Saturday, November 24, 2012

Forest City withdraws suit challenging property assessments, claims mistake; but was it an effort to save not on arena but on other Atlantic Yards buildings?

Forest City Ratner has withdrawn its odd challenge to the city's valuations of its Atlantic Yards properties, claiming the whole thing was a mistake. Or, perhaps, it wasn't, as I suggest below.

As reported by DNAinfo.com, which broke the original story:
In a letter sent to the city’s Law Department and Finance Department on Friday, FCR said it goofed on challenging the appraisals of the Barclays Center and other developments on the 22-acre Atlantic Yards property.

“In challenging the assessments on Forest City properties, petitions on its arena and B2 sites were inadvertently included,” the letter said. “Forest City has instructed our attorneys to discontinue these petitions immediately.”
(The New York Post also followed up, not crediting the publication that came first.)

Update: the letter mentions only those sites. So apparently challenges to assessments on other Atlantic Yards sites continue. Also, given that the letter mentions buildings rather than tax lots, it seems aimed mainly to the media.

Bizarre mistake

It's a pretty bizarre mistake, on a couple of levels. First, they're not paying taxes on tax-exempt land for the arena, just PILOTs, payments in lieu of taxes.

Second, these people are professionals--they're supposed to do better than this.

Looking the wrong way, at least for the arena?

Third, and probably most important, the issue for Forest City Ratner has long been whether assessments were high enough to generate sufficient PILOTs ) to pay off tax-exempt bonds, an issue faced by Yankee Stadium, and why assessments were once dramatically increased.

That's likely part of why only $511 million in tax-exempt bonds were issued, rather than $678 million as once contemplated--a figure the Independent Budget Office in September 2009 suggested could not be supported by PILOTs. As the IBO stated:
If a PILOT is to be used for debt service, it cannot exceed the regular property tax that would apply if the property were not tax-exempt. Concern that a PILOT be high enough to cover the debt service can result in the unusual situation of a property owner hoping for a higher assessment.
Financing plans for the arena

From the Atlantic Yards 2009 Modified General Project Plan, regarding the arena:
ESDC will retain ownership of the land upon which the Arena will be built through the initial term of its lease to the LDC, and, under the financing arrangements described above, ESDC or the LDC will retain ownership of the Arena during the initial term. As a result, the land and improvements will be exempt from real estate taxes throughout the initial term. ArenaCo would enter into a payment-in-lieu-of-tax ("PILOT") agreement with ESDC and the LDC under which it would agree to make payments not to exceed the amount that full real estate taxes would be if the land and improvements were not exempt from such taxes as a result of ESDC's ownership thereof.
Financing plans for the housing

The same document states:
ESDC will retain title to the land underlying other Project developments through their initial construction periods and will lease development parcels to the individual entities created for each of these developments for $1.00. FCRC shall be required to remit payments in lieu of sales taxes to ESDC under the lease or access agreement for each portion of the Project Site equal to all sales and compensating use taxes, if any, which FCRC would have been required to pay in connection with the development of such portion of the Project Site absent ESDC's ownership thereof, other than the Arena Sales Tax Exemption. After completion of construction, the fee interest to each development parcel will be conveyed for $1.00 to the development entity established for that parcel. Following such conveyance, the conveyed parcel will be returned to the tax rolls and will be eligible for any as-of-right tax benefits for which it qualifies, and the fee owner thereof will be liable for real estate taxes due thereon. 
(Emphasis added)

So, could this whole effort have been a ham-handed way to ensure that taxes imposed on the residential buildings would be reduced?

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