The State Appellate Court has thrown out a lawsuit seeking to block the sale of the Domino Sugar factory, paving the way for the real estate firm Two Trees to close on a $180 million acquisition of the property later this month.
This is beginning to feel like Restler v. Olechowski…
One of Isaac Katan’s two suits seeking to block the sale of the Domino site to Two Trees has been thrown out.
In the decision on Friday, the Supreme Court of the State of New York, Kings County dismissed Katan’s suit against CPC for, among other things, “breach of contract, breach of the implied covenant of good faith.” According to court documents, the decision was based on the fact that Katan “did not have right of first refusal on the property, a contract provision that was not a part of the second operating agreement.”
DUMBO-based Two Trees has closed their deal for the Domino sugar refinery site, for what appears to be $185 million ($20 million more than the price that Two Trees supposedly went into the negotiations at). According to the Times, the price increase came after co-owner Isaac Katan made an offer with developers Chetrit Group and David Bistricer for $185 million. The price is a handsome return for co-owners CPC Resources and Katan, who bought the property in 2004 for $55 million and spent 6 years securing a rezoning for the residential use of the site (though Katan apparently doesn’t think it’s such a great return).
What does the new owner have in mind for the project? Two Trees principal Jed Walentas is quoted in the Times as saying that there are “probably some opportunities to make improvements on the plans”. The Rafael Viñoly plans shown during the public review for the site’s rezoning are non-binding, so a redesign of the building skin is certainly possible (and I’d bet likely). So too is a redesign of the Landmarks-approved addition to the Refinery building (the current model was designed by Beyer Blinder Belle).
But what of all the promises that CPCR made to the local community during the rezoning process? The open space is largely codified into the zoning for the site (and by general waterfront access plan requirements), as are the building heights and general uses (retail, office, residential).
But the big promise – the one that brought a lot of community into CPCR’s fold – was affordable housing. 660 units of it. Rob Solano, a supporter of the CPCR rezoning told the Times: “It’s extremely important that the Domino project is built with all the affordable housing that was promised”.
The Daily News asked the question that is on the minds of CPCR’s community supporters, and the response should not be reassuring:
The new developer of the iconic Domino Sugar Factory hedged Thursday on whether the new deal would include affordable housing.
“There were promises made by another developer. We literally just brought the property today so I don’t know,” said Stefan Friedman, a spokesman for Two Trees Management Co.
Two Trees is an experienced developer (unlike CPCR), but they are an experienced developer of luxury and market-rate housing. As I’ve said before, they are a good fit for this project in that they have experience with old buildings, experience with big (and complicated) developments, a commitment to good design and a very long-term investment philosophy (and they are certainly better than Katan-Chetrit-Bistricer partnership would have been). But affordable housing is not their thing, and if, after two or three weeks of due diligence on a $185 million deal, they are being coy on the affordable question, that should make people in the community pretty nervous. Maybe Two Trees is thinking about who to partner with to do the affordable housing (a smart move), but it’s a pretty good bet that they are also looking at the number or percentage of units.
Two Trees is right – the promises were made by another developer. That other developer was able to secure a zoning density that far exceeded what any other developer on the waterfront was able to get, and in exchange for that, they promised to build a lot of affordable housing. But those promises were not binding on CPCR and they are not binding on Two Trees.
More scenes of abandonment and decay – this time from the aptly title Abandoned NYC blog (via Business Insider, of all places).
Raw Sugar Warehouse, interior
Photo: Abandoned NYC
The Commercial Observer has more information on the Two Trees acquisition of the Domino site, including the fact that two other major developers – The Related Companies and Silverstein Properties – were interested in the site.
The Observer seems to agree with everyone else (myself included) that Two Trees is a good fit for the site. But the paper also seems to misunderstand some of the issues that make the property so hard to develop:
Landmark protections at the sugar factory require that its main buildings, a square structure with the Domino logo on its facade and a behemoth brick property with a towering smokestack, be preserved. Those familiar with the site say that it would likely cost many millions of dollars to renovate and make them habitable. CPC also struck a deal with the city to build 30 percent of the project as affordable housing, a larger than normal percentage that people familiar with the development said cuts into the project’s profitability.
The refinery (the “behemoth brick property with a towering smokestack”) is a landmark, but the bin structure (the “square structure with the Domino logo on its facade”) is not a landmark. As part of its landmark approval for the refinery, CPCR did agree to move the (not very historic) Domino Sugar sign to the refinery. But the building that the sign is attached to is toast.
As for the affordable housing, there was no “deal” to develop 30% of the project as affordable housing. CPCR promised to do so, but significantly, neither the city nor CPCR’s community supporters thought it necessary to make that commitment binding. As I noted yesterday, there is a strong incentive for 20% affordable housing on the site, but technically, there is no requirement for any affordable housing as part of the project.
[via Brownstoner]
Crain’s has some follow up community reaction to the news that Two Trees might be buying the Domino site. Apparently the community, or at least Isaac Abraham, is “anxious” about the sale:
Any developer or investor who wants to purchase Domino without committing itself to the 660 affordable units, should really think twice,” said Isaac Abraham, a Williamsburg community leader and housing advocate
Not to worry, says CPC, the parent company of bankrupt developer CPC Resources:
CPC Chief Executive Rafael Cestero, told Crain’s New York Business on Sunday that the new owner would be required to follow the zoning guidelines, which among other things would mean providing the affordable housing.
All of the affordable housing? Or just “the affordable housing” required under the inclusionary program (which amounts to 440 units – 20%)? CPCR was never bound to provide 30% affordable housing. Even the 20% is optional – though, as at other waterfront sites, the incentives are deep enough to make that 20% a very attractive deal. The other 10%? The community supporters of CPCR – and the city – gave that away. Hopefully someone steps up to keep CPCR’s word, but nothing is guaranteed.
Remember – 20% is the baseline. Neither CPCR nor Two Trees (nor any other developer) is obliged to build a single unit more. No one in the community should be surprised if a third party developer does’t live up to CPCR’s unsecured promises. If it wasn’t binding on CPCR, why should it be binding on anyone else?
The Daily News and Crain’s are reporting that CPCR has reached a deal with Two Trees to sell the Domino project for $160 million. CPCR and its partner Isaac Katan bought the Domino site in 2006 for $55 million. Since then, they have rezoned the property for residential use and gotten stuck in a morass of bankruptcy and lawsuits. The sale would allow CPC (the not-for-profit parent of CPCR) to pay off its subsidiary’s mortgages on the property (rumored to be $125 million) and go back to focusing on what they do best, which is providing financing for affordable housing.
If true, this latest development in the Domino saga bodes well for the fate of the overall project – not that that was ever really in question (prime waterfront real estate in a hot gentrifying neighborhood is a rare commodity, and someone was going to build there). Two Trees is an experienced developer that brings a wealth of expertise in developing mixed-use projects, and a long-term commitment to the neighborhoods they go into. It is particularly encouraging news with respect to the landmark refinery building – CPCR never had a viable plan for this wonderful structure and clearly saw its preservation as an impediment rather than an opportunity. Two Trees’ track record with historic buildings – including the stunning renovation of the Wythe Hotel – hopefully means that the refinery will no longer be an afterthought.
But when all is said and done, the New Domino project will be judged on the promises made to the community by CPCR. There was never any question that someone would develop this property. The question, still unanswered, is whether anyone will live up to CPCR’s unsecured promises for massive amounts of affordable housing and other community benefits that too many in the community bought into.
Two Trees is not a developer of affordable housing1 – what does that mean in terms of the promises made to the community? Certainly Two Tree can partner with an experienced affordable housing developer – but how much housing will they build, and how affordable will it be?
1. But then again, neither is CPC – and its for-profit subsidiary, CPCR, never had the depth of experience needed for a project of this scope.↩
The Observer reports that Isaac Katan failed to secure an injunction against his partner in the $1.5 billion Domino development from selling a majority stake in the project.
The decision appeared to clear the way for the Community Preservation Corporation, a joint owner of the site, to proceed with a deal to hand the majority stake to the project’s senior lender, Pacific Coast Capital Partners, LLC… Mr. Katan secured the Domino Sugar Factory in 2006 in a whirlwind deal largely negotiated over a single weekend to buy the site with CPC for about $50 million from the sugar company, which decades ago [actually, less than a decade ago] used the factory as one of its largest sugar refineries in the world.
Which means that Katan’s (and CPCR’s) stake in the project drops from 50% to 8%. The difference between 50% of $1.5 billion and 8% of $1.5 billion explains why Katan, through his attorney, is promising to continue his legal fight.
[again, via Brownstoner]
Molly Heintz, in A|N:
[New CPC head] Cestero will be responsible for addressing Domino’s future as well as the bigger question of whether, given its mission, CPC-CPCR should have been involved with such a project in the first place.
According to the Brooklyn Paper, Community Preservation Corporation Resources, the for-profit developer leading the effort to redevelop the Domino Sugar site, paid out at least $100,000 to local groups over a two-year period. The neighborhood groups, which include El Puente, Los Sures, and Keren Ezer, received $10,000 each. (A fourth neighborhood group – Churches United – which is now defunct, received $30k.)
Not surprisingly, each of these groups was among the most vocal and active supporters of the Domino rezoning.
This really shouldn’t be a surprise to anyone – CPCR surely spent more than that on “public reputation” over the 5 or 6 years they spent getting the rezoning approved (including, for instance, T-shirts, box lunches and buses for the supporters they brought in from places like East New York). The period during which these payments were made (February 2008 through December 2009) doesn’t even cover the public review process in 2010, in which CPCR was able to bring out large blocks of supporters to a series of public hearings before CB1, the Borough President, City Planning and the City Council.
The article certainly seems to indicate that CPCR spent more than this, as it cites at least $20,000 (or maybe two $20,000 payments – the editing is not clear) going to Churches United for Fair Housing in late 2010 and 2011. (CUFH is a different entity from the defunct Churches United that received $30k from CPCR. CUFH’s members were also the most vocal supporters of the project.) If CPCR didn’t spend any more money than the article documents, they got a very good deal.
The recipients of CPCR’s largesse are, of course, vigorously contesting all assertions of impropriety, saying that this type of thing happens all the time (which is certainly the case), that they supported the project before any money changed hands, and that, of course, they would never sell their support. All this may be (and probably is) true, but whether or not anything improper did happen, the taint of impropriety is redolent.
As Norm Siegel told the Brooklyn Paper:
If the developer was giving community groups money five or 10 years before their mission, that would be one thing, but if the developer is giving money for the first and perhaps the last time, it raises the question whether the donor is buying recipients support and it raises questions about the community groups themselves.
