Home MTA Economics Sweetening a sweetheart deal

Sweetening a sweetheart deal

by Benjamin Kabak

While this morning, I wrote about the naming rights aspect for the MTA’s restructured deal with Bruce Ratner for the Vanderbilt Yards land. For posterity’s sake, let’s go over just how much sweeter the MTA has made this sweetheart deal.

The short of the backstory is that Bruce Ratner doesn’t have the money to build much of what he wanted to build at Atlantic Yards and can no longer afford the below-market rate of $100 million for the Vanderbilt Yard land rights. He also can’t afford the $225 million state-of-the-art train facility he originally promised.

So what did the MTA do? Well, instead of opening up the process to a new round of bidders and requests for proposals, the agency has simply sweetened the deal for Ratner. Instead of a lump sum payment of $100 million, he will pay just $20 million upfront and cover his purchase in installments totaling $80 million over the next 22 years. He will pay $2 million a year from 2012-2016 and then $11 million a year for the following 15 years. Instead of a $225 million rail facility, he will supply one with three-quarters of the original plan capacity for $150 million instead.

As you can imagine, reaction from the MTA Board members and Atlantic Yards critics bordered on the incredulous. Whether the full board supports this project tomorrow remains to be seen.

“It is one month shy of four years since the board accepted Forest City Ratner, and this committee is being given less than 48 hours to understand a complex transaction,” MTA Board member Doreen M. Frasca, said. “I think that’s pretty outrageous.”

Various groups are planning to file suits to stop this new deal from going through. They probably face an uphill battle, but then again, so does the MTA. During an economic crisis, they’re relinquishing land and a rail facility for a below-market payment. The trains might run on time, but public opinion will not smile upon this sweeter sweetheart deal.

In the end, as some critics called it a “bait and switch” by Ratner, MTA CFO Gary Dellaverson had the final, understated word: “It’s not quite as good as we hoped.” And that was a choice made by the MTA with which it will have to live for a long time.

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Ariel June 23, 2009 - 1:00 pm

Despite the reduction in price, I think this will benefit the MTA in the long-run. The Atlantic Yards project is expected build a lot of new housing near the Atlantic Ave/Pacific St station. This will mean thousands of new transit-oriented residents using the system and paying the fare.

I think the MTA should continue to do projects like this that increases ridership and moves the city to become more mass transit oriented.

AlexB June 28, 2009 - 10:28 pm

the development can happen regardless of ratner. the only difference is that the mta gets less cash. it does not help help the mta in the long run, it’s just bad business.

paulb June 23, 2009 - 1:22 pm

Ratner’s renegotiating. Ho hum, so is everyone in real estate right now. His original bid came during a bubble, perhaps it is no longer realistic. BUT, at some point in a situation such as this, one says, or should say, “whoa, back to the drawing board.” The money’s not there anymore, the distinguished architect isn’t there anymore, the unconventional arena is not there anymore, the commercial tenants originally envisaged are probably not there anymore. Everyone talks about “architectural context,” well, I’m not in a hurry to construct an Atlantic Yards whose architectural context is the Modell’s Sporting Goods/PC Richards across the street, and I am a neighborhood resident.

Marc Shepherd June 23, 2009 - 1:30 pm

It’s a tough call. I don’t like the deal Ratner is getting, and I don’t like the dialing down of the original concept. But to some extent the world has changed. If the deal is scuttled now, finding a better one could take years. Remember, this is the site where Walter O’Malley wanted to build a new stadium for the Dodgers, and 50 years later we’re still talking about it.

brokeland June 23, 2009 - 2:38 pm

“I think the MTA should continue to do projects like this that increases ridership and moves the city to become more mass transit oriented.”

Ratner plans to build 4,000 parking spots.

Kai June 23, 2009 - 6:25 pm

Most of the cars occupying them probably won’t move Monday to Friday.

Cen-Sin June 23, 2009 - 3:23 pm

I just want to know why the MTA would accept such a deal. Is someone else pulling the strings, or are they somehow convinced that it’s the best deal ever?

rhywun June 23, 2009 - 8:50 pm

Ratner’s pulling the strings. Dude has buildings all over downtown Brooklyn, and a ton of power

The Secret Conductor June 24, 2009 - 12:29 am

I think comment 3 sums it up. It would be years before someone else bids on the site.

as much as I do not like how the whole thing went down, I still think if they had a chance to start building earlier we would have the Nets, new stores, new businesses and more. now we have a blank lot.

George June 24, 2009 - 8:56 am

Like others have already said, its fine and dandy to say that MTA could just wait for a better deal. But the fact is, in this city, it takes a lot of time and effort to even get a developer to the stage where they are ready to build. Sure, they could put it back out for bid, but which developer would have the financial backing to finish the project? Not many that can, and of those that can, not many would do it in a place like Brooklyn.

Keep in mind that the main reason why this site hasn’t been built on for such a long time is because of the hefty upcharge to build the gigantic platform over the railroad tracks. It really limits the options that are out there, and MTA does need a bit of revenue NOW, no matter how much revenue they would be getting.

Fact is, Forest City is their best bet, and if the NIMBYs hadn’t been prolonging this process, MTA would have received their money already and we would have gotten better architecture, but that’s not the case. And if the MTA didn’t do this deal now, then they’d have to wait a loooong time for something else to come through.

Benjamin Kabak June 24, 2009 - 9:00 am

MTA does need a bit of revenue NOW, no matter how much revenue they would be getting.

I’m not a fan of this argument. The MTA needs to cover a $1.8 billion deficit. The $20 million lump sum they are going to get from Ratner now hardly makes a dent. Considering the de minimis nature of this payment, why squander a real estate asset now?

George June 24, 2009 - 11:26 pm

And a $100 million lumpsum payment upfront wouldn’t have made much of a dent either. Both ways, it’s still much needed revenue for an agency that needs a constant infusion of capital.

Fact is, it’s a nice piece of real estates, sure, but the window of opportunity to build on a project with this type of complexity is narrow, so it definitely is no definite source of future income had they did decide to forego this particular opportunity.

Alon Levy June 25, 2009 - 4:54 pm

George, the alternative is not $100 million, but $150 million, which was the bid competing with Ratner’s. What’s the point of an auction if you’re selling to the lowest bidder?

AlexB June 28, 2009 - 10:32 pm

I agree with this comment. Ratner was favored for his proposal and connections, not the price he offered. Considering his proposal has been revealed to be totally crap, why do this dude any favors?? The whole thing is very sad. I hate to say it, but people are going to be staring at this thing for at least 4 decades waiting for the day it can be replaced.

Ed June 24, 2009 - 9:52 pm

As Nicole Gelinas pointed out, the beauty of this is that the MTA is borrowing money at a fairly high interest rate, then turning around and in effect loaning to Rattner at 6%.

Its pretty obvious someone was paid off to push through this deal.

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