for Site 5,” Kolkmann also said, “from Cirrus, Greenland, and LCOR.” That omitted the USIF and Fortress.
Ownership stakes
Outside of Greenland has been described as a passive partner in the project. Is Greenland a participant in both sections of the project: the railyard towers (B5 to B10) and B1/Site 5?
What about the U.S. Immigration Fund (USIF), the “regional center” that brokered investor visas to Chinese immigrants by offering cheap financing to Greenland under the EB-5 program, and managed a foreclosure sale of the railyard tower rights when Greenland didn’t repay the loan?
What about Fortress Investment Group, a global investment manager and regular collaborator with the USIF, which acquired, via a swap, some of the EB-5 debt?
(Note that Cirrus co-founder Anthony Tufariello is the former Global Head of Real Estate at Fortress. Co-founder Joseph McDonnell, however, is the face of Cirrus at public meetings.)
Why would USIF and Fortress have any share in the full project, including B1 and Site 5—unless, perhaps, all the properties have been combined on the developers’ spreadsheet?
Again, when I asked ESD whether both Greenland and USIF/Fortress had stakes in both parts of the remaining project, I was told yes, but couldn’t get confirmation from Cirrus. When I went back to ESD for re-confirmation, I was told to query the developer.
A review of the video cited above suggests that, while Greenland does have stakes in both parts, USIF/Fortress doesn’t have a stake in B1/Site 5.
Joint venture relationship?
We don’t even know the relationship between Cirrus and LCOR. That could matter Remember, in 2014, BrooklynSpeaks acquired an internal ESD memo regarding the new joint venture between original developer Forest City Ratner and incoming developer Greenland, setting up a new board of directors.
Though Greenland would responsible for 70% of the project going forward, significant decisions, like starting a new building, required consensus. The partners clashed, which caused delays. Eventually their joint venture dissolved, with Forest City exiting almost completely.
When I asked LCOR Managing Principal Anthony Tortora about the relationship with Cirrus, he said, “We’re partners, co-developers.” He wouldn’t clarify the financial terms. (For example, does LCOR contribute any equity, or would its infrastructure and construction work translate into equity?)
Given the different roles for Cirrus and LCOR—funder and developer—the structure does not necessarily parallel the structure that Forest City and Greenland found shaky. Still, any partnership can have points of tension.
“Joint venture(s)”?
Some complications have been acknowledged.
Consider: when the new development team was announced Oct. 7, the Fortress press release, Fortress Investment Group, U.S. Immigration Fund, Cirrus, and LCOR Announce Joint Ventures to Develop Brooklyn’s Pacific Park, used the plural term “joint ventures.”
Similar press releases, from the USIF, U.S. Immigration Fund Announces Next Phase of Brooklyn’s Pacific Park Redevelopment, and from Cirrus, Cirrus Workforce Housing and LCOR Approved by Empire State Development as Co-Developers to Lead the Next Phase of Pacific Park Transformation, did not suggest “joint ventures.”
However, an Oct. 10 press release from the law firm Pryor Cashman, Pryor Cashman Represents Cirrus Real Estate Partners in Major Restructuring of Distressed Assets in Downtown Los Angeles and Brooklyn’s Pacific Park Megaproject, used the term “complex joint ventures”
Did that mean multiple joint ventures regarding Atlantic Yards/Pacific Park, or could that have encompassed Los Angeles?
The USIF role
What about litigation risk? What if some EB-5 investors, as has happened with various investments steered by the U.S. Immigration Fund, file a lawsuit arguing that their funds should be repaid.
(They expected to forego interest on their $500,000 investments, but were expecting to get repaid. Some were due a repayment, after anticipated extensions, by the end of 2022. Others were due repayment by May 2023.)
Who would be the defendants? How might progress on that lawsuit affect the project?
After all, the USIF, founded by Nicholas Mastroianni II, has a not-always-credible record on this project and on others.
Heck, what does it mean for the “USIF” to participate in the project? Does ESD know? USIF was the middleman that recruited EB-5 investors, but controlled the investment, and gained fees, as Manager.
Does the “USIF” participating in Atlantic Yards today mean a new affiliate, involving the EB-5 investors’ funds, and with Mastroianni/USIF as Manager? Or do entities he controls now have a stake? If so, does that raise the chance of a lawsuit?
I wrote the article linked above before we learned that Cirrus, by acquiring the rest of Greenland’s debt (in Atlantic Yards Venture, or some affiliate), somehow acquired super-creditor status, thus trumping the seeming control a USIF affiliate (with Fortress) had of the collateral: the rights to build six towers over the railyard.
That transaction hasn’t been explained fully, either.
What about Greenland?
Former master developer Greenland essentially avoided significant $1.75 million a month penalties starting in June for 876 units of unbuilt affordable housing.
It retains a stake the project, as the new development team negotiated a modest series of payment totaling $12 million, which housing advocate Michelle de la Uz called insufficient, and which BrooklynSpeaks, a coalition she helps lead and which negotiated the deadline, has protested.
Were the penalties enforced, the total could cumulatively exceed $100 million, at least.
Why should Greenland be bailed out, as it was termed at the Atlantic Yards CDC meeting in August? Why couldn’t the penalties be taken out of Greenland’s remaining stake? Well, ESD said it didn’t want to risk a lawsuit from Greenland.
Principles may vary
The developers’ presentation Nov. 18 offered “development principles” regarding affordable housing, open space, labor relations, and design/site plan.
To other constituencies, unsurprisingly, they tout their ability to achieve business success.
The goal of Cirrus Real Estate Partners, parent of Cirrus Workforce Housing, is to “generate consistent, attractive returns through identifying investments that offer asymmetric risk-return profiles and significant downside protection.”
Buying Greenland’s debt (outside of EB-5), surely at a deep discount, allowed Cirrus to take over the project. “The largest subsidy provider to this project is no doubt Greenland,” Cirrus’s McDonnell said at a meeting in October. “They put $950 million into the ground, and they also built a railyard.”
Maybe that’s the key to making it all work. But how much does that “significant downside protection” rely on public resources?
Fortress seeks “to identify bespoke and idiosyncratic transactions” aiming “to maximize returns.” Idiosyncratic transactions can be opaque.
USIF says it “provides outstanding EB-5 project opportunities,” which— unmentioned—deliver significant fees and can sometimes turn into advantageous new investments.
Are they speculating?
Surely the permitted developers, including Cirrus and LCOR, want to build a successful project that accomplishes both private and public goals. Surely the other partners recognize that only a project that accomplishes both goals can deliver the returns they want.
Still, their framing of variables doesn’t deserve deference, which is why I tried to annotate it.
At a press conference in June, Gib Veconi of BrooklynSpeaks said there was no justification for waiving the affordable housing penalties: “The other parties in the deal are investors who have been speculating in the distressed debt of the current developer. They’re sophisticated people. They understood that they were taking on something that has risk and liability in the form of these liquidated damages.”
That phrase “speculating in Greenland’s distressed debt” was picked up by several local elected officials in a letter calling for the penalties to be enforced.
Similarly, a BrooklynSpeaks petition stated, “ESD is allowing itself to be strung along by investors speculating in the distressed debt of the project’s developer, who have yet to demonstrate they are capable of completing the project.”
Now the investors do have a vision, and ESD surely thinks the project can be completed. The variables, though, deserve revision.