Agency, Developer Wrestle Over Atlantic Yards Affordability

Photo by: SHoP Architects
A rendering of the Atlantic Yards project by SHoP Architects shows tower 2 in the foreground.

Documents reveal tense negotiations between city housing officials and Forest City Ratner over the kind of affordable housing the first Atlantic Yards residential tower will provide. Turns out it's different from what the developer promised.

By: Norman Oder

The much-delayed first housing tower at Forest City Ratner's controversial Atlantic Yards complex in Brooklyn, where half the 363 units have long been promised for “affordable housing,” seems poised to get millions in city housing bonds.

While this 32-story building—on which Forest City aims to break ground this fall—would broad-ly meet the pledge the developer signed with housing advocacy group ACORN to ensure that 50 percent of the rentals be subsidized, it otherwise diverges from that promise. Not only would it contain far fewer family-sized units than pledged, those two-bedroom, two-bath units will be disproportionately geared to middle-class families, not low-income ones, with rents more than $2,700 a month.

It also differs from what city housing officials aim for in mixed-income affordable housing financing, as well as what Forest City proposed in previous underwriting submissions to housing officials.

Documents unearthed via the Freedom of Information Law, and further queries, show that only nine of the 35 subsidized two-bedroom units would go to households currently earning less than $35,856 for a family of three (with rents at $835 monthly), while 17 would be reserved for the highest affordable income “band,” those earning 140-160 percent of Area Median Income (AMI), or between $104,580 and $119,520 for a family of three.

The documents also reveal that the New York City Housing Development Corporation (HDC) protested Forest City's initial plans for Tower 2, saying there were too few family-sized units.

HDC's counterproposal did not hold Forest City to its promised goal that 50 percent of the affordable apartments, in terms of floor area, be devoted to two- and three-bedroom units. But Forest City insisted on modifying the deal further, and HDC mostly relented.

Other documents indicate that, while city housing officials were unwilling to grant Forest City an additional direct subsidy, they were willing to adjust other aspects of the financing package—such as the unit mix—to make the project financially viable.

None of these details, including the income-targeting of the larger units, surfaced at an HDC public hearing in July concerning Forest City's request for nearly $92 million in tax-exempt bonds, covering approximately half the cost of the building. Also, while the hearing had been announced in the New York Post, nothing had been posted on the agency’s website, prompting subsidy watchdog Bettina Damiani of Good Jobs New York to call that an “insult to open government.” (HDC says the information it released in advance of and at the hearing satisfied legal requirements, but plans to post information about future hearings on its website.)

It’s unclear when a decision on the bonds will be announced, but documents indicate Forest City hopes to close on financing and break ground this fall.

Housing promises earned developer allies

Announced in 2005 during a time of rising rents, an explosion of luxury condos, and gentrification pressures in Central Brooklyn, Forest City Ratner's promise of 2,250 “affordable” units in the Atlantic Yards project was a political masterstroke. Announced with the support of the community group ACORN, it gained kudos from numerous elected officials, like Council Member (and now Public Advocate) Bill de Blasio.

For ACORN, which had lamented the tax-subsidized market-rate buildings around Downtown Brooklyn, support for Atlantic Yards represented a reasonable deal, though some community development advocates questioned it. Of the 6,430 apartments planned, 4,500 would be rentals, half of them subsidized, with a total of 900 low-income units.

Forest City, in turn, achieved the equivalent of a spot rezoning. As a state project overseen by Empire State Development Corporation, Atlantic Yards was approved in 2006 at the density the developer sought without hearings under the city's land-use review process. The developer got $100 million each from the city and state in direct subsidies, mostly for the arena, then later saw the city subsidy nearly double; counting tax breaks and other savings, the New York City Independent Budget Office in 2009 projected the arena would be a net loss to the city.

The housing Memorandum of Understand-ing (MOU) that ACORN signed in May 2005 had such promise that at the press conference ACORN's Bertha Lewis, whose training is in theater, memorably bussed a reluctant Mayor Bloomberg on the lips.

The document promised not only that 50 percent of the rentals would be affordable but that 50 percent of the latter, in square footage, would be devoted to two- and three-bedroom units. (At other points, Lewis and Forest City claimed not that half the affordable square footage, but that half the affordable units would be two- or three-bedroom.) The project would be funded via existing city programs, “with necessary modifications,” which, in retrospect, may have left a key uncertainty.

The MOU also contained a key quid pro quo. As long as the project included the “50/50 Program as described,” ACORN would appear “with the Developer before the Public Parties, community organizations and the media as part of a coordinated effort.”

Actually, “as described” left significant latitude. The MOU presented three different scenarios for how to distribute the project’s 2,250 subsidized apartments: The first, which Forest City initially promoted, promised 900 low-income units (30-50 percent of AMI), 900 moderate-income units (60-100 percent of AMI), and 450 middle-income units (100-140 percent of AMI). That scenario targeted not merely low-income households, the goal of many affordable housing programs, but also those just above the poverty line, what sociologist Katherine Newman, echoed by Lewis, has called “the missing class.”

But Forest City soon dropped that scenario for the third one, which included only 450 moderate-income units, plus 900 middle-income units, split in bands from 100-140 percent and 140-160 percent of AMI.

Meanwhile, New York AMI, based not just on the city but also affluent suburban counties, has risen steadily, outpacing local income. (At the time of the MOU, it was $62,800 for a family of four; now it's $83,000.) Rent is set at 30 percent of income, based on the midpoint of each “band.”

The housing MOU was incorporated into the much-promoted Atlantic Yards Community Benefits Agreement (CBA). “Affordable housing,” however fuzzy, became a huge selling point for the project. For example, 83 percent of those surveyed in a 2006 poll for Crain's New York Business, when told that Atlantic Yards “will provide 2,250 low-, moderate-, and middle-income rental apartments,” agreed it was an important benefit.

While the city was a party to neither the Housing MOU nor the “legally-binding” (as promoted by Forest City) CBA, Bloomberg signed the CBA enthusiastically as a witness (video) and praised it in a press release. Four years later, the mayor said he was “violently opposed” to CBAs, likening them to extortion, but didn't mention Atlantic Yards.

Others have also seen risks in CBAs. As noted in a March 2010 report on CBAs by the New York City Bar Association, scarce subsidies might go further if used elsewhere, but the city would feel pressure not to subsidize housing promised in a CBA and “risk having to take 'blame' for the development’s failure to provide community benefits.”

Cutting costs, seeking more subsidies

Forest City has tried for years to cut costs on Atlantic Yards. In 2009, following the worldwide economic downturn, the developer decoupled the basketball arena from the four towers once planned around it, and dropped original architect Frank Gehry's design, choosing a smaller arena unlikely to accommodate major league hockey.

Also, according to the documents obtained via FOIL, Forest City sought more housing funds. In affordable housing projects, developers promise to restrict rents on apartments in return for government funding or financing, with the dollar amount of city or state assistance based on the number of apartments involved as well as other factors, including the income mix.

Forest City wanted more of that assistance, but HDC declined. “The problem is, frankly, we don't want to go any further with our subsidy/DU [dwelling unit],” NYC HDC President Marc Jahr wrote in April 2009 to Ismene Speliotis, then-head of ACORN's housing affiliate. He cited the limited amount of subsidy the city had to award, and the risk that other projects could ask for similar treatment.

“Despite this, we're prepared to explore whether there is [a] way to make this work within the subsidy constraints,” Jahr added.

Other agencies were also willing to make adjustments to help the developer. In June 2009, Forest City renegotiated with the Metropolitan Transportation Authority to defer purchase of development rights to the 8.5-acre Vanderbilt Yard, the key public property in the 22-acre project footprint, and to build a smaller replacement railroad than promised. The Empire State Development Corporation (ESDC) agreed to condemn property on the project site in stages, saving Forest City cash flow.

In a June 2009 Technical Memorandum, the ESDC acknowledged that “prolonged adverse economic conditions” could delay much of Atlantic Yards, but not the arena and the first housing tower. However, Tower 2 has been pushed back multiple times, apparently for financial reasons.

When Bloomberg celebrated the basketball arena groundbreaking in March 2010, he also announced that the city had “secured an additional commitment from the developer to ensure that at least 50 percent of the units in the first residential building will be affordable to a mix of low-, moderate- and middle-income families.”

While Bloomberg likely wanted to remind constituents that Atlantic Yards would be more than just an arena, the fact is a building with no affordable housing would have been terrible PR. What's more, Forest City, given the financing environment, was unlikely to secure funding for a tower with only market-rate units. Housing subsidies were always anticipated for the larger Atlantic Yards project,

In the past two years Forest City and housing officials have argued over exactly what mix of public money and affordable units would satisfy both sides, a challenge likely heightened by the lack of a robust condo market to provide cross-subsidies.

In November 2010, Forest City Executive VP MaryAnne Gilmartin, who oversees Atlantic Yards, sent a note to Jahr and Rafael Cestero, then the Commissioner of the city Department of Housing, Preservation, and Development (HPD).

“While we appreciate the efforts your team has made to help us qualify for more proceeds, it's clear that the lenders remain skittish and hyper-conservative regarding ground-up multi-family construction projects,” she wrote.

More equity would be needed, Gilmartin said, and “lenders view our rent projections & hard cost assumptions as aggressive and all believe we have pushed the envelope on both (and we agree).”

“I continue to believe that if HPD successfully addresses our $10m subsidy request, we can convince our [Board of Directors] to rally behind a 2011 start date,” she wrote, signing off “Warm Regards.”

Cestero cordially declined, though he said “we are willing to make a number of significant concessions to our standard underwriting practices in order to bring additional bond proceeds to the project.”

Housing experts point out that existing subsidies, which are awarded per unit, incentivize small-er apartments. If affordable housing funding were parceled out per bedroom, larger apartments would gain an advantage. But this feature of subsidy programs was well-known long before Forest City proposed Atlantic Yards or agreed with ACORN on its housing component.

The battle over bedrooms

When, in November 2011, Forest City released its new renderings for the towers around the arena, most in the press focused on the developer's bold plan to use modular technology, which would make Tower 2 the tallest prefabricated building in the world. (Tower 2, planned for the edge of the Barclays Center arena at Dean Street and Flatbush Avenue, will be the first residential building on the site. Tower 1, in the developer’s schema, is a long-delayed office building at the intersection of Atlantic and Flatbush avenues.) Such innovation could potentially produce housing faster and cheaper, saving on labor costs and developing new efficiencies.

However, Forest City has not yet announced an agreement with the unions, whose members, along with ACORN followers, were vocal supporters of Atlantic Yards. Trade union members face considerably lower pay in a factory constructing modules to truck to the site. (For each modular building, about 60 percent of the workforce would be in the factory.) The Wall Street Journal reported, after interviewing CEO Bruce Ratner, that “the existing incentives for developments where half the units are priced for middle- and low-income tenants 'don't work for a high-rise building that's union built.'”

That suggested that Forest City’s original promises to unions and housing advocates could not co-exist.

Indeed, Forest City's November 2011 fact sheet for the first tower indicated it had backed off from the MOU’s promise to devote 50 percent of the subsidized floor area to two- and three-bedroom units. The fact sheet promised 65 studios, 90 one-bedrooms, and 20 two-bedrooms, among the subsidized units.

After Council Member Letitia James criticized that configuration—a total of 11 percent family-sized units—Forest City executive Jane Marshall responded at a public meeting in January 2012, that the firm aimed for 20 percent two-bedroom units. “We are currently trying to achieve that goal,” she said, “ although we have to proceed… with trying to get this building into the ground.”

“My understanding is that some time ago,” James followed up, “there was a commitment that half of the units would be larger units.”

Marshall said she might be “wrong about the percentage,” and maintained that building more larger units was a goal, though “the financing vehicles from the city make it difficult to reach those goals.”

Two months later, at a follow-up meeting of city and state agencies and officials involved in Atlantic Yards, Marshall provided an update, saying “we have succeeded” in increasing the number of two-bedroom units to 35.

“You're not going larger than two [bedrooms]?” asked James.

“Right now that's what we are focusing on, because that's what everybody was focusing on,” Marshall responded.

Behind the scenes, documents indicate, was pressure from HDC. In January 2012, HDC Executive VP Joan Tally sent a frosty letter to Arana Hankin, the director of the Atlantic Yards project for the Empire State Development Corporation.

“[T]he Developer's proposed unit mix of the Affordable Housing Units includes just 11 percent family-sized units (two-bedroom or larger), a substantial reduction from the 25 percent-48 percent family-sized units proposed by the Developer in prior underwriting submissions,” Tally wrote.

The unit mix, she stated, did not comply with “the administering agencies' standards nor is it consistent with other affordable housing developments financed by HDC.” (For example, one NYC HDC program indicates preference “to projects with 50 percent or more 2+ BR units OR 30 percent two-bedrooms and 10 percent three-bedrooms.”)

“As a compromise, in light of the development's financing requirements,” Tally wrote, “HPD and HDC have proposed a minimum of 20 percent of the Affordable Housing Units as family-sized units… which the Developer has thus far rejected.”

HDC apparently asked the developer to alter the mix of affordable units by shifting 15 of the proposed one-bedrooms to two-bedrooms, and gearing these for families in the 120 percent and 150 percent AMI bands.

That proposal, skewed toward middle-income subsidized units, was unacceptable to the devel-oper. Forest City's Melissa Burch offered a counterproposal: “We want to find common ground that gives HDC the 20 percent 2BRs that are important for your mission and at the same time helps close the $2M funding gap” created by the reassignment of 15 one-bedroom units to two-bedroom units.

To save $1 million of that stated “funding gap,’ Forest City asked that the 15 larger units be allocated solely to the higher 150 percent AMI band.

HDC seemed to take the deal. “We of course prefer more affordability,” Tally responded to Burch, “but we will accept it. We'd like your commitment that this will be the minimum level of affordability [for this tower] no matter how future conditions may affect the budget.”

In response to questions about the negotiations, HDC stresses that the specifics of the Tower 2 deal are still in flux. To that end, the income mix has shifted since the last email exchange contained in the documents City Limits obtained: HDC now says that of the 15 additional two-bedroom units, two will be for middle- and moderate income families below the 150 percent band, while a 16th unit will serve low-income families.

But Tower 2's skew toward higher incomes remains. Of the 36 subsidized two-bedroom units, nine would be occupied by low-income families, five would be set aside for renters of moderate-income, five for the first middle-income band and 17 would be subsidized for the highest affordable “band,” with monthly rents, of $2,740 today (plus electric), and surely higher when the building opens in a year or two.

While that’s some discount off market—new two-bedroom, two-bath high-rise apartments in nearby downtown Brooklyn cost $3,300-plus—that's too much for “the missing class” of people just above poverty, as well as those below the line who rallied with ACORN for Atlantic Yards.

Defending a deal

Asked why it took the deal, HDC responded, “Atlantic Yards has been heavily negotiated be-tween the City and Forest City Ratner and its community partner over the course of many years and through a financial and real estate collapse.” While acknowledging that its mixed-income financing program “states a ‘preference’ for developments with 50 percent affordable two-bedroom units or larger,” HDC adds: “This preference is a target that we seek to achieve, and is not meant to be interpreted as a non-negotiable rule or regulation. … Each development is unique and there is a need to recognize that circumstances can and often do change.”

For HDC, the housing MOU has no legal force; rather, the agency adheres to the Atlantic Yards Development Agreement, signed in late 2009 by Forest City Ratner and the Empire State Development Corporation, which defines Affordable Housing Units simply as those governed in a city or state regulatory agreement.

Despite the small number of family-sized units in this first building, Forest City retains vocal backing from those who negotiated the deal for ACORN. At the bond hearing in July, held at HDC offices, Lewis combatively blamed Atlantic Yards opponents for delaying the project and accused city agencies of having “reneged” on funding commitments.

Speliotis, who now heads MHANY (Mutual Housing Association of New York) Management, was more conciliatory. “We want Forest City to do better. But until Forest City starts, they can't do any better,” she testified. “We are begging that HDC, and the other agencies involved work with Forest City and us and make sure that the resources are allocated.”

But neither Lewis nor Speliotis discussed the new composition of the affordable units at the hearing, and HDC was silent. The developer didn't elaborate either: When Forest City executive Gilmartin spoke briefly, she offered no details beyond an FCRC handout, which did not mention the income mix for the larger units. Rather, she cited the importance of subsidized housing “near the urban core and centers of commerce,” perhaps a hint that such locations pose higher costs.

In private, Speliotis seems to have been tougher on both the developer, and the agency. In a December 2011 message to activist colleagues (copied to NYC HDC), she suggested that some of Forest City's development costs, including charges for retail and commercial commissions, site management and development contingency, “seem very high,” even as “modular has been presented as a more inexpensive method of construction.”

(HDC, asked to comment, said the fees “are similar to other deals HDC has financed, with both non-profit and for-profit developers.” It’s impossible for an outsider to evaluate; the figures were redacted in the document made available via FOIL.)

After the hearing in July, Speliotis was asked whether she thought Forest City had assumed at the outset that there was a commitment to provide sufficient subsidy for a building with larger units, or whether it was meant to be negotiated in the years after the MOU was signed.

She said it was “probably a little bit of all” of that, in that city agencies typically don’t give developers exactly what they want. But, she said, there needs to be a “triangulation,” so that projects can proceed, but the city gets sufficient bang for its buck. In other words, “You need to give enough away, but then you need to be strong enough.”

Asked for further comment this month, Speliotis stressed the fluid nature of the composition of Tower 2 and the rest of the Atlantic Yards housing component and said MHANY's strategy was to keep pressing for larger units that serve lower income bands in future buildings. While Atlantic Yards may be singular because of its size and controversy, Speliotis said the push-pull between developers facing costs and advocates seeking affordability was not unique to the Ratner deal. “We're always pushing,” she said.

Council Member James, who at the hearing called for more family-sized units, was surprised when told of the allotment of two-bedroom units, calling it an “appeal to higher-end individuals as opposed to residents who need it most.” James, who believes other developers should be involved in Atlantic Yards, added, “There obviously needs to be more transparency with respect to this project.”