SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
COALITION TO REVITALIZE THE WATERFRONT NOW,
JOHN MCGETTRICK, et al. .
Petitioners, Index No.
For a judgment pursuant to Article 78 of the Civil Practice Law and Rules
AFFIDAVIT OF HUGH F. KELLY IN SUPPORT OF THE VERIFIED PETITION
NEW YORK CITY PLANNING COMMISSION,
AMANDA M. BURDEN as Chairman of the
New York City Planning Commission, NEW YORK
CITY DEPARTMENT OF CITY PLANNING, NEW YORK
CITY COUNCIL, et al.
STATE OF NEW YORK )
COUNTY OF NEW YORK )
HUGH F. KELLY, being duly sworn, says:
1. I am the principal of Hugh Kelly/Real Estate Economics, an independent consulting firm specializing in applied economics and strategic consulting for clients with national and international investment portfolios. Prior to launching my own firm, I was Chief Economist for Landauer Realty Group, Inc., where I worked for 22 years, and was the editor and principal author of the Landauer Real Estate Market Forecast from 1985 to 2001. I am also an Associate Clinical Professor at NYU, teaching courses in Economics and in Portfolio Risk Analysis. I served as editor-in-chief of the SIOR publication Comparative Statistics of Industrial and Office Real Estate Markets from 1989 to 2000, and for the 2002, 2003 and 2004 editions, and am currently the editor-in-chief of the peer-reviewed journal Real Estate Issues.
2. I hold the CRE designation from the Counselors of Real Estate organization, where I serve on the Board of Governors. I write and speak widely in the areas of real estate market forecasts and real estate appraisal. (A copy of my curriculum vitae is annexed hereto as Exhibit "A".)
3. I submit this affidavit in support of the Verified Petition that seeks to invalidate approvals for land use changes granted by the New York City Planning Commission (CPC) and the New York City Council. These approvals enable the construction of a 416,000 square foot retail shopping mall on the waterfront in Erie Basin in Red Hook, Brooklyn. This affidavit is based on my personal knowledge and expertise and my review of the documents referenced and discussed herein.
4. I have reviewed the Final Environmental Impact Statement (FEIS) prepared by AKRF, Inc., Wachtel & Masyr, LLP, Sam Schwartz Company and Vollmuth & Brush for IKEA Property, Inc., dated August 27, 2004. In particular, I have reviewed Chapter 1, Section E, headed "Induced Growth Analysis," and Chapter 3, Socioeconomic Conditions. Both of these sections fail to discuss relevant data, devote space to the recitation of data of limited relevance, make unsupported assertions, and draw conclusions without quantitative justification or demonstration. In my judgment, both sections fail to meet the standard of professional workmanship as a piece of economic and real estate analysis. They should not be accepted as probative in their conclusions either as to the range of impacts to be expected, nor the intensity of those impacts.
5. According to the FEIS, the induced growth analysis "addresses the potential for the Proposed Project to cause or induce other retailers to locate in close proximity to the project site to take advantage of the customers and traffic that would be generated by the Proposed Project." FEIS, p. 1-7. It concludes that it is unlikely that a substantial amount of retail space would be induced by the IKEA, and posits that at most 80,000 square feet of development, consisting of six to eight small retailers, would occur. FEIS, p. 1-12. Implicit in the analysis is the finding no additional big box stores would be induced to locate in Red Hook by the construction of the IKEA. See FEIS, p. 27-13 (Response to Comment 22).
6. The analysis bases its conclusions on a discussion of two factors: development trends in industrial neighborhoods, and development patterns around existing "big box" stores. Both discussions contain omissions and methodological shortcomings. In fact, when the data is properly identified and analyzed, it shows that Brooklyn will need its existing industrially zoned space to accommodate trends in employment, that the project has resulted in the rezoning of some of that valuable space, and that the FEIS’ conclusion as to the lack of stimulus for additional big box development is without factual foundation.
7. The FEIS first notes that the City has suffered a decline in industrial employment, with jobs in wholesale trade sector, transportation, and manufacturing losing employment, and jobs in the service and finance sectors replacing them. Since the latter typically locate in commercial districts, this has resulted in an excess of industrial real estate. FEIS, pp. 1-7 to 1-9. A careful look at employment trends in Brooklyn, however, shows that Brooklyn has an economic comparative advantage for the wholesale sector within the City. Table 1-4 in the FEIS shows that, while Brooklyn lost wholesale employment jobs between 1960 and 1980, the borough reversed those declines during the decades of the Eighties and Nineties, adding 4,500 jobs during that period of time. FEIS, p.1-9. This oversight is a material omission, since industrial real estate is more typically warehouse and distribution space than goods-production space. The growth trend in wholesale trade jobs corroborates the evidence of a tightening industrial market, discussed below.
8. The analysis oversimplifies in concluding that Brooklyn has excess industrial land. It cites a Greiner Maltz study from 2002 in support of its conclusion, but the study is of land in Greenpoint, Bushwick, and East New York. FEIS, p. 1-9. These neighborhoods differ significantly from Red Hook in their locational characteristics and in the configuration of their industrial real estate inventories. No information was provided about nearer and more comparable industrial submarkets, such as Gowanus and Sunset Park. Also, the year 2002 – immediately after the 9/11 catastrophe – represented a particularly stressful time for the city’s economy.
9. A more current commentary by Greiner-Maltz can be found in the 2005 edition of Comparative Statistics of Industrial and Office Real Estate Markets, published by the Society of Industrial and Office Realtors (SIOR). That commentary notes that in 2004, for Brooklyn and Queens, "vacancy and availability percentages continued to drop in the face of steady to increasing demand levels," and that 2005 should witness a continuation of this trend, concluding that "the gentrification and rebuilding of Manhattan will continue to generate a source of demand for industrial space in the outer boroughs."
10. Greiner-Maltz’ report on the current Brooklyn-Queens industrial market in Comparative Statistics indicates a 4.06% vacancy rate, equating to 8.5 million square feet. Net absorption for 2004 was tallied at 4.54 million square feet. This report – from the same source used by the authors of the IKEA FEIS – more accurately reflects prevailing market conditions that will shape the impacts of the proposed development, as displaced industrial tenants seek scarcer alternative accommodations in a market characterized by rising prices, rents, and land values.
11. Indeed, FEIS appears to have identified vacant or underutilized industrial sites in the vicinity of the project that are actually neither. Table 3-6, "Vacant and Underutilized Sites Within the _ Mile Area," contains locations numbered 4 and 5, totaling 77,283 square feet in area. They are identified as "school bus parking" in their current use. This operation might more appropriately be described as a depot for fleets of buses, providing servicing and re-fueling, rather than simply passive parking. On the date of my physical inspection of the area (Jan. 12, 2005), I observed several dozen buses queued on Beard Street, directly in front of the proposed IKEA site. This occurred during normal business hours, and such queuing would be intolerable to retail operations at the site. Clearly this bus operation – which appears to employ hundreds of people – would be displaced were IKEA to induce additional retail development, and would be impacted in its operations if not displaced. But the FEIS does not devote a single sentence to exploring any potential impacts on this business.
11. The failure of the FEIS to discuss the data that it presents clearly in Table 1-4, and whose pertinence it acknowledges on a citywide basis, weakens the credibility of its overly-broad generalization that service sector growth is replacing jobs requiring industrial real estate facilities, and shifting commercial property demand into office districts. Instead, there are signs of strengthening employment in sub-sectors that depend on industrial sites, and of a shrinking inventory of such sites.
12. The construction of an IKEA that attracts thousands of shoppers daily may well induce additional big box stores that will locate on Red Hook’s industrial waterfront. The FEIS analysis that concludes otherwise relies on a comparative study of other big boxes. That analysis is considerably weakened, however, by the lack of relevant comparability in the locations it chooses to review.
13. The ABC Carpet store in the Bronx, the Home Depot in Flushing, and the Costco in Sunset Park are all situated in close proximity to highway exits, the typically appropriate location for retail establishments with regional trade areas; the Costco site, for example is directly accessible from the exit ramp from the Gowanus Expressway in the Staten Island-bound direction, where it debouches at Second Avenue, and is quickly accessible from the 38th Street exit Manhattan-bound following truck-route streets at Fourth Avenue and then 39th Street. None of these locations require extensive travel from the nearest highway along local streets, as is the case in Red Hook. Any professional retail location study would take this into serious account in evaluating accessibility characteristics. The three IKEA sites mentioned – Elizabeth (NJ), Hicksville (NY), and Renton (WA) – likewise have supporting infrastructure lacking at the Red Hook location. Elizabeth and Renton are both very well served by major highways. The Hicksville store is at an "inner-ring suburb" mall location, proximate to the Long Island Expressway and Northern State Parkway and served by a major thoroughfare from those exits.
14. In all instances, the comparability with Red Hook is weak and conclusions about potential induced effects are suspect because of the extreme differences in neighborhood characteristics. No attempt to adjust for these differences is made in the FEIS, and at minimum it should have been expected to attempt such an adjustment.
15. But such deficiencies aside, the most surprising fact about the analysis in this section is that it clearly concludes that the proposed IKEA would fail to induce any significant positive economic change in its vicinity – 11,000 square feet of new retail development, at the most optimistic volume. The inability of the proposed IKEA to generate any greater multiplier effect is an astonishing weakness for a project of this size, in a neighborhood where economic development synergy is critical, and where public variances in zoning and other accommodations were sought and granted. This is a stunning conclusion that casts doubt on wisdom of the project.
16. The FEIS chapter on socioeconomic impacts analyzes the potential impacts of the project on the socioeconomic character of the study area. Its objective is to determine if the introduction of the project would directly or indirectly change population, housing stock, or economic activities on the Red Hook peninsula, as well as in a broader regional area. FEIS, p. 3-1. It concludes that the project would not foster a change in residential market conditions that would lead to significant indirect residential displacement, would not introduce enough of a new economic activity to alter existing economic patterns in Brooklyn or the City as a whole, and would not significantly affect business conditions in any specific industry or category of business.
17. As the FEIS notes, the City’s CEQR Technical Manual advises that for commercial projects, developments of less than 200,000 square feet would typically not result in significant socioeconomic impacts. FEIS, p. 3-1. The implication is that larger projects do have the potential for such impacts. Since this project is more than double the established threshold, it should bear a substantial burden in demonstrating that no such impacts will occur.
18. As acknowledged in the FEIS (pp. 3-7 and 3-8), there is a positive residential redevelopment trend in the Red Hook neighborhood propelling upward movement in housing values. The process of neighborhood revitalization is, after decades of community effort, the apparent "baseline" trend for the neighborhood. The evidence of the past quarter-century suggests that once such momentum is established, the trajectory of positive change can be sustained over the long-term, providing disruptive influences do not intervene. Nearby neighborhoods that have already witnessed the reversal of urban decay include Carroll Gardens, Boerum Hill, Park Slope, Prospect Heights, Ft. Greene, and Clinton Hill. It is a major analytical shortcoming that no measure of the project’s potential impact – positive or negative – on this baseline trend was even attempted. The report merely asserts, without quantitative demonstration or support, that the project would not "exacerbate" [sic] current trends. In a totally illogical concluding sentence, the report (p. 3-8) notes that the Sunset Park Costco store "has not initiated or accelerated residential redevelopment in the surrounding area since its opening in 1996." Not a bit of analysis is produced to review the question of whether the Costco store or similar projects have inhibited such residential redevelopment – the question that is truly germane to potential adverse impacts from the proposed IKEA.
19. In its discussion of regional shopping patterns (p. 3-9), the FEIS accepts without comment IKEA’s prediction that a large majority of the proposed store’s sales would be "transferred from its existing stores" in New Jersey and Long Island. No critical evaluation of the plausibility of this claim is attempted, nor is the question of how three regional IKEAs could economically sustain the loss of $150 million to $173 million in annual sales through market cannibalization. Such an omission is a glaring professional deficiency, raising reasonable concerns about the reliability of the study.
20. The FEIS asserts that since "sales generated by the Proposed Project would represent only… 2.6 percent of all sales in [UG 6 and 10] in Brooklyn, it is unlikely that the Proposed Project would significantly alter shopping patterns and economic activity in the local area." This conclusion is dangerously misleading. Use Groups 6 and 10 is an enormously large and diverse cluster of retailing segments, with 8,203 establishments and $7.9 billion in sales in Brooklyn as of 2001. But these two use groups include stores selling goods not at all comparable to IKEA’s merchandise. UG 6 and 10 includes food, electronics, clothing, pharmaceuticals, eyeglasses and even bars and restaurants. The retail sector that is directly competitive with IKEA – furniture and home furnishings – posted only $299.7 million during 2001 – compared with the $150 million to $173 million projected for IKEA. In this directly competitive set of establishments, the impact is 50% to 58% of sales, not 2.6%. This could have a devastating impact upon many of the 391 Brooklyn establishments in this sector. The study’s treatment of this potential impact does not even rise to the level of cavalier dismissal; it is instead absolute avoidance of the data.
21. On page 3-8, the FEIS cites the CEQR Technical Manual in directing the potential to cause indirect residential displacement of proposed large uses that are "prominent enough" or "combines with other like uses to create a critical mass large enough to offset positive trends." Other "like uses" known to be affecting Red Hook are the development of a cruise ship terminal and the development of a large Fairway Supermarket. No analysis of these combining effects is attempted by the FEIS, nor are they even mentioned in the study.
22. In my opinion, it is hard to specify whether gentrification would accelerate or decelerate in the event of the development of this project. Negatives include putting a "big box" right on prime waterfront land and obviously vastly increased traffic. None of the cases of big box development seems to prove a case for gentrification. However, there is, I think, some merit to anticipating that retail improvements would create further favorable publicity for Red Hook and perhaps stimulate more upscale residential interest. But that is "not proven" in this analysis, because it is hardly researched at all. To me, the risks are that an inappropriate new development has greater potential to stall the growth trend than to accelerate it.
23. In summary, this chapter’s analysis is significantly deficient. It fails to discuss relevant data, devotes space to the recitation of data of limited relevance, makes unsupported assertions, and draws conclusions without quantitative justification or demonstration. In my judgment, it fails to meet the standard of professional workmanship as a piece of economic and real estate analysis. It should not be accepted as probative in its conclusions either as to the range of impacts to be expected, nor the intensity of those impacts.
HUGH F. KELLY
Sworn to before me this day of February 2005