[Note: OBSC / Portion obscured by noise or low recording level]

Mary Beth Labate (Labate) (DHCR Assistant Commisisoner; Chair)
Next up, the Island minischool conversion project.

Ken Leitner (Leitner) (RIOC staff attorney):
We've finished our negotiations on the final designation letter with regard to the minischool conversion project. It contains many of the terms that were in the Board resolution, to make the terms clear to the developers, including height limitations – two stories – and no air rights, the Rivercross minischool would be reduced by the square footage as in your resolution, [OBSC] some prohibitions and regulations were set out with regard to certain uses on the promenade, and [OBSC] a provision that the developers are to contact residents in apartments with adverse impact on their [OBSC]... on a fair and equitable basis. With regard to financing there's a time limit on the firm commitment. They have to obtain a firm commitment on construction financing within 60 days from the signing of the designation letter, and they have to work on the conditions in preparation for the financial closing. The construction loan closing is to take place within 90 days from the date of the firm commitment, and with the developers in terms of their progress they have been working on their title report and surveys and the banks and the appraisal. We're going to be negotiating a sublease with them, which will come back to the Board, and the plans and specs will be approved by the Department of Buildings and by RIOC for the construction permits. So that's basically the sum and substance of the designation.

John Mannix (Mannix) (Board member)
Does the financing [OBSC]...

Leitner
I'm sorry.

Mannix
Does the financing contingency that you discussed provide for a financing commitment that will cover the entire project?

Leitner
The time frame that we set was for financing for at least one of the projects.

Leo Kayser (Board member)
Well, let me suggest that the financing commitment should be for completion of all the projects. It shouldn't be limited to just par... You're going to end up high and dry. You shouldn't have us at that risk. They could end up with just one of the projects and from an economic point of view there's economies of scale which you'll be losing if they default om the rest. And I think it's the sense of the Board, myself certainly, my sense, when I raised, when I suggested to the public here that we wanted to make sure that we had in place some reasonable time frame for financing commitment, that financing commitment would be for the entire project, not just for part of it.

Leitner
Well, the time frame that we did set was a 60-day time frame... In setting the time frame that we did set, which was a 60-day time frame, we wanted to allow them to get their financing commitment on the first project to get that off the ground.

Kayser
You're gonna... I would

Leitner
But otherwise, we're talking about... it would have to be a longer time frame. You wanted a short time frame, acting reasonable to allow them to get their title and survey work, everything they need to get done, in time...

Kayser
You're saying that the title and survey work is only being done on one of the minischool sites?

Leitner
It's being done on, I imagine, on the whole project.

Robert Ryan (Ryan) (RIOC President)
Might I add so the Board understand this, there are certain title problems that are slowing down any loan agreements on the other building sites.

Kayser
Like, for example, this letter that the Board received?

Ryan
Uh, no.

Kayser
OK, what title problems are there?

Leitner
The... They are in the process of negotiating certain easements with some of the housing companies, parts of the project that might extend beyond the footprint of the buildings, of the school buildings.

Kayser
Let me just say that I think that you're running a... You have to come back to this Board with a form of agreement and lease that's going to meet... be satisfactory to the Board. The Board has instructed you to make sure that you have financing commitments in place within a certain reasonable period of time, within the confines of the lease document itself, I believe. Remember we went into executive session and I wanted to get into more detail with respect to this stuff, and then we got rushed out of here, so we did not have a chance to explore with you the details of the documentation and the way this thing works. But I think one way or the other you're gonna make sure that the whole project is financeable, and not just part of it. When you enter into a commitment with these folks...

Ryan
I think our Special Counsel might have some...

Babrara Gorden Espejo (Espejo) (RIOC consulting attorney)
These matters were discussed with Larry Mendel [sp?], who's the attorney representing the developer. He made a very plausible case for the fact that these were going to be condominiums built on spec, so that we would try one building at a time, and that the lenders would be more convinced to go forward on a quicker basis with the other two if we prove that one is successful. I thought it was reasonable since we were urging them to push along. Let's prove we got one of them done, and get the title work, survey work, and everything done and bring to you at least that we would have something up and running by March. It doesn't mean that we don't have separate agreements for each of the other two, but once we see how this goes... I felt that... it's a reasonable approach to be made.

David Kraut (Kraut) (resident Board member)
Well, as a lay person I see a problem here. The Board has an interest, above all, in the minischool properties being developed and providing income to us. The assumption was that all the three minischools would consist of a single project. Now, we understand that in a speculative real estate market condominium development might, in fact, have to roll itself out one building at a time. Certainly that's true in the case of Mr. Kramer's [Southtown] project. He also is going to build one or two or three buildings at a time if they're all [OBSC]. This we understand, but what I don't understand as a lay person is how we are going to proceed to build one minischool project when in fact we don't have... There's a difference between the speculative roll-out of the project and the legal underpinnings of the project, in my view, at least so far as I understand. And I don't understand how we can enter into a lease agreement with these people for all three buildings if, in fact, there are some title problems or other underlying problems under two of them, if, in fact, I'm understanding the case properly. I think I'm hearing you say that we are in a position to move forward in every way only on one part of the project – Westview is, I assume, the one we're talking about – but that in fact it could turn out that Island House and Rivercross cannot be built simply because certain underlying legal and title and financial just can't be resolved, and while I'm perfectly willing to understand that condominiums have to be built piecemeal, for speculative reasons, I don't understand why we cannot have our legal ducks in a row prior to [OBSC] on all three projects, prior [OBSC] all three projects [OBSC] from the beginning. I don't know if I'm totally fair in my question but that's because I don't know what I don't know.

Espejo
Let me try to introduce the way we have approached it. Each of the minischools will be a separate condominium. They will not be under one leasehold. Each condominium will have its own lease. And I want you to know we have never done a condominium lease on Roosevelt Island. The only example we have is Battery Park City because the Condominium Act of the State of New York provides, in section 339, that there can only be two leasehold condominiums in this State. One is in Battery Park, and one is Roosevelt Island. So it's a case of first impression. In order to do a condominium and be financed, you have to have a offering plan. The Attorney General has to approve it. This is a test case.

Kraut
You have to have a what? I'm sorry.

Espejo
An offering plan, a prospectus [OBSC] buying interest in a condominium, in a case of first impression, on Roosevelt Island. With all these exigencies in the law, which is not a product of RIOC's thinking, or a product of Mr. [OBSC] thinking, this is a test case. We want to do the first one, and make the client subject to the first one. I thought that was reasonable.

Kayser
The offering plan comes under the Martin Act, is that right? And you're going to have three separate...

Espejo
Condominiums.

Kayser
...three separate filings under the Martin Act. So... I think that the designation letter, if you're going to proceed that way and if these are standalone projects now, if you're going to think of it as standalone projects and not as a unified project, which is what I understand you're now suggesting is the way it's being done – they're separate – then the documentation giving a right to the developer should only apply to the specific severed development, not to all three of them. They can't get it both ways. [If] they don't have the financing in place for all three of them, then they can only, or the right, the obligation to get the financing in place for all three of them, then the documentation with respect to giving them rights has to be only for the specific... They can only be vested with a right on a short-term basis, to come back on a 60 or 90-day, or whatever time period is reasonable, time frame for getting the banking commitment for the specific project. They cannot tie up the other two by giving them an option just if they get financing for the one project. That's not the way the Board was thinking that it should go here. Now, if they need all three projects tied up because they need it that way for economies of scale, then they need their financing in place for all three projects, in order to get their rights vested there. Now I think there are economies of scale here and if these projects don't stand... they're not economical if you just do one at a time. So that's why the developers going to want a commitment for all three but not with the financing in place. But I think the residents, when they were giving their speeches and the Board was taking them into account, the concerns with respect to the developer and the financial wherewithal of the developer... We want the marketplace to function here, but to be reasonable with respect to all concerns that have been articulated. And the idea was that the marketplace should function so that they can go out and get their financing and come back in a certain period of time and we would accept the marketplace. But they can't use this government entity, RIOC, to tie this up on some special basis, just for one of the projects, and then tie it up for the other two, and get a special leg up that way when they're not... if they don't have the financial ability to complete it and they're just squeezing people out because we're going to be patsies on this thing, and it's not going to be that way.

Espejo
May I suggest that that is the way we always do business here?

Kayser
That may have been the way you've done it in the past, but you've got some new Board members here and... not going to let it...

[APPLAUSE]

Espejo
We... Since 1975 we've built one building at a time and we've financed one building at a time.

Kayser
I'm suggesting to you that, from what I can see, we've been entering into a number of agreements where the risk has been on this public authority and you sacrifice things with respect to the people who are out here on the Island when you shift that risk to the public authority from the private. I'm all for the marketplace operating. You've got to negotiate at arm's length on a reasonable basis without special things that a private business person wouldn't give to somebody. You can't, you know, we're going to have to approach this on a businesslike basis with a good arm's-length negotiation, and not give any unreasonable concessions to somebody in order... You know, the project itself is controversial enough, but the Board's saying we're going to let the marketplace operate here, but the marketplace is gonna operate. It has to on a marketplace and an equal basis. And these people don't have their financing in place, or else they're getting special subsidy, in effect. They get a free option without having financial wherewithal, and that's not right.

Ryan
I'd just like to add, though, so that people fully understand, there are a number of restrictions due to the fact that we are dealing in the public sector, as opposed to the private sector, that makes it rather hard for us to respond to the marketplace, and to act like a private-sector body. I have to say, I'm not a lawyer. I defer to you on these points, Leo. I'm just saying, keep in mind that there are certain restrictions that make it difficult for us to act in such a way.

Mannix
I'd just like to put this in perspective. And I hate to be the one to say, "I told you so," but we're talking about a 15-unit development that now needs to be phased. I mean, compared to Mr. Kramer's [Southtown] project, this is not right. That's a 2,000-unit project, so if what we're hearing now is that the developer is unwilling or unable to put enough credit behind this deal that the market can't absorb 15 units, I... It clearly, in my mind, I'm not surprised. I came to this late, I interviewed the developer well into the process, and my feeling was she did not have the wherewithal to get this project financed. I'm surprised to hear today at this meeting that it's now a phased, five-unit-per-phase project, and perhaps what I'm saying is that RIOC is doing its best to accommodate the developer and either her reticence about going forward into the market with 15 units, or her financial inability to put up enough credit to do so. So the major concern I have on this project, putting aside aesthetic or architectural criticisms and so forth, is that the developer is a weak developer, and if she's only willing to build five units, can only finance five units of this project, then I think it proves the point that she's a weak developer.

Labate
Let me ask, we have not reached a point where the concerns of the Board members cannot be addressed, I mean, in our negotiations.

Ryan
Not at all, I mean that was the whole purpose of bringing this up at this meeting, so that it would be discussed before the public and so that the Board knew what was going on...

Patrick Stewart (Stewart) (resident Board member)
A question... Couple of questions, actually. It was, number one, this phasing thing is news to me. I had not heard this before. In addition to that, if my memory serves, we were discussing or the developer was discussing having this whole project finished within a year. Now, it would seem that if this phasing operation takes place, it will take considerably longer than a year, because it was my, at least, concept, that all of this work would be going on at the same time, and therefore it would be done in a year. Now I hear that it would be done in three phases, which, if you do that geometrically, it could be three years. So I think it's important that we know what the situation is with that, and two, what recourse we have. It's disturbing to me to hear that. The second thing is you mentioned to me that the residents had been... residents whose views had been affected had been contacted. When were they contacted, and did they meet with the developer and, if so, what were the discussion about? I assume it was financial compensation for loss of view.

Ryan
The residents in question received certified letters from the developer and there were two separate meetings that were set up where they could come in and meet with the developer, or talk with the developer. I was not present at either of those meetings. I know Mr. Kayser was present at at least one, and I believe another... Mr. Kraut was at that, I believe, [OBSC EXCHANGE WITH KRAUT], and I don't know... did any members of the public show up?

Kayser
Let me... I did come out. There was a time given for the tenants to come in and to meet to discuss the offer that was made by the developer. I thought, I saw the offer made by the developer, it certainly was on the low end, but it was not an unconditional... it was not a take-it-or-leave-it offer, it was an offer that was made and it didn't say, "This is our final offer or our only offer, take it or leave it." It was an invitation to come in and negotiate, a time set for, two separate times for the tenants to come in and negotiate, in a public meeting in which, a previous public Board meeting, in which we said that we would take an oversight... the Board would take an oversight view to looking at the negotiations between the tenants and the developer to see to it that good-faith negotiations were being entered into and that they would be some... we would see whether or not... The Board had to be satisfied with respect to the developer's good faith in dealing with the tenants. The tenants, though, have to take... have to come forward, too, and you can't push on a string. It takes two people to negotiate, and no tenant came to any of the meetings with respect to the question of compensation as to impairment of the view. They didn't come, and I think that anyone who was observing members of the Board here and the way we're operating with respect to this project, we're taking a critical view of it. We're not simply there to rubber-stamp anything. But if the tenants didn't come forward, I don't think that anybody should feel sorry for them if they're not prepared to negotiate in good faith, also. It takes two to tango. They didn't come. I'm not defending the developer here in any way, but I think they've waived their rights on this thing, at this stage, or at least they have impaired their ability for Board oversight because we were there to oversee the negotiations.

Joan Dawson (JD) (Board member)
I'd like to say that... I'd just like to say that all Board members should be informed... I'm hearing about these meetings for the first time, and as a Board member, I would appreciate knowing about these meetings. I'm very interested in this project, and also interested in the... what happens, as far as negotiations are concerned. I had no idea that these meetings were taking place, when they took place [OBSC], so I'd just like to make that part of the record.

Kraut
If I could address your question directly, Joan, while at the same time mildly disagreeing with Leo's perceptions in one area. The... Leo expressed the sense of the Board several months ago at the time we were voting this thing forward that the Board expected to see a good-faith attempt on the part of the developer to perhaps enter into some kind of negotiation to in some way attempt to compensate those whose views would be disturbed by the new... so that's the background for this. To reiterate, Counsel for the developer did sent letters to selected apartment dwellers in Rivercross, which have the property interest, making them an offer. This occurred, of course, several weeks ago, and this is in line with the suggestion that Leo made originally, which I personally supported, and I believe other members of the Board did, too, that they should make... show some good faith in this area. I believe that counsel for the developer has shown good faith so far in that the letters were sent with an invitation to attend meetings with the developer and her lawyer at such-and- such a time and place, which took place a week or two ago. I do not agree with Leo that the fact that they didn't reply, or they chose not to show up, means they waived any right whatsoever, and I'm sure that's the position that their attorneys would take in the future if this thing goes forward. It was an opening offer by the attorney for the developer. I concur with Leo that it's the low end of what they should have expected to pay in the end if they're going to pay anything, but it was a place to begin negotiation. Since there was no reply, there is at this point no such negotiation going forward. I believe that they have shown good faith in attempting to go forward in this area. The fact that no one has replied does not show that this issue is anywhere near resolved. There will be lots of time in the future for their lawyers to go after their lawyers and that will probably involve our lawyers along the way. I expect this to be the case. I'm going to agree with something that Patrick said: It was my understanding – and Leo also – that we were developing all three minischools as one project. I didn't realize that we were essentially talking about financing it in such a way that it would become three separate projects. All three minischools as one project, I didn't realize that we were essentially, it is my understanding, talking about financing in such a way that they essentially become three separate projects. This is not what I thought we were looking for, and I'm not sure, based on my underlying reasons for supporting the project – I'm not sure it makes any sense to even continue [OBSC] to think in terms of three separate projects. It is not our job to speculate. It is our job to get value for the properties to support the underlying needs of this corporation to operate this Island. The speculation is to be on the part of the developers. It's part of their risk, not ours. And I am not in favor of this agency incurring risk; I am in favor of this agency receiving monies for properties we have at our disposal so we can we can get on with our management [OBSC] and operation of the Island. And I could never approve any contractual agreement or final lease agreement which, in a sense, means that this agency is betting on future development that I thought was a one-time bet in terms of a specific amount of money.

Labate
Can I suggest that we ask the staff to go back and take a look at this issue and prepare, perhaps, for the Board's review, really delineating the advantages and disadvantages and allowing a three-phase process versus a one-phase process, and come back and convene on this?

Stewart
Madame Chairman, one last comment. The Board, along with Commissioner Lynch, has received a letter from Mr. Marc Diamond with certain aspects of the building being in question. It would be, in regard to what you just asked for, it would be helpful for the corporation to include the answers to this leter in their study. Thank you.

Kayser
Let me just... I may have misspoke when I used the term "waived." I don't disagree with David. I don't mean this in a formal way, but what I really mean is it's taxing patience of those of us who give up our time on a non-paid basis as members of the Board in exercising our fiduciary obligations in an effort to accommodate concerns of people, and when they have a right to come in and talk, and we're there, and then they don't step forward, and some of us make trips out to the Island and they don't come forward. I don't know how many times we are going to be doing that, if actually we are trying to oversee things, and also in terms of Joan's, I think all Board members should receive notice of meetings, opportunities in connection with these projects, when there is some Board oversight that's going on. If any Board member wants to come to see what's going on, they should do so.

Kraut
You're right.

Kayser
OK.

Labate
Why don't we move on. I know we'll be revisiting this issue before we...

Suzanne Wolfe (Wolfe)
Excuse me, please, may I clarify... may I step forward an clarify something that was a misunderstanding that was related...

Labate
Can we... We have two more items on our agenda.

Wolfe
Well, they are very specifically related to this letter that you were just discussing.

Labate
Well, let's do that after we are finished with these items, please. OK, committee reports.

*** [MEETING CONTINUED ON OTHER MATTERS]

Labate
There being no further business... [ADJOURNMENT]

Wolfe
Excuse me, I'd like to reply to Mr. Kayser, and his comments with regard to this letter that was sent to certain residents whose views would be adversely affected. First of all, it was not a certified letter, and in light of that I think there's a certain implication in a certified letter about the sender's attention for everyone to receive it. I'm sorry, I don't have a copy of it here to read. You referred to it as a low offer. It was not just a low offer. It was low enough to be not just inadequate, but insulting and offensive. The letter stated also that there was a deadline of October 6 by which we could accept the offer or the offer would be withdrawn. I personally replied to the offer by declining it, in writing, as did at least one of my fellow residents. I can't speak for all of them. And with regard to the meetings that we were invited to attend, there were two possibilities. There was one evening, a two-hour segment, and there was one morning, a two-hour segment. You were also instructed to call for an appointment to come in and ask questions. There was absolutely no indication in that letter of any intention on the part of the developer to negotiate, as you have suggested. And I'm sorry you came here and feel that you wasted your time. I think I can identify with the frustration you must have felt. I've been attending every single one of these meetings since March, 1999, and at no time since March of 1999 has Diane Wilson or her attorney ever, in any way, shape, or form, made herself available for any discussion whatsoever, with any of the residents. So if you truly feel... or, I should say, I do not feel that I waived any rights to future compensation or discussion of future compensation by not making and appointemnt to come and ask questions, one of those two segments. And incidentally, if nobody made appointments, why did you bother to come and, in that sense, why was your time wasted?

Kayser
I read the letter that was sent to you. If I had drafted the letter, I would have made it more explicit with respect to what was being offered as an opportunity to be heard, but nonetheless, I would take any opportunity to meet as an opportunity to negotiate, especially when it doesn't say, "take it or leave it."

Wolfe
It did say "take it or leave it."

Kayser
No, it didn't.

Wolfe
It said "if you do not..."

Kayser
Let me finish.

Wolfe
OK. I'm not a lawyer but.

Kayser
I read the letter. It was an offer. It said, "Come in and talk." It's like, one of your questions is, "Is this your final offer? Are you prepared to offer me more? What do you consider your rights to be. [OBSC]." There are lots of questions you could have asked and a negotiation is a questioning of each other's positions to see if there is any common ground that can be reached. Not to take advantage of a forum given to you when you have never been given a forum before, as you just said, and where you knew that the Board [OBSC] in the process, and you don't take advantage of it, to me is just – what did you have t lose? And you knew we were going to be there at two specific times, anyway. There were people there. You could have had a forum, and as David Kraut said, he doesn't know if you have any legal rights... they have been waived per se. There is a process going on and I don't know where you expect to get relief here. I don't... He doesn't... you know, if you have any legal rights, they have been per se "waived." There is a process going on and I don't know where you expect to get relief here. I'm not your lawyer, but I don't know that you have any legal rights, except that the Board is trying to see some equity being done here, outside of what legal rights you have or don't have. So don't look a gift horse in the mouth, and then criticize it and expect that your, you know...

Wolfe
You know something, that's pretty insulting...

Kayser
But I do know that there were some letters written back to the developer, and one of these I understand asked for over $400,000 in compensation.

Ron Schuppert (RIRA Common Council delegate)
So there was a response, just as outrageous as the original offer.

Kayser
Exactly. And I learned about that last night for the first time in a letter.

Wolfe
So what is your point, then?

Kayser
My point is when they offer to talk, talk. And don't be like the Arabs and Israelis...

Wolfe
Oh, spare me. I did respond to their offer, and within the deadline that they asked.

Kayser
Please don't interrupt me. You may not like my analogy, but I'm telling you, [when] you have an opportunity to come in and talk, I would seize that opportunity, and I wouldn't then suggest to people that they are not being solicitous of your concerns. And if you [OBSC] and rolls your eyes, but the fact is, there's an effort being made to accommodate you, when they articulate them and...

Wolfe
Mr. Kayser, with the absence of the letter to read to your fellow members of the Board and the public here I think the tone of what you're implying is really absurd. I would like to be able to read the letter, and... which speaks for itself. There was no invitation to come in and negotiate.

Kayser
Read it as you choose to. You were asked to come in and talk.