A proposal to extend Liberty Bonds past 2004 could be realized by the first half of this year. But the issue of allocating more of that money to residential development in Lower Manhattan might be a slightly tougher sell.
A request made last October to the authorities in Washington by Governor George Pataki and Mayor Michael Bloomberg seeking to extend the program for five more years is receiving serious consideration and will probably be granted, predicts the Real Estate Board of New York, one of the strongest backers of the proposal.
“It should happen hopefully in the first half of 2004,” said Steven Spinola, president of REBNY.
The $8 billion program, introduced in July 2002 with the authorization of Congress, is set to expire in December 2004 and allocates $1.6 billion to residential development and $6.4 billion to commercial development. But the current proposal from the New York officials seeks to extend the program to about 2009 and to authorize local authorities to decide how to slice the pie themselves.
Since there has been more demand for residential than commercial development since Sept. 11, REBNY is proposing increasing the allocation for residential development from $1.6 billion to $3 billion. “We believe the city and state should have flexibility to decide that a few more residential projects might be better,” said Spinola.
But that proposal is drawing criticism from a powerful corner – Senator Charles Schumer, who recently said he doesn’t think Liberty Bonds should be used for residential projects downtown.
At a recent forum held by Crain’s, Schumer said new apartment buildings and conversions could be financed privately and Liberty Bonds should be devoted to commercial projects citywide that would create jobs.
Schumer said he “feels strongly that the Liberty Bonds should be used primarily to create jobs by encouraging the construction of new offices and new businesses.”
He also said the city needed to be more creative and innovative in seeking different industries, citing the development of biotech facilities in Cambridge, Mass., as an example.
Schumer also added that there are already many other residential areas of the city – like Harlem, Williamsburg, Astoria and Ft. Greene – that were undergoing a “renaissance” while job growth in the city has not kept pace.
Schumer’s position stands in opposition to REBNY’s. In response, Spinola was quoted saying, “we will convey to the senator that we believe there needs to be flexibility for the city and state to make the call” about how to spend Liberty Bonds.
Earlier, Spinola also mentioned concerns about possible opposition to the extension proposal from other parts of the country whose representatives might prefer other uses for the money. “I don’t see much opposition yet, but you never know in Congress,” he said. But Spinola said he remains confident of the success of the extension “because this is not a new allocation but an extension of timeframe to utilize the money.”
Those who differ with Schumer might say that with a 15.6 percent vacancy rate downtown (according to recent figures from CB Richard Ellis), there is not enough demand to build new office space, even taking into account a recent plan by Goldman Sachs to build a 1.5 million sf tower in Lower Manhattan, directly across from Ground Zero.
But residential demand has been high. Tracy Paurowski, a spokesperson for the New York Housing Development Corporation (HDC), one of the agencies that administers the residential portion of the program, said that so far “demand is greater than availability” for residential development funds. Of the $800 million being administered by her corporation (the other $800 million is distributed by the Housing Financing Agency), Paurowski said that the HDC has so far issued bonds for about $377.6 million on three projects at 2 Gold St., 90 Washington St. and 63 Wall St. Many applications remain in the pipeline.
Michele deMilly, a spokesperson for commercial property developer Forest City Ratner Companies, had a similar take. “I’ve not heard of many commercial projects using Liberty Bonds because the commercial market is still sluggish and projects are taking longer to put together,” she said, contrasting the “considerable slowdown in commercial development” to the “broader market for housing in New York.” She said her company is initiating a number of residential projects that might benefit from Liberty Bonds financing.
In terms of residential development, Paurowski noted that the larger share of the bonds issued by her office have gone to developers converting vacant office space to residential development rather than to those doing new construction or renovation of existing buildings. Under the program guidelines her office uses, all residential projects seeking bond financing must be multifamily rentals located in the Liberty Zone below Canal Street between the two rivers. Condominiums and coops are excluded.
Whether or not the residential portion of the funds is adjusted, though, there seems to be broad support for extending the program past 2004. Spinola raises the point that it will likely take a decade or two to fully rebuild Lower Manhattan. Importantly, the last project on the 16- acre WTC site won’t start prior to 2009 and will likely go on until 2015, according to developer Larry Silverstein’s estimates.
Besides becoming the predominant financial vehicle for companies to invest in Lower Manhattan, Spinola also mentioned the many construction jobs created by the 3,000 housing units going up in Lower Manhattan, as well as the 7 World Trade Center building and the Bank of New York building in Brooklyn.
For all the unanimity about the program’s value, some reservations have also been expressed about the wisdom of allocating some of the money, a $2 billion slice, for projects outside Lower Manhattan. Some of this money has already gone or may soon go to deMilly’s organization, Forest City Ratner Companies, notably for the Bank of New York office building in downtown Brooklyn and The New York Times building in midtown Manhattan. Douglas Durst has also snagged funding, for the Bank of America building in midtown.
While there was some contention over funding those buildings, a more recent project that has received Liberty Bond funding has generated much more controversy.
SCS Energy recently received initial approval for $400 million in Liberty Bonds for its planned 1,000-megawatt power plant in Astoria, contingent on the company raising the remaining $450 million needed for the project.
The decision to fund the project was called a “misuse” of funds and “Liberty Bond pork barrel” by several Democratic lawmakers, one of which said they planned to file suit over the decision.