Earlier this week Brooklyn Heights Blog sat down with David Kramer, a principal of Hudson Companies, in their Greenwich Village offices. Hudson Companies was recently chosen by the Brooklyn Public Library and the New York Economic Development Corporation as the successful bidder for the Brooklyn Heights Library Redevelopment Project.
Read the Brookyn Public Library’s documents on the Brooklyn Heights Branch here.
Hudson Companies’ proposal for the site includes a new BPL branch containing 21,000 square feet (15,000 square feet on the ground floor; 6,000 square feet below grade); a below grade multi-purpose space for Saint Ann’s School, a private school that is adjacent to the site; two ground floor retail spaces: one to be occupied by Brooklyn Roasting Company, the other to house a rotating selection of vendors curated by Smorgasburg, the open-air food markets in Brooklyn Bridge Park and Williamsburg; and a 30 to 40 story tall residential tower containing approximately 130 luxury condominiums. Hudson will also build 114 units of affordable housing in a location to be determined in Community Board 2, which stretches from DUMBO and the Brooklyn Navy Yard through Brooklyn Heights and Boerum Hill to Fort Greene / Clinton Hill.
In return, BPL will net $52 million dollars for pressing capital needs as well as a brand new library branch—to be paid for by Hudson—at an additional cost of $8 to $10 million dollars. Hudson will also provide space for uninterrupted library service at an interim location, Our Lady of Lebanon, approximately five blocks from the Brooklyn Heights Library branch.
Mr. Kramer, a resident of Brooklyn Heights, lives on Clinton Street, a few blocks from the library’s location on the intersection of Cadman Plaza West and Clinton Street. He currently serves on the boards of the Brooklyn Navy Yard Development Corporation, the Brooklyn Bridge Park Conservancy and the Coro Foundation, a public affairs leadership training program.
A supporter of Saint Ann’s School, Mr. Kramer created the Brooklyn Real Estate Round Table, which is a quarterly program that raises at least $100,000 a year for the Brooklyn Historical Society.
Michael Randazzo, Brooklyn Heights Blog: Let’s start with the height of the Pierhouse Hotel.
David Kramer, Hudson Companies: I’m not involved in it. I share the concerns about the building being too tall and not being able to see parts of the bridge from the promenade. I am not the developer of Pierhouse.
Marvel Architects is the architect for Cadman Plaza [BH Library project] and they’re the architect for Pierhouse. But, that’s not my project.
I know you wanted to get me against the ropes but…
BHB: Pierhouse has been a contentious project in the Brooklyn Heights community. How do you envision reaction to Hudson’s work on the Brooklyn Heights Library Redevelopment Project, which has also been contentious?
DK: I really don’t know the details about Pierhouse. Then, going forward and talking about the library, this is going to be an open, transparent process. There’s a project that’s going to get approved at the end of the day and that’s the one were going to build, after we get approval from ULURP.
The holder of the air rights for One Pierrepont is the City. I spent a half hour reading Michael White’s 20-page post where Forest City is at the dark, epicenter of this whole story. But his analysis is 100 percent inaccurate. Forest City is not earning any air rights, they’re not selling anything. It’s the City that’s selling it, that’s part of the purchase price. That’s why the Library is getting $52 million dollars.
BHB: At a recent Brooklyn Heights Library Community Advisory Committee (CAC) meeting you suggested that Hudson’s valuation of their bid was $70M. Can you break that down?
DK: I don’t know if it was that much. $52M is the net number to Brooklyn Public Library. But we’re spending a million dollars on the interim library and we have to pay to convert the social hall at Our Lady of Lebanon into a usable library. There’s a lot that goes into that conversion, renovation and design. We need to have patrons walk in and have books and bookshelves and working restrooms and working HVAC. We’re paying rent to the church for the space for three years. There’s a huge cost for that interim space and that’s a cost we’re paying.
To me, that’s part of the cost of doing business to acquire the site. It’s not extra money in the Library’s pocket but it is an added land cost for us to make this project happen.
If I’m looking apples-to-apples at another project, where I have an acquisition cost, where I’m not relocating a library, you have to think of a million dollars as a land cost for Hudson. Similarly, we’re building a 21,000 square foot library, and all of that cost is on us to deliver the new library to BPL.
BHB: What would you put the cost of building the “shell” for the new library at?
DK: I think it’s $8 millionish. And there are a few others. For instance when we signed the contract we had to write a non-refundable check to the City for half a million dollars. It’s a one percent fee when you work with EDC that goes to them for overhead costs in administering these programs.
To me [this is] another cost that’s part of the project. It we were buying something from Joe Schmo across the street there wouldn’t be an EDC fee, there wouldn’t be a library fee.
One of the ways that we think of it is: “What is the acquisition cost we want to pay?” and then we have to deduct all the things we have to pay for, from paying for the core and shell to paying EDC, to paying for the interim [library] and then there’s a net number we arrive at that goes to BPL, which is $52 million.
BHB: The Brooklyn Heights Library branch site is one of the most valuable assets that BPL has to sell. How can the public trust that BPL and EDC have negotiated a fair price for this asset?
DK: Is that an argument for raising proceeds in a very healthy landmarket? Or, is it an argument for BPL sitting on its hands and not take advantage of today’s values?
In fact if you look at the study the Center for an Urban Future did on libraries [Re-Envisioning New York’s Branch Libraries] it talks about all the different things you could do to help libraries to increase their resources. When they looked at where there are potential air rights, there aren’t that many branches that have a lot of air rights available. [Brooklyn Heights] is one of the few that did.
You could argue it either way. You could say it has a lot of value so the City should never sell it or your could say if the Library’s under capitalized by hundreds of millions of dollars, here’s one thing you can do.
Down the road there will be other city assets that will create value over time. Thirty years from now there will be another site that is as valuable as Cadman Plaza is today and that might be a good time to capitalize on those air rights.
The way I see it, you are retaining the same amount of square footage for the library as currently exists. The 21,000 square feet is probably more than what is usable [at the BH] branch today and the Business Library is moving back to the Central Branch. So if you’re getting slightly more square footage, you’re getting a new facility, and you don’t have the HVAC / maintenance costs going forward, and you have $52 million dollars and rent-free space in the interim library space, I think that’s a great public / private partnership.
You could just sit on your hands and say “This is a very valuable site and one of these days when we really need it we should use it. Until then let’s not do anything.” That’s what they’re doing now.
BHB: The challenge is: what’s the right price for that site?
DK: Let me address that because I didn’t do a very good job of answering one of the opponent’s questions at the CAC.
The way you know the right price is to have a spirited competition from as many respondents as possible, bidding up the price as high as possible, and then that’s the number.
When we were interviewed, we heard that this was the most responded to RFP in the history of EDC. There were 14 responses from legitimate developers. And then they narrowed it down to seven, then to three, and then two. What they did along the way was to constantly poke and prod the respondents [by] saying “Why don’t you sharpen your pencil.” “Oh, the interim library, why don’t you throw that in because that wasn’t in the RFP.” “Oh, wouldn’t it be good if you guys paid the rent on the library.”
[The] RFP process stretched out over 15 months and in those 15 months, our bid kept on increasing. EDC did a masterful job of playing all the developers off against each other to get the highest purchase price while trying to get as much affordable housing as possible.
If you have a lot of developers bidding against each other and [you’re] saying “Give us your best and final.” “Oh now Mayor de Blasio’s in office, now give us your best and final.” “ Oh, affordable housing is very important, now give us your best and final. And add as much affordable housing as you can.” I would say that EDC and BPL did a fantastic job representing the public of getting the highest purchase price they could. I understand that the other finalist had a comparable number [to ours].
If you have a price that’s been arrived at after many months with many, many bidders—I saw some bids from people who made the final seven but not the final two or three, and my number was much higher than theirs’.
So, I would conclude that the public agencies did a great job of maximizing their value. The only test is, go out to as many people as possible, have them be as spirited as possible in their bidding, and then at the end of the day, that’s the number. There’s no other number.
BHB: The problem is that this is a closed bidding process. That’s not saying that it wasn’t right, and that it didn’t end up with the best price, but because the process is not entirely transparent, doubt creeps in.
DK: Defending the public agencies, I think there’s a difference between conducting the search and not being transparent in the moment, but after it’s over, being transparent about how the process worked; here’s what we did to maximize the value for the Library. And EDC was very focused on getting the best price for the Library.
BHB: Of course, that was their primary goal, but—given what happened with New York Public Library’s sale of their Donnell branch—there’s concern about whether EDC and BPL are capable of negotiating the best deal.
DK: Really, the question to ask, in light of Donnell, is did the City do everything in its power to get the best possible purchase price for that site? I would say absolutely. Having endured… it’s sort of like a game of “Survivor.” It was rigorous and very expensive. You have ambivalent feelings when you’re the winner. It means that you had the most competitive bid, which means that you were the most aggressive.
On one hand at Hudson we celebrate that and are cognizant of the fact that means we were aggressive and we’re taking risks. The truth is that maybe it’s not as risky as opening up a restaurant but doing a condominium development, you are vulnerable and sensitive to the timing of your condominium.
At Hudson we’ve made and we’ve lost money on condominiums. If you come out with a condominium when times are tough and mortgages are not flowing, you’re in a scary place. We’ve been there before.
I hope and expect it’s going to work out for Hudson but let’s not minimize the fact that we are taking a risk and putting a lot of capital at stake for this project.
BHB: Clearly it’s a risk / reward proposition. Can you talk about the rewards of successfully bidding for this project?
DK: We like to be diversified and have a variety of different things we’re working on. We’re not just doing condos, we’re not just doing affordable housing. We do a mix. We do affordable housing, we do rentals, condos, we do middle income housing, we work with institutions; for instance we’re building the residential tower for Cornell’s Applied Science campus [on Roosevelt Island]. We built a 26-story dorm for NYU a few blocks from my office, we built staff housing for Sloan Kettering and Weill Cornell.
We prefer rentals. Rentals, you get to own for a long time, and if there’s a few years where the market’s soft and rents are low, if the market picks up again you can enjoy higher rents, versus a condominium. If the market is soft, and the condominium is selling below what your projections are, you’ll never have another chance to sell that apartment again.
We haven’t done a condominium in a number of years—our last condominiums were Third and Bond in Gowanus, the Knick in Bushwick and Riverwalk Court on Roosevelt Island. And none of them did particularly well, if you’re finishing things in 2008 – 2009. So we’ve been more focused on rentals the last couple of years. But if you do a lot of rentals it’s nice to do a condo on occasion and hope that you’ll make money all at once versus over decades.
Here’s the other thing you want to ask: “What [price] do you want to sell the condos for?” I would [answer] we haven’t designed apartments yet. There’s no apartment that we have a design for that we can say “Oh we can sell apartment 12H for this [amount of money].” We’re working on what’s the right comp and where do we think we’ll end up.
To me the obvious comp is Pierhouse. It’s a high-end condo with great views. I actually think this is a better location. And Pierhouse is doing great.
BHB: How many units do you expect to build in the new tower?
DK: We haven’t designed the building yet but based upon what we’ve guestimated it’s going to be 130.
BHB: Has a final height been determined? Is that height dictated by FAR (floor area ratio)?
DK: No, two different zoning issues. The FAR has to do with how many square feet you can build [on the site]. So it could be a short, squat building or a tall skinny building. The feedback we’ve gotten from neighbors is that they would prefer a tall skinny building. That reduces the shadow impact and lets more light and air go to Clinton Street.
We’re going to be looking at a lot of different scenarios. The only thing that I can absolutely guarantee is that whatever we come up with will be within the zoning guideline. The zone that this lot sits in has height limitations, setback limitations, there are limitations as to what you can do when you have two buildings in the same zoning lot.
We’re going to be in compliance with all the zoning, we have to be. We’re not planning for any waivers . So how the building shapes up will be the result of what we do, which is working to design the project and coming up with something that’s great.
BHB: In regards to zoning, who owns the air rights to the site?
DK: The City owns them.
BHB: There’s no encumbrances with the building adjacent to the library site, One Pierrepont?
DK: What happened is that the City sold… the City’s on the same lot as One Pierrepont, and One Pierrepont was able to build it’s building, and then the balance of FAR is what the City is selling us.
BHB: And does One Pierrepont get any compensation for their air rights?
DK: The holder of the air rights for One Pierrepont is the City. I spent a half hour reading Michael White’s 20-page post where Forest City is at the dark, epicenter of this whole story. But his analysis is 100 percent inaccurate. Forest City is not earning any air rights, they’re not selling anything. It’s the City that’s selling it, that’s part of the purchase price. That’s why the Library is getting $52 million dollars.
BHB: It’s been mentioned that Saint Ann’s also owns some of the lot’s air rights.
DK: Yes, Saint Ann’s also has air rights available that were talking to [them about] for their piece. Any air rights to Saint Ann’s would be paid to Saint Ann’s.
BHB: Part of the concern about this deal is due to the interconnected nature of the boards that make decisions for public/private entities such as the BPL and BBP. Take for example Henry Gutman who’s now leading the Navy Yard Development Corporation and who also sits on the boards of the BPL and BBP.
DK: Hank became chair recently!…. I can tell you from where I sit that none of that matters. These processes are too transparent, there are too many bidders. It’s a meritocracy.
There are plenty of respondents to Pier 6 or Pier 1 or Brooklyn Public Library who also are very active in municipal circles who didn’t get designated. If you look at any of the respondents and say should any of them have been designated for the Library, how did they come across in terms of their design their purchase price, their generating affordable housing? I think that we were designated on the merits.
Nothing else matters. If you were to poke around to who were the decision-makers, it had to do with the staff people at EDC and BPL. [They] were the most knowledgeable on everything. And all the names from your crazy postings—from Dave Offensend to Gutman—all of my “cronies” they’re not involved in the drafting of the transactions. It makes a great conspiracy theory, the idea that Forest City is behind this whole thing but none of it’s accurate.
BHB: Going back to Saint Ann’s—and it’s related because you have a relationship with them—how did they become included in this project and what is the price that they will pay for their space?
DK: First of all, it’s not an either-or. It’s a below-grade space. We could have put in a below-grade Duane Reade with an escalator going down and nobody would have said “Boo!”.
They [Saint Ann’s] are buying a condominium just as somebody’s going to buy apartment 8H. They’re buying a space and they’re reimbursing us at cost and that’s the extent of the relationship.
Whenever we approach RFPs a question is “Are there local groups we can partner with?” When the RFP was initially announced there were two informational sessions the Saint Ann’s attended with the intention of partnering with the developers to be on a team so that they could consider having some space across the street from their main building.
I only started talking to them because they were at the informational sessions and interested in partnering with developers. We have partnered with non-profits in all sorts of RFPs. But as opposed to every other RFP, where we are giving some sort of handout or some deal to a local non-profit that might win us brownie points as the RFP proposal is being judged, in this case it was a partnership where Saint Ann’s is putting up their own money for their own space and they’re reimbursing Hudson dollar-for-dollar, whatever it costs us, for their space.
When we were planning the RFP we would have conversations about what the space would look like, and Saint Ann’s offered up to make their space available to the public a minimum of eight times a year. So if it was a gymnasium or a theater—when we did the RFP it was a theater—so we said there’s always community groups looking for meeting spaces or auditorium use.
BHB: How will the Saint Ann’s space work?
DK: They’re going to have a small lobby on the ground floor. That’s FAR, that’s acquisition space. So they’re going to pay the same rate per square foot for their lobby that I’m paying for land for the rest of the building. Everything below grade doesn’t have an FAR cost, it has a construction cost. We’ll have detailed budgets allocating costs and they’re going to pay their share.
BHB: So the public should have no concern that Saint Ann’s is getting a better deal than others might?
[L]et me stop playing defense and let me play a little offense. This is a really great thing. Saint Ann’s is a wonderful institution, one of the biggest employers in Brooklyn Heights, and they have huge real estate challenges. The Bosworth building has all sorts of deferred maintenance issues. St. Ann’s is a special school, but if you walk through that building, you will come away basically unimpressed with their gym, with their theater, with all sorts of physical restraints and all sorts of capital needs.
If you are a school, or any non-profit, and you have physical facility issues and you’re in Brooklyn Heights, you have very few options about where you can do anything.
To come up with a solution that helps a local school that’s important to the neighborhood—a lot of the children who go to the school live in the neighborhood—and to have a solution for that school, across the street, and around the corner from the lower school.
BHB: One of the biggest challenges in Brooklyn Heights is the need for additional public school seats. So, why does Saint Ann’s get this benefit?
DK: If you went to Saint Ann’s gym or theater, you would not be impressed and the fact that there are other challenges in the world from P.S. 8 to ebola doesn’t mean we can solve every problem with one RFP.
For starters I would talk to the School Construction Authority to see if they agree that P.S. 8 is at the top of their list of where they’re looking for space.
It’s not a question for Hudson to answer or for the City to answer about how to allocate resources. Really, this is being done for the benefit of the public library and this $52 million dollars will help them renovate their branches. That’s what is broken that’s being fixed with this RFP. I can’t speak to all of the other potential broken issues to be fixed.
BHB: But that’s part of the problem; this is a once-in-a-lifetime opportunity for BPL to effect significant change and so the expectations about what can be accomplished are likely to be unrealistic. As it turns out $52 million is only…
DK: … one-sixth of their $300 million gap…
BHB: But is it fair to ask the developers to address the infrastructure issues created by the additional housing they are creating in the Heights?
DK: So here’s an example: Dock Street was owned by Two Trees and they were going for a rezoning, so a rezoning is a perfect time for the City to add obligations for the development in exchange for the rezoning.
[Editor’s Note: As a result of the rezoning, the Dock Street project in DUMBO will include a 300-seat public middle school.]
That’s exactly what City Hall is currently contemplating with their mandatory inclusionary housing policy for rezonings. In this case you have a project with the public library having all of this as-of-right development that—if it wasn’t the public library—Hudson only would have the right to do this.
BHB: What do you make of how the Library project has bedeviled the Brooklyn Heights community?
DK: Listen, you can’t do anything without getting some strong opinions. For the most part, this project makes a huge amount of sense. It’s an upgrade for the Library, it’s a huge amount of money for the Library system, we’re going to end up with a new branch, Saint Ann’s is going to end up with new space, I have two fun retail spaces on Clinton Street…
BHB: … one of which is Smorgasburg…
DK: You should ask me about that, because that’s going to be very exciting. And, we’re going to have a beautiful building thay will be a great addition to the Brooklyn skyline. I think this is going to be a great project, I’m not worried about some divisive attitudes.
BHB: And how did Smorgasburg—whose owners, Brownstoner, featured you and Hudson in their “Third and Bond” series in 2010—get retail space in this development?
DK: We did 180 weekly postings [on Brownstoner] practically as a community service—pro-bono—when we were developing a project called “Third and Bond.” I naively volunteered, thinking it was a good project, not knowing what a huge amount of work it turned out to be to blog a day in the week of a project.
Third and Bond was an as-of-right project, we were building four and five story townhouses, that completely fit in on Third Street in Carroll Gardens, and that’s a perfect example. You should have read the blog comments! People were killing us and writing angry, divisive comments. Just because there’s some minimal layer of negativity doesn’t make it a controversial project.
There’s always going to be some spirited conversation and I think that’s fine…. Everyone has to decide for themselves when they are listening to these comments whether they’re credible or not.
There’s no conflict of interest [with Smorgasburg]. We got to know Brownstoner from Third and Bond. He’s had a huge success and talking to him we were trying to see if there was a retailer food angle for doing something at the Cadman Plaza site.
But there was no room. I think the whole site is 26,000 square feet and 15,000 square feet is already going to the library, then you have the residential lobby, you have the parking entrance, you have the Saint Ann’s entrance; there wasn’t a lot of space.
In talking to…John Butler [of Smorgasburg]…he mentioned to me that EDC had once done a study about food entrepreneurs. They had come to the conclusion that there wasn’t a good interim step between all of these vendors setting up shops on weekends, between their pop-up, Smorgasburg food courts and then actually running a restaurant.
Instead of picking one vendor, we started thinking “What would it be like if it rotated?” and gave some of the vendors a chance to test their operation in a bricks and mortar setting for a month. If they were successful maybe that would give them and their investors the confidence to think about opening up a store.
Pick a Smorgasburg vendor that you really like: Brooklyn Soda Works, he’s selling refreshing sparkling soda in August, and then your back in February and it’s the guy selling hot chocolate or s’mores. That’s fun! It’s “I wonder what the Smorgasbord vendor on Clinton Street is in March?”
I thought it was interesting and dynamic and making a lot out of a little.
