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
SNAPS

Crains New York - August 12, 2013