Thinking about Ratner's Urban Renewal

Julia Vitullo-Martin, May 2004

For awhile there, it looked like huge, centrally planned, government-funded, old-time urban renewal projects were a thing of the past. After all, who would want urban renewal back, given the immense havoc it wreaked in neighborhoods across every borough? These days most everyone agrees that superblocks are bad and normal street grids are good. Nonetheless, destructive government programs don't die. They just retreat briefly before getting dressed up in new clothes - this time as private development.

Take the proposed 19,000-seat Nets arena over the Long Island Rail Road's Atlantic Yards in downtown Brooklyn. Having bought the Nets for $300 million, Bruce Ratner and Forest City Ratner intend to erect the most expensive basketball arena ever built - using something between $10 million and $1 billion in government subsidies for the project. FCR will be able to do this while bypassing - with the support of the mayor and the governor - the standard public review processes required of all normal private development. Zoning lawyer Howard Goldman calls zoning override "a kind of central planning that is the antithesis of private initiative and creativity. If the same geographical area were to be rezoned by the city for as-of-right development, the market would determine" the developers and uses.

But, of course, this is not normal private development because Ratner's partner is the state of New York - the Empire State Development Corporation, successor agency to the old Urban Development Corporation. ESDC wields New York's expansive power of eminent domain - the right of the sovereign to take private property for public use, though "just compensation" must be paid. New York State's peculiar twist on "public use" is that it incorporates just about any use the state proclaims as public - including taking one developer's private property and giving it to another. What's more, private owners get almost no notification that their property will be taken until it is actually condemned.

PRIVATE DEVELOPMENT HAS BEEN WORKING WELL IN BROOKLYN

The $2.5 billion 7.7-million-square-foot project would be built on 11 acres owned by the MTA and 10 to 13 acres of private property that would be condemned by the state and turned over to Ratner. But this isn't just any few acres of private property - this is property in resurgent Fort Greene and Prospect Heights, Brooklyn, where developers have for several years been converting dilapidated industrial buildings, such as the old Spalding factory, into dazzling residences. In other words, the private market has already brought this area back. So here's one thing different from the old urban renewal: there's not even a pretense of blight to justify condemnation and subsidies.

Investor Henry Weinstein, who is the largest property owner likely to be condemned in the Ratner footprint, bought his 7-story, 85,000-square-foot building and adjacent 20,000-square-foot lot in 1986 to develop as a mixed-use project. He rehabilitated the building last year. "I paid market price for my property," he says. "The current property owners are the ones who made the sacrifices over the years to make this neighborhood viable again. We're the ones who restored law and order. But the one who will profit is this interloper, Ratner, who is trying to take away my economic opportunity," said Weinstein. "I've taken the risk - not Ratner."

Similarly, Dan Michaelson, who bought an apartment in the converted Spalding Building in 2002, says, "We pay property taxes and are helping the economy of Brooklyn by doing this. Why should the state of New York demolish our really great, successful mode of development for Ratner's mode, which doesn't take into consideration the character of Brooklyn at all? Our style of development is the kind that should be increased. We've converted the relics of Brooklyn's industrial path into well-functioning condominiums." FCR will seek a 25-year property tax abatement on its new construction, which it rates at $51 per square foot.

Michaelson and his neighbors have formed a group called "Develop - Don't Destroy" to emphasize their support for development, but their opposition to this new form of urban renewal.

DRIBBLE-DOWN ECONOMICS?

Since publicly funded sports stadiums are notorious money losers, FCR hired economist Andrew Zimbalist, a well-known skeptic, to analyze his proposal and reassure taxpayers. The project will make money, concluded Zimbalist, because the housing component will be profitable, off-setting the costs of the arena. "This is not a stand-alone arena," Zimbalist told a Manhattan Institute forum on Brooklyn. "This is a real estate development project." Or, as Ratner himself had told the New York Times in December, the arena would not be "economically viable without a real estate component." And what a real estate component it is: 2.1 million square feet of office space, 4,500 housing units, and 300,000 square feet of retail.

The sad truth is that Forest City Ratner's previous Brooklyn real estate projects have not been economically viable without substantial government subsidies. MetroTech was supposed to prove the viability of a Class A office building downtown. Instead, even with its deep subsidies, it showed only that some private tenants would indeed move in - but that government tenants would have to make up the balance. And all tenants seem to disappear by six at night, leaving the streets sterile and forsaken. The recently constructed 16-story Atlantic Terminal building will be headquarters to the Bank of New York. Whether other private tenants will move into the two floors that are still vacant remains to be seen. The Atlantic Center Mall, which opened in 1966, was supposed to attract fairly high-end retail to replace shabby retail. But erased store names on the dirty concrete entrance are a reminder that the mall's initial promise never paid off. Instead, government agencies have moved into space vacated by private companies. The state's Department of Motor Vehicles, which took space vacated by the Sports Authority chain, is paying $1.6 million a year for its 44,000 square feet, or about $39 per square foot. The Empire State Development Corporation, which moved into space vacated by Macy's, is paying $36,000 a year. (This state largesse is on top of the initial city subsidies of $18.6 million plus a 23-year property-tax abatement.)

Even Ratner recognizes the problems, telling New York Magazine that Atlantic Center "is not something that we're terribly proud of." Nonetheless, he has no interest in using his own property, which runs parallel to the private property he wants the state to give him, to build the arena. Forest City Ratner Executive Vice President James Stuckey told a public meeting in March that building on their own property wouldn't work because it would "require bridging over 350 to 500 feet of Atlantic Avenue."

Meanwhile, small private developers are building new buildings and restoring old ones the length of Brooklyn. As Stephen Raphael, a principal in the Raphael & Marks law firm, told the recent MI forum, "Anybody who has driven around Brooklyn, any place from Williamsburg to Red Hook, knows that every single vacant lot is spoken for. It's either in development or in the process of being built on."

This is not an area that needs government subsidies to promote development.

IF NOT URBAN RENEWAL, THEN WHAT?

The fact is the city has other things it should be doing to restore neighborhoods before resorting to urban renewal. First, the Bloomberg administration should up zone downtown. As the president of the Brooklyn Papers, Ed Weintrob, editorialized recently, "Up zoning would allow current property owners to reap the benefits of their once risky investments and, significantly from a development view, continue the organic growth that has occurred throughout Brooklyn in the last 30 years." He's right.

Second, the city should improve the infrastructure. Downtown Brooklyn is attractive for redevelopment because it is a hub for nine subway lines and the Long Island Rail Road. But as New York University economist Dick Netzer recently said at the MI forum, while the LIRR terminal and yards "work passably well, the station itself, the track alignments, the switching, and the power supply remain the run-down assets they have been for years." These could not possibly work for the major changes being discussed regarding access to Lower Manhattan by commuters from Nassau and Suffolk Counties. Netzer calls infrastructure improvements city government's "everyday job."

The only sure test we have for controversial projects is the market. A neighborhood may not want looming new towers, but if they fill up with tax-paying residents and workers, the neighborhood has little cause for complaint. But when the market is undermined by government subsidies - some obvious, some hidden - the justification for a project is no longer economic but political. And that's no way to restore a neighborhood.

WHAT’S NEXT

Unlike comparable private development projects, Ratner's Atlantic Yards proposal does not have to go through the city's Uniform Land Use Review Procedure. Instead, the Empire State Development Corporation is likely to exercise its zoning override prerogative, which means the project will face only one public hearing rather than several. Still, the project has to comply with the state Environmental Quality Review Act, which can prove to be a chancy and lengthy process.

Commissioner David Stern has said that the NBA is likely to approve the sale of the Nets to Bruce Ratner in June. Ratner is hoping that a memorandum of understanding with the state and the city will follow immediately.