By Mary Alice Miller
Details of Forest City Ratner’s proposed joint venture with Greenland Holding Group were revealed in an Empire State Development (ESD) memorandum. The proposed transaction with Greenland would transfer FCRC’s interests and obligations in the Land Acquisition Agreement (including property acquired via eminent domain and reduced payments for MTA property) to the joint venture. The ESD memorandum outlines the proposed terms of the joint venture to complete the Atlantic Yards project including the construction of 15 residential buildings, 8 acres of publicly accessible open space, construction of a new LIRR rail yard and a new LIRR entrance on the southeast corner of Atlantic and Flatbush Avenues.
ESD is currently preparing a Supplemental Environmental Impact Statement (SEIS) to examine the potential impacts of a delay (of up to 25 years) in the construction of Phase ll of the project in compliance with a 2011 NYS Supreme Court order. ESD expects to release that draft of SEIS to the public in the first half of 2014 when it will be subject to a public hearing and comment period after which a final SEIS, with respect to Phase ll, will be prepared.
According to the ESD memorandum, no additional SEIS will be needed to review the impact of the proposed joint venture between FCR and Greenland Holdings, finding that “preparation of an SEIS for the proposed Greenland joint venture is neither appropriate nor in the public interest.” MTA has made the same determination, according to the same ESD memorandum.
In October 2013, Forest City Enterprises (FCE), the parent company of FCRC, filed a notice with the Securities and Exchange Commission (SEC) regarding a nonbinding memorandum of understanding for the proposed joint venture between FCRC and Greenland. According to the SEC filing, Greenland would acquire 70% of the development project (excluding the arena), co-develop the project with FCRC and share development costs going forward at the same percentage interest.
Greenland Holding Group is owned primarily by the Government of China with headquarters in Shanghai. The joint venture would be a Delaware limited liability company.
Under the joint venture’s operating agreement, the joint venture will be managed by a 5-person board of managers, three of whom will be appointed by Greenland and will hold the titles of Chairman, CEO and CFO, and two of whom will be appointed by FCRC and will hold the titles of Vice Chairman and President.
According to the ESD memorandum, decisions of particular importance, including decisions about the commencement of construction of a new project building or component, will require a majority vote of the board of managers including a vote of at least one appointee of Greenland and one of FCRC which, in effect, requires that both Greenland and FCRC agree to such decisions.
It cannot be assumed that the 30%-70% division of interests is a permanent arrangement, particularly if there is a deadlock or if a member fails to meet certain obligations.
FCRC would manage day-to-day activities on behalf of the joint venture which would develop the project in accordance with the 2009 approved master plan.
The terms of FCRC’s partnership have not been finalized. In the meantime, FCRC has requested a certificate from ESD verifying that there is no outstanding default on project contracts and is subject to the court-ordered Phase ll SEIS.
In a December letter in which FCRC explains its position that FCRC may transfer its interests in the development project to the joint venture without ESD’s consent. FCRC asserts: “The transaction and documents effectuating the transaction do not (and do not purport to) change the physical components of the project in any way.”
According to the ESD memorandum, the MTA has informed ESD that it intends to impose certain conditions on any consent it may give to FCRC with respect to the assignment of any rights under the MTA agreements to the joint venture. Such conditions include: maintaining the existing FCE rail yard completion guarantee, a required guarantee from a creditworthy Greenland guarantor, restrictions on removal of FCRC as a managing member of the joint venture exercising day-to-day control over the development work prior to the completion of the rail yard and platform, and Greenland and/or FCRC must obtain all required consents and approvals required by the governments of the United States and the People’s Republic of China.
According to the ESD memorandum, the agency has not yet consented to the proposed transactions with the joint venture between Greenland and FCRC, nor has it determined whether such transactions are subject to ESD consent. ESD’s transactional counsel has examined drafts of the joint venture operating agreement that FCRC is negotiating with Greenland. ESD is currently determining whether ESD consent is required.
The Atlantic Yards development agreement allows FCRC to assign its interests under a development lease to another developer (including a joint venture of FCRC and another developer) in order to allow additional capital resources to flow into the development process, subject to certain terms and conditions.
FCRC has notified the MTA that the proposed joint venture with Greenland would transfer to the joint venture agreements between FCRC and the MTA for airspace above the Vanderbilt Yard, yard relocation and construction, and airspace development. According to the previously contracted agreements between the MTA and FCRC outlined in the ESD memorandum, the MTA may terminate FCRC’s right to airspace if the new LIRR rail yard is not completed by 90 days after Sept. 1, 2016, subject to certain extensions and fees. A temporary yard has been built, but the schedule for commencement of the permanent yard has been modified based upon FCRC’s commitment to continue construction of certain rail yard improvements. Project buildings in and above the new rail yard and platform are to commence after construction of the new rail yard.
Financing of the Atlantic Yards project that would require resources from a developer owned by a foreign government was never considered.
According to the ESD memorandum, “In a prior decision relating to the Atlantic Yards project, the Appellate Division held that a ‘financial inquiry’ into aspects of the project of the kind undertaken by the Public Authorities Control Board is not subject to SEQRA, because this ‘financial inquiry would not have been usefully informed by the SEIS’s account of the project’s environmental effect.’ Thus, the SEIS prepared in 2006 properly did not scrutinize the means by which FCRC intended to finance the project, whether through equity capital, borrowing or via joint venture agreements with other developers. Agencies do not examine this sort of information in the SEIS because SEQRA documents examine the environmental impacts of projects, not the means by which they are financed.”