Crains New York - August 12, 2013 - (Page 12)
OPINION
W
hile the fiscal challenges awaiting New
York’s next mayor have been well documented,ideas for solving them have been in
short supply.The most-discussed prescriptions entail raising taxes, cutting services or
some combination thereof. But one idea that has not yet been
considered is tapping the city’s vast real estate holdings—a move
that could generate billions in ongoing revenue that would
otherwise only materialize through
painful tax hikes or spending cuts.
In the past, the city worked with
such public entities as the Battery
Park City Authority, the 42nd
Street Development Corp., the
Roosevelt Island Operating Corp.
and the old Urban Development
Corp. (now the Empire State Development Corp.) to sponsor the
for-profit development of these and
other tracts of land. This was done
at a time when the private sector
needed a push to build on them.
Developing these areas was
made possible through the use of socalled ground leases, in which the
public authorities and corporations
retained title to the land and were
exempt from paying real estate, sales
and use taxes (a status they continue
to enjoy today). This special tax
treatment enabled them to provide
incentives to spur development. In
exchange, they received ground
rent, payments in lieu of taxes and
COMMENTS
Continued from Page 10
not proceed smoothly. They falter
because of suddenly weakened
financial backing, technical
complications, community
conflicts, weather, accidents, labor
unrest and, in general, the
unforeseen. A factory with a
sudden accumulation of enormous
manufactured components that it
cannot ship on schedule is a factory
that is doomed. A large number of
people learned the hard way that
creating buildings is very different
from manufacturing cars.
—samuel c. florman
Chairman, Kreisler Borg Florman
General Construction Co.
DIVERSIFYING BOARDS
Reading “So many nonprofits, so
few board members” (Crains
NewYork.com), I was struck by
how often we hear a similar refrain
from corporations and nonprofits
we work with: They too cannot find
board members, especially among
women and professionals of color.
Often, we assemble boards from
the limited circles of our networks.
The result? Not much diversity. A
study by the Urban Institute found
that, on average, people of color
hold one in seven nonprofit board
seats.
other perks, such as profit-sharing
arrangements that covered the costs
of those tax incentives.
In these ground-lease arrangements, tenants are given control of
the land for long periods of time in
exchange for developing and improving the properties. At the end of
the lease, subject to the exercise of
any purchase option, control of the
land reverts back to the city. These
arrangements enabled the city to
promote development in areas like
Battery Park City, Times Square
and Roosevelt Island that were once
barren or in need of redevelopment.
Those three areas are now thriving.
The value of this land is significant, especially in prime Manhattan
locations like Battery Park City.
Whether it is because of the declining value of the euro, the United
States’ relative financial stability or
low interest rates, there is substantial
global demand for investment in
Manhattan real estate and, in particAt the Council of Urban
Professionals we help match women
and professionals of color with
board memberships. We’ve learned
after more than 100 placements that
a diverse board helps institutions
align with the communities they
serve while promoting new leaders
who bring access to new networks
and donors, and offer fresh
perspectives on old problems.
—chloe drew
Executive director
Council of Urban Professionals
LINKING BIZ AND EDUCATION
Re “Businesses get call to help
black students” ( July 29): It’s
more important than ever for
business to engage with schools in
a meaningful way. It’s why
PENCIL exists—to bring together
business and education skills to
improve school and student
performance.
Eagle Academy for Young
Men and P-TECH are great
examples of effective schoolbusiness collaboration. Through
PENCIL, businesses are working
with more than 300 schools across
the city to create positive change.
I encourage business leaders to
think broadly about how to engage
schools and students. College and
career readiness is just one facet of
it. We help bring businesses
12 | Crain’s New York Business | August 12, 2013
together with educators to improve
family engagement, develop the
leadership capacity of principals
and maximize existing school
infrastructure to improve learning.
There’s an unparalleled wealth
of skills, talent and passion in our
city’s businesses. They represent an
untapped resource that all of us—
schools, business, nonprofits and
policymakers alike—should
channel to help our schools.
—michael haberman
President
PENCIL
Junior Achievement works with
more than 200 schools throughout
New York City and Long Island—
institutions like the Eagle Academy
and others that serve high-needs
students—to make a real-world
connection between school and
future success. Each year, nearly
4,000 professionals from Fortune
500 companies and new-economy
enterprises alike volunteer their
time, energy and expertise to
impart lessons on financial literacy,
entrepreneurship, and college and
career readiness to more than
65,000 K-12 kids. We are right
now recruiting next year’s mentors,
and welcome any new companies
that would like to participate.
—joseph a. peri
President
Junior Achievement of New York
buck ennis
Sell city assets
to ease fiscal woes
ular,ground-leased properties such as
those owned by public authorities and
corporations.
It’s not hard to see why: Real estate is a safe place to store wealth and
earns a better return than the
T-bond.The market views the rental
payments under the ground leases as
a fully secured priority payment
stream,enabling the city to monetize
them in a way that could yield values
of at least 20 times the gross amount
they receive annually as rent.
These leases are the equivalent of
very high-quality long-term bonds,
because the high-rise buildings and
other improvements that are made
to the land secure the rental payments under them. Thus, if the tenant defaults in paying the rent under
the ground lease, it risks all of its investment in those buildings as well
as those of its leasehold mortgage
lenders.
As such, these ground leases are
extraordinarily valuable and can potentially yield substantial sums of
money that can satisfy the city’s immediate and longer-term budget
priorities.
In addition, many existing
ground lessees, such as co-op and
condominium building owners or
the owners of premier properties
like the World Financial Center,
might wish to buy fee title, which
would give them absolute ownership over the property. The lowinterest-rate environment would almost certainly encourage such
purchases, and the Federal Reserve
seems poised to keep these rates
down for the foreseeable future.
All this means that the approximately $248 million of net rents re-
ceived by the Battery Park City Authority from the ground lessees
could conservatively yield almost $4
billion in net proceeds after paying
off the bonds—and conceivably
much more.
There are several other standalone ground-leased developments
that are on land beneficially owned by
the city. These properties include the
Grand Hyatt Hotel, adjacent to
Grand Central Terminal, as well as
other large-scale developments along
West 42nd Street in the Times
Square area that are now home to
high-rise office towers and a hotel.
According to its 2011 financial
report, the New York City Economic Development Corp. earned about
$172.4 million in rent from projects
like MetroTech and the former Albee Square Mall (now City Point) in
Brooklyn and the 42nd Street redevelopment, which means that these
properties could return more than
$3 billion in revenue. The Brooklyn
Army Terminal, a 3 million-squarefoot complex on 97 acres, is likely
worth at least $300 million and potentially much more if the city permits development on the land.
Remember, these are not city
parks or government buildings.
These are for-profit developments
that once upon a time needed government help to get done. The government’s role is now over, and, for
the most part, was extraordinarily
successful.
The moment is ripe for the city to
start monetizing some of these hidden real estate assets. This kind of
taxpayer windfall would have a dramatic impact on the city’s finances—
not just with regard to containing
the city’s looming debt crisis but also
for making investments in education,housing and other areas that are
needed to secure its future.
It’s time to cash in some chips.
Leonard Grunstein is an expert in real
estate finance who worked on the original
ground-lease deal for Battery Park City
as well as on other public-private projects.
in the city.
CRAIN’S READERS WEIGH IN ON WEINER
ANTHONY WEINER’S political comeback has been the talk (and tweet) of the town
since recent revelations that he continued to sext various women after he resigned
in disgrace from Congress. In Crain’s online polls, readers have eagerly registered
their views on the mayoral candidate’s tribulations.
July 24
Should
Anthony
Weiner
quit the
mayor’s
race?
Yes. (58%)
No. (42%)
1,240 votes
July 25
Is Huma Abedin
right to remain
loyal to husband
Anthony Weiner?
Yes. (7%)
No. (40%)
None of my business.
(53%)
384 votes
July 29
Who is the biggest beneficiary of
Anthony Weiner’s problems?
Republicans. (45%)
His Democratic
opponents. (35%)
The media. (14%)
Eliot Spitzer. (5%)
Someone
else. (1%)
381 votes
Aug. 6
Whom would you kick off the island
of Manhattan: A-Rod, Anthony Weiner
or Eliot Spitzer?
Anthony
Weiner.
(59%)
A-Rod.
(21%)
Eliot
Spitzer.
(20%)
378 votes
newscom
LEONARD GRUNSTEIN
FROM THE GROUND UP:
Ground-lease arrangements
helped the city promote
development in such areas
as Roosevelt Island.
http://www.NewYork.com
Table of Contents for the Digital Edition of Crains New York - August 12, 2013
IN THE BOROUGHS
IN THE MARKETS
THE INSIDER
SMALL BUSINESS
BUSINESS PEOPLE
OPINION
STEVE HINDY
GREG DAVID
REAL ESTATE DEALS
REPORT: SPORTS BUSINESS
FOR THE RECORD
CLASSIFIEDS
NEW YORK, NEW YORK
SOURCE LUNCH
OUT AND ABOUT
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Crains New York - August 12, 2013
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