By Albert Samaha
By Darwin BondGraham
By Keegan Hamilton
By Anna Merlan
By Anna Merlan
By Tessa Stuart
By Tessa Stuart
By Albert Samaha
Thanks to a deal with the Pataki and Giuliani administrations, The New York Times Company is in line to get a choice midtown property at tens of millions of dollars below market valueand city taxpayers will foot the difference, newly disclosed records show.
Under the deal Governor George Pataki announced December 13, the state-controlled Empire State Development Corporation will use its power of condemnation to take the property from its unwilling private owners and turn it over to the Times for a 52-story corporate headquarters along Eighth Avenue between 40th and 41st streets.
The outlines of the deal were reported in the Times as it developed last year, but a city official's affidavit in a lawsuit and documents disclosed in recent weeks in response to Freedom of Information requests show there are what even the city itself calls "huge" additional costs to taxpayers that officials had not revealedabout $79 million.
The property's present owners charge that the Times used its clout as a powerful newspaper publisher to grab the valuable land away from them through a sweetheart deal with city and state government.
"You just don't think things like that can happen in this country," said Scot Cohen, who runs his family's B & J Fabrics, a garment district fixture since 1958 in a 16-story office building that the Times wants to demolish. "You work hard to build something up, and then someone who is bigger than you can take it away."
The Times denied that the deal was skewed in its favor. "We believe that the deal is a fair one for both sides in light of the benefits the city will receive and the risks the company is taking," spokeswoman Catherine Mathis said in an e-mail interview. She said the Times has risked building even if the real estate market turns down.
But documents show that another developer said he was willing to undertake the risk of building a 50-story office tower on the site with no subsidy on the property's cost. After the Times expressed interest, the city and state abandoned previous plans to seek bids on the property, which is privately owned but in the Times Square redevelopment area.
Instead, the state and city signed off on a sole-source deal in which the Times and its politically connected partner, Forest City Ratner Companies, are to get the property under a long-term lease for $85.6 millionwell below market value, according to an expert at M.I.T. The deal also includes $26.1 million in tax cuts for the Times and a break on payments that substitute for property taxes.
If the court sets a higher condemnation price than $85.6 million, the developers would have to lay out the extra money. But the sweetener in the deal is that the Times and Forest City will be able to deduct the extra cost as an 85 percent credit against the payments they make in lieu of property taxes (called "PILOT"). This means taxpayers will cover all costs above $85.6 million, an amount described as "huge" in a city memo.
Just how "huge" a windfall city officials expect to give the Times has been a carefully guarded secret. Both the city and state economic development agencies have declined to answer any questions for this article and refused to release property appraisals. The Times said it did not do an appraisal.
But in an affidavit filed at state Supreme Court in Manhattan, city Economic Development Corp. senior vice president Raffaela Petrasek confirmed that city officials expect the Times to get years of subsidies from the city treasury to pay for the high cost of its land deal.
Petrasek did not quote a dollar figure, but admitted that the Times and Forest City would be able to reduce their PILOT payments for up to "six years after the construction of the project was completed."
The payments, after phasing in for the three to four years the deal permits for construction to be completed, run about $14 million a year. The developers' 85 percent break during this span would be worth at least $79 million, an attorney for the opponents said. The Times and Forest City get to charge interest on the money they advance above $85.6 million, and it's subtracted from the PILOT.
Despite the high price tag, Petrasek contends in her affidavit that the deal is justified because the city would still get much more money in PILOT payments in the long run than it now collects in property taxes on the site.
But that ignores an alternative: Another developer, Gary Barnett of Intell Management and Investment Company, said he had offered to build a 50-story office tower on the site without the "cap" the Times is getting.
State officials have questioned whether he could deliver, but Barnett responds that his company developed the 50-floor Planet Hollywood building in Times Square without a public subsidy.
The site, as seen from Eighth Avenue and 40th Street
photo: Stefan Hester
William Stern, chairman of the state economic development agency in the mid 1980s, said he also believed the property was worth far more than the Times will pay. He said anything over $85.6 million becomes "a direct subsidy from the treasury," and called the decision to cap the cost "bizarre."