At the time, the city was considering landmark status for the plant's 1880's-era refinery. Preserving the structure - while building several towers around it - would undoubtedly drive up costs for the site's for-profit developer, Community Preservation Corporation Resources (CPCR), the development arm of the Community Preservation Corporation (CPC), a not-for-profit mortgage lender.
So HPD wanted to know if a more expensive project remained viable.
Working alone, without the developer’s knowledge, HPD drafted a document detailing four possible variations for a redevelopment of the sugar plant. Each scenario outlined different amounts of overall units, affordable housing, and density levels. The analysis also estimated potential costs and profit margins to go with each version.
The document, “CPC Domino Refinery HPD Waterfront Analysis,” which is dated October 18, 2006, and was obtained by this paper, provides the first glimpse of the financial underpinnings of the second largest development project in Brooklyn.
The current plan winding its way through the city’s land use review process would replace the shuttered sugar plant with a 2,200 to 2,400-unit complex of buildings, reaching heights of up to 30 and 40 stories, on a rezoned parcel of land along Kent Avenue, at a cost of $1.2 to $1.5 billion. CPCR is planning to make 30 percent of the units affordable to low and middle-income families.
In its report, the city estimated CPCR could make $382 to $447 million on the project, called New Domino, for a return on cost of 42 to 50 percent, depending on how it was built.
This new information raises questions about the developer's insistence that New Domino must be so large in order to provide the promised-for level of affordable housing. Elected officials and community groups opposed to the project's size say it could be made smaller and more affordable, and have less of an impact on the Williamsburg neighborhood.
However, understanding the now-outdated document in full is fraught with complications.
For starters, the estimates were very narrow in scope. They represent rough internal guesses produced by HPD without direct consultation with the developer for the express purpose of gauging the impact a landmark designation might have on the redevelopment of the 11.2-acre waterfront property.
They were based on a real estate market that has since taken a terrible nosedive, and include one scenario, to not preserve the refinery at all, which is not being considered. Also, they do not take into account a range of development costs associated with a project of that scale.
The developer was quick to point these things out: Susan Pollock, project manager for New Domino, said in a statement that the report “in no way reflects our current project and is incorrect throughout as to size, design, and program.”
In an interview, Holly Leicht, HPD's deputy commissioner of development, said the estimates the city made were “based on assumptions that would have been aggressive even at the height of the real estate market and are a complete fiction today.”
She added that the analysis “was not a reflection of their proposal then, much less today.”
However, given the report's title names the developer's parent company and specifies it is an analysis of the company's Domino proposal, it's fair to assume the report had CPCR's project in mind.
And its precise design numbers appear to contradict Pollock's assertion that the current project is so different from the one envisioned in the analysis made four years ago.
In fact, New Domino’s scope has changed very little over time, if at all, since Michael Lappin, CPCR's president, formally announced it in July of 2007, three years after the site was acquired for redevelopment.
Then, as now, the plans have called for at least 2,200 units, of which approximately 660 would be set aside as affordable at below-market rates. The current proposed Floor Area Ratio (FAR), which determines density levels, is 5.7 for most of the site.
The four scenarios in the analysis - labeled in alphabetical order starting with A, and designed to suggest different preservation options for the refinery, as well as sizes for the surrounding buildings - fall extremely close to those figures, though none match them exactly.
For example, the total number of units in each scenario is 2,091, 2,382, 2,096 and 2,134; the number of affordable apartments is 714, 700, 630 and 630 (equaling affordability components of 20 to 34 percent); and the FAR ranges from 5.25 to 6.0.
Given the city’s eventual decision to landmark the refinery, and the developer’s subsequent preservation design for that building, the current proposal’s physical dimensions can best be compared to a hybrid of all four scenarios, taking elements of one, such as Scenario B’s 29 percent affordability level, and combining it with others, like Scenario D’s multi-level build out on the preserved refinery’s rooftop.
Averaged out, a composite of all four figures yields one that is nearly identical to the current proposal: 2,175 units, including 668 affordable ones, with an FAR of 5.6.
If, as the city argued, the analysis was made to determine the impact and costs of a potential redevelopment of the sugar plant site, and was not done using CPCR’s specific proposal in mind, it was certainly made using a mock development model that resembled the real thing.
Then there is the question of money.
Clearly the real estate market has changed dramatically for the worse since the cost estimates associated with New Domino were made in 2006. Those were based on the sale of market-rate units priced at $900 per square foot, a general valuation of North Brooklyn waterfront property that HPD characterized as “aggressive” even then.
That figure has since dropped to somewhere between $650 and $700 per square foot.
In multiple conversations over a two-day period last week, after the developer was shown the city’s analysis (it is important to note that not even CPCR had seen the in-house report until then), Pollock and Lloyd Kaplan, the preservation corporation’s spokesperson, argued that present market conditions render 2006 revenue estimates entirely out of reach. And in private, city officials agree no developer right now could hope for a profit margin exceeding 40 percent.
This is true, but it ignores a greater point: the residential real estate market is not stagnant. It is recovering, albeit slowly, and will improve - if not next year then at some point in the future.
“Sales are picking up slightly,” said Lucien Savant of the National Association of Realtors, “which is having an effect on housing inventory, which is starting to stabilize housing prices.”
CPCR could not fetch prices of $900 or even $800 per square foot today, but the developer is not building any units today. If the project is approved by the City Council, construction would not begin for at least three years, and would take ten to 12 years to finish, according to the testimony of the development company's president at the City Planning Commission’s April 28th hearing on the project.
Savant predicted nationwide real estate prices will likely rebound to pre-2008 levels well before that. And several New York City real estate experts who were interviewed for this article said the market in Brooklyn has already started to improve.
The borough's average property value in dollars per square foot has increased over the past year by three to four percent, according to Jack Nyman, director of CUNY's Steven L. Newman Real Estate Institute at Baruch College. “That's a good sign that things are coming back,” he said. “Will Domino do well over the next ten to twelve years? I think it will.”
“At some point the market will be there,” said Ward Dennis, chair of Community Board One’s Land Use Committee. The committee, and later the full board, rejected the developer’s plan to rezone the site for redevelopment. He added, “I assume that if someone comes to us to rezone a property there will eventually be a market for that project.”
And as Assemblyman Joseph Lentol - who has led an unsuccessful community effort to obtain financial information on the project from CPCR - pointed out, the possibility exists that one decade from now, North Brooklyn waterfront real estate could become the hot commodity developers hoped it would be all along.
“By the time this project is finished, the real estate market could be higher than it was in 2006,” Lentol said in an interview. The developer “might make even more money.”
Importantly, the city’s estimate of a profit of several hundred million dollars for CPCR must be adjusted because it failed to include several routine expenses incurred in any development project.
These include pre-development, environmental remediation, and carrying costs, among others, according to Pollock, who also noted that the analysis excludes questions of taxes, and misses the mark on the steep price of preservation. Also, development costs are continually rising.
The estimated profit margin has “absolutely no resemblance to the numbers we’re working with today,” Pollock said in a brief interview shortly after reading the city’s analysis. In the statement she issued the next day she went further, saying, “It is not even considered by the city as relevant to the current plan before them.”
But when asked if comparing the physical scope of the 2006-era project in the analysis with the current proposal was an unfair exercise, city officials speaking on background said it was not.
When asked to provide more accurate data to prove that the city’s estimate was wrong, Pollack refused to do so.
The analysis may represent the city’s rough, snapshot guess of the scale of profit a developer could make on the site, were they to build a project like New Domino. But unless the developer releases more financial information, it will remain the only estimate of any kind on record.
And it sheds new light on a central argument CPCR has used to justify the project’s size: that the number of market-rate units and density levels - which far exceed the zoning requirements put in place in 2005 - are necessary in order to cover the cost of, or cross-subsidize, the 30 percent affordable housing component.
That argument has been rejected by elected officials and community groups who say the project could be smaller, while still providing the same if not higher levels of affordable housing. So far, both the community board and the borough president have recommended that New Domino be scaled down.
Councilman Steve Levin, whose district includes the site, has testified in favor of “real and significant changes” to the proposal, including a reduction to 1,600-apartments, an amount that would drive the 660 affordable units to the 40 percent threshold. His vote could prove crucial when the project goes before the City Council.
Earlier this year, Levin negotiated an agreement with the developer of Rose Plaza, a smaller waterfront project near New Domino, that reduced its overall size while slightly increasing the amount of affordable housing.
The deal cost the developer, Isaac Rosenberg, untold millions in profit, but was hailed as a victory by neighborhood and housing activists. It showed that large-scale developments on the Williamsburg waterfront remain profitable and worthwhile even if developers are pushed to accept smaller profits than originally anticipated.
Indeed, one major Brooklyn developer, who spoke on the condition of anonymity, said that in good times developers hope to make back 20 percent on big projects. “But in the last number of years nobody’s making 20 percent,” he said.
“Let them make a profit,” Lentol said of CPCR. “That’s what you have to do in business.” But the community would benefit from a smaller project, he said, one that still allows for a “reasonable” profit for the developer.
In any case, a greater level of transparency on the part of the developer from the start would have helped, he said. “They could have given themselves some credibility if they showed us their figures but they didn’t do it,” Lentol said. “Now we know why.”
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