Feds threaten to auction Governors Island

Real Estate Weekly, August 15, 2001 by Natalie Keith

The federal government is threatening to auction off Governors Island to the highest bidder on Oct. 1 unless the state fixes its draft plan to develop the island for commercial use.

The federal General Services Administration, the island's landlord, sent a letter last month to the state Empire State Development Corp. saying the draft plan put forth over a year ago was not legally adopted and lacked sufficient development details. It said both issues must be addressed before an appraisal could lower its current $330 million appraised value.

Federal officials claim that, under the Balanced Budget Act of 1997, the agency is required to sell the property at fair market value in 2002, which would be affected by any development restrictions passed by the state.

Although the island could be suitable for a number of developments, the private sector isn't exactly jumping at the chance to spend millions for it.

"It is a wonderful site and can be developed but there is no way that you can add a $400 million pricetag and still have it be economically feasible," said Steven Spinola, president of the Real Estate Board of New York.

Maintaining the island, including expenses for infrastructure and ferry service, costs millions of dollars. REBNY supports the stance that the federal government should convey the island to the city and state at no cost.

"I think the government is mistaken in what it thinks it can get for the island," Spinola said.

Meanwhile local advocates, like the Regional Plan Association, are urging Gov. Pataki to push for legislation that would fend off a forthcoming auction. The group said Pataki should advocate for the adoption of a state law that would make the draft plan legally binding or a federal law that would return the island to New York.

"We're asking the governor to take a lead role in addressing this situation," said H. Claude Shostal, president of RPA. "Right now we're in kind of a stalemate. Congress is pointing a finger at the governor, and the governor is pointing a finger at Congress."

The pending auction is the latest development with Governors Island, which has had a long history with New York City.

It was first transferred to the American military during the Revolutionary War and was used as a military installation until the early 1990s, when the Coast Guard, the last military branch to use the Island, decided to abandon it for Staten Island.

Many ideas have been floated for the island -- a few years back, Mayor Rudolph Giuliani advocated that a casino be built there -- but little has happened since the Coast Guard made its final exit from the island in 1997.

Last year, after much wrangling, the city and state agreed to a plan that called for using the island for parkland and athletic fields, along with building an esplanade and conference center. Under the plan, the state would have to spend $109. million to build infrastructure, fix up the island and operate it during the first three to five years. It would be several years down the road before revenues from tourist and business operations would pay back the investment. RPA was played an instrumental role in the plan's adoption, which appears to have broad public support.

Although passing a state law could solidify plans for the island -- and ultimately drop its price tag by millions -- Pataki appears to be reluctant to address the issue in that manner. He appears to favor working out a deal with the GSA and get leeway on the October deadline.

At the federal level, Sen. Charles, Schumer, D-N.Y., and Sen. Hillary Rodham Clinton, D-N.Y., have introduced a bill that would transfer the island to the state without a sale. But some are skeptical that the bill will become law because of reluctance to forego a sale that could put millions into the federal coffers.