WPCNR QUILL & EYESHADE. News & Commentary. By John F. Bailey. July 4, 2008: Other than the shock of it, the stalling of the LCOR 55 Bank Street project for at least a year due to financial conditions raises long term policy questions. LCOR is usually dependable an has done much good for the city, so when they are telling you they cannot do something. It pays to pay attention. We have absolute faith that LCOR can pull this out. They always have in the past.
The process raises some fundamental questions about what the city should do next, and should be thinking about. What is the city role in development anyway?
And it was a shock. When was the developer planning to tell the city they were having a problem financing the $300 Million project – all 586 Units of it? When did the Mayor know about it? When did he tell the Common Council? Perhaps the city should demand all land purchase money upfront from now on. Can we taxpayers pay on an accrual basis now, without interest?
The developer three months ago, according to their website, got $61 Million in financing to build an office redevelopment at 545 Madison Avenue in New York City. They were also looking for financing for an apartment complex in Brooklyn the same time as they were going out for our 55 Bank Street project.
Now Wednesday evening, not only do they admit thay did not pay the city the second installment of their land payment on time, but says they cannot get the $300 Million in financing for the 55 Bank Street project unless they get to redesign the project into something completely different in looks, and only have to start it when they get financing for each step of the project. Do they provide a full color rendering and presentation? No. They show a sketch that just shows a rough concept.
Now the city really wants that affordable housing all 107 units of it.
Through this process, the city has bent over to help LCOR, the developer, build this project and LCOR has demanded more and more each step of the way. First the city offered LCOR the commuter parking lot property without putting the property out to bid. The city sought out LCOR to do this project.
The city did this because they said they knew what to expect from LCOR. They were a developer the city could trust was the reason given by the Mayor’s Office.
At the time the project was first presented, LCOR said they did not need a Payment In Lieu of Taxes agreement. Then at the eleventh hour last year, LCOR came in and said they needed a PILOT, and got an 18 year PILOT on the project, and $29 Million of tax abatement, according to the city, $39 Million the way the Westchester County Industrial Development Agency figured it. It seemed that the conditions were dictating that LCOR had to get a better deal, a better deal as conditions in the economy deteriorated. It shows that perhaps LCOR may have wanted to do the deal against their better judgment and in the end, could not.
Now, LCOR wishes to change the project design because the financial markets have changed. This is no addition of one floor to a building; this is a redesign. They also want to split the project into three to four stages, start time dependent on financing for each component. Completion by 2012
The process raises some fundamental questions about what the city should do next, and should be thinking about.
A. Can the city take back the land, paying LCOR back for the land? And throw the area open to other developers? If so, this will immediately create an $11 Million hole in the 2008-2009 budget. The city would have to replace the $5 Million LCOR owed last Monday and the $6 Million they paid last year. LCOR has said that if the city accepts their plan, Lehman Brothers will finance the $5 Million it owed the city last Monday. The payment is of no consequence, it will probably be paid. But what should be future city policy towards selling land?
B. Would LCOR have a reason to go after the city legally for not financing the project with Urban Renewal Municipal Bonds, which the White Plains Urban Renewal Agency did vote to be able to do in the event LCOR could not find financing. LCOR requested this and the Urban Renewal Agency passed legislation enabling the agency to do so. Would LCOR hold the city to that somewhat “just in case,” little discussed option?
Of course, the Urban Renewal Agency might not have to be used. The city could float the bonds on its credit rating that is impeccable according to the city. However is financing a project for a megadeveloper what the city really wants to do just for 107 affordable units?
Renting units in existing apartment buildings in the city would be cheaper than building them, wouldn’t it? As WPCNR has pointed out in the past the cost of building affordable housing units approximates building market rate luxury units.
C. If the city decided to finance 55 Bank Street in its entirety to “get it done,” they would be raising the city outstanding debt from $55 Million in current projects (in the current budget) to close to $400 Million at much high municipal rates than the past.
This might be a politically correct move to the financially clueless Common Council. One wonders about the wisdom of financing the entire project for them with the city holding the bag. Perhaps the Council could finance a combination of the project with other partners
However, the possibility of the city self financing to get a project done is not without precedent. The city financed $23 Million for the City Center Garage when Cappelli Enterprises said they could not finance the entire garage. Cappelli Enterprises eventually did finance $47 Million of the City Garage through the Westchester County IDA.
Interesting possibilities.
D. Does this invite a strong legal challenge to the city affordable housing requirements in light of the sharply increased “buyout options,” and restrictions it puts on developer profits?
E. LCOR is the third developer in the last two weeks ago to say they cannot make an affordable housing, market rate combination building work in today’s market. Is this time to scrap the affordable housing set aside, because it does not work financially? Is it time to meet with developers and do some hard economic research as to what builders can afford to build? The old model the city created no longer works because financial benchmarks are obsolete due to the snowballing inflation of construction costs.
The only affordable housing units that have opened in the last four years in White Plains are the Horton Mill project at Silver Lake, (17 units), a small $7 Million project that took six years to build; The Avalon project was a buyout; and Bill Brown’s Senior Housing was built at a cost of $14 Million, at close to $280,000 a unit.
Isn’t it about time the council did some serious economic studies of the affordable housing requirement to see if it is realistic for developers, setting a floating percentage rate of number of affordable units, might be more intelligent than the flat 10% rate passed this spring in the face of a deteriorating economy I might add. The affordable housing law was a poorly conceived, poorly timed, politically motivated, not thoroughly researched piece of legislation. (But what else would you expect from the White Plains Common Council which sometimes seems to operate unaware of what is happening around them. They have to pay more attention when creating legislation.)
That a developer the size of LCOR has essentially told the city the 55 Bank Street project is unworkable by their numbers is showing you that the city affordable housing law is poorly conceived and does not fit the way the marketplace and the construction community works.
LCOR has come in with a redesign that essentially cuts the cost of the project (one long high building, and one short one).
F. Perhaps it is time for the city to stop cutting deals to favored developers and put properties out for open bids and put out Requests for Proposals.
But, that would require the Mayor’s Office to discuss future development with the Council in advance, and follow the Comprehensive Plan, either revised or updated or whatever. The point is the Council is completely devoid of planning or thinking about the city. They go in two or three times a month, listen to uninformed political cronies and make decisions that they think are politically correct no matter how nasty, unworkable, or apparently even legally suspect they are.
The council actually refused to explore development possibilities when they refused the designation of a possible developer of the Station area.
Now, that developer, Louis Cappelli, a man of action with the ability to maneuver his company in the currents of the markets, is thanking the Council for voluntarily relieving him of the duty for studying development possibilities in White Plains. But it should be noted, Mr. Cappelli gets financing. LCOR did not.
G. The No Development Era Begins?
Thanks to the affordable housing law, it can be argued that developers now have an excuse to develop Stamford, New Rochelle, Mount Vernon, Yonkers, Ossining and other communities before considering White Plains. There is, with the exception of the Silverman property, nothing happening in new construction in White Plains.
Who will develop the White Plains West Side renovation now that Mr. Cappelli is in the money in the Catskills?
Another thing that happened this week was the Longview Avenue Garage WPCNR was told by the Mayor’s Office, is completed and the White Plains Hospital Center could begin using that garage for parking next week. Groundbreaking, according to City Hall, for the Kensington Assisted Living building to be built on Maple Avenue has been postponed. There’s also the senior assisted living project in Scarsdale that the city is fighting
As the state shows no inclination to stop its spending, and neither does the county, the city faces major tax revenue increases over the next four years with no increase in revenues except for inflation. Without more development, the city ability to add to its tax base disappears. Since the council in their lack of financial oversight has failed to deal with containing costs and stopping assessment drains, and has inhibited developers with the affordable housing set aside policy, made abundantly clear by three developers in two weeks, the White Plains Renaissance has ended.
What will be the Mayor’s and the Common Council “stimulus package?”
