The abatement-gate fallout

Probe into 421a tax breaks for Extell, Silverstein and Thor will likely zero in on campaign finance reform

From left: Joe Sitt, Larry Silverstein, Gary Barnett and Gov. Andrew Cuomo
From left: Joe Sitt, Larry Silverstein, Gary Barnett and Gov. Andrew Cuomo

The relationship between Albany lawmakers and real estate developers will be thrust into the spotlight this month.

Indeed, the industry is anxiously awaiting the findings of the so-called Moreland Commission to Investigate Public Corruption, which is looking into whether tax breaks were improperly awarded to a handful of high-profile New York City developers for luxury projects.

The commission was formed this summer by Governor Andrew Cuomo after news broke that Extell Development, Silverstein Properties, Thor Equities and other top developers were granted tens of millions of dollars in highly coveted 421a tax abatements, which are intended to spur development in a stagnant market and to create affordable housing.

Those abatements — which were discreetly tucked into a bill signed by Cuomo in January — were granted to the über-luxury condo One57, a planned Four Seasons hotel in Lower Manhattan, and a mixed-use project at 516 Fifth Avenue.

At One57, where penthouses have reportedly sold for $90 million, Extell will save $35 million, according to published reports.

That case incited the most intense outrage among critics — not just because the tower would have risen without a tax incentive, but because Extell associates donated $100,000 to Cuomo’s campaign the same day that a bill allowing the breaks passed.

Adding salt to the wound, three weeks after the bill became law, Extell head Gary Barnett gave an additional $100,000 to a state Democratic Party account that the governor was using to pay for advertising that touts his initiatives, according to published reports.

Now the Moreland report, which is due to be released on Dec. 1, is looking to address some of the quid pro quo behavior between politicians and real estate developers that critics say is taking place behind the political scenes.

Though the commission may issue policy recommendations, sources told TRD it would likely overlook the governor’s role and, perhaps, instead, zero in on campaign finance reform recommendations.

Sources noted that the 25-member commission, which is chaired by Nassau County District Attorney Kathleen Rice, has issued subpoenas to get ahold of “relevant correspondence” between politicians and developers. Subpoenas were issued to Extell, Silverstein and Thor, according to the Wall Street Journal; spokespeople at each of those firms either declined to comment or did not respond to calls from TRD.

(Interestingly, Rice has received more than $100,000 in donations from real estate developers in the last two years, including from RXR Realty’s Scott Rechler and the Feil Organization’s Jeffrey Feil, a review of Nassau County campaign finance records shows. Rice’s office did not respond to requests for comment.)

Nonetheless, the commission, which declined to comment, has not revealed exactly what it has subpoenaed. And the governor’s office deferred questions to the commission.

The public relations nightmare for developers comes at a time when the industry’s influence on city elections has been a prominent topic.

That influence, sources say, was highlighted by the donations made to Cuomo and by the amount of money the Real Estate Board of New York-backed political action committee, Jobs for New York, deployed to support industry-friendly candidates during the most recent city elections.

A politically connected source said a repeal of the so-called LLC loophole, which allows a company to form a number of entities and donate from each of them, is one possible course of action for the Moreland commission.

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“The lowest-hanging fruit might be the LLC loophole,” agreed Brian Paul, policy coordinator at Common Cause, a group that lobbies for government transparency. “That really has no defense.”

According to Newsday, a bid by watchdog groups to have REBNY’s correspondence with politicians subpoenaed was stymied by Cuomo last month. The governor denied ordering any action, the paper reported.

The subpoenas have also spawned at least one legal battle.

Last month the law firm Hiscock & Barclay filed a petition to squash a subpoena issued to a legislator who works at the firm. While it’s unclear who the legislator is, State Senator Neil Breslin and State Assemblyman Will Barclay, both from Upstate, are employed there, according to published reports.

Among other things, the suit argues that the information requested is privileged because the politician is an attorney whose discussions with clients are legally protected.

Some political insiders said they do not expect the commission to push for substantive policy changes, especially since no REBNY communications were subpoenaed.

Richard Brodsky, a former assemblyman and now a senior fellow at think tank Demos, said the commission should be looking beyond just campaign finance.

He said the Moreland commission should also be focused on ethical gray areas like “legal corruption” — the exchange of favors between lobbyists, politicians and business leaders — that while inappropriate, do not technically violate the law. He said campaign support is sometimes exchanged for “contracts or [other] benefits,” such as tax abatements.

But the commission isn’t the only body trying to rein in developers in the wake of abatement-gate.

A bill proposed by Brooklyn City Council Member Diana Reyna last month would require a number of additional disclosures from any developer getting more than $1 million in tax breaks for projects over 100,000 square feet.

Developers, of course, are not happy with this new wave of scrutiny.

They say almost every project gets some type of tax break, and argue that such requirements would lengthen what they describe as an already burdensome process of getting a project approved and started.

Still, critics argue that these types of laws are necessary in an environment where developers regularly, albeit legally, seek political favors.

After a law was passed in 2006 changing some of the requirements to receive 421a abatements, the program, which had helped many boom-time projects get in the ground, was used less often. However, according to Common Cause, over the last 10 years, the use of 421a abatements overall has spiked, jumping from $130 million to $1 billion now.

“421a originated in the 1970s,” Paul said. “It’s a creature that’s kept alive with infusions of real estate money.”