Call Out for ESD Real Property Portfolio Maps

ESD Real Property Portfolio Interactive Map and Dashboard (2022-S-14)

Objectives

To determine whether Empire State Development (ESD) fully and accurately accounted for and reported on its real property holdings and the need to either hold or dispose of properties, and if ESD disposed of real property in a manner beneficial to the State. The audit covered the period from April 2019 through June 2023.

About the Program

ESD’s mission is to promote a vigorous and growing state economy; encourage business investment and job creation; and support diverse, prosperous local economies across New York State through the efficient use of loans, grants, tax credits, real estate development, marketing, and other forms of assistance. ESD, through the Urban Development Corporation Act, can dispose of real property and acquire it to own, hold, improve, and rehabilitate. Furthermore, ESD may transfer to a subsidiary any real property for any project to carry out the purposes of growing the State economy, preventing economic stagnation, encouraging job creation, reducing the level of public assistance to indigent individuals/families, and achieving stable and diversified local economies. ESD’s property holdings are diverse in location, size, value, and use; and are distinct to the circumstances (e.g., purchased or transferred) in which ESD came into possession. Economic development projects resulting from the acquisition and disposing of properties align with ESD’s mission and include developing affordable housing, redeveloping blighted areas, and encouraging investment in local economies. ESD centrally oversees real estate development, subsidiaries, design and construction, and environmental planning. Most of ESD’s properties are owned and managed by individual ESD-owned subsidiary corporations that have unique missions focused on economic development projects in particular geographic areas.

To ensure greater efficiency, transparency, and accountability for the State’s public authorities, such as ESD, the State enacted the Public Authorities Accountability Act of 2005 and the Public Authorities Reform Act of 2009. Both pieces of legislation made key amendments to the Public Authorities Law (PAL) regarding the accounting of, reporting on, and disposal of authorities’ real property holdings. Specifically, PAL §2896 requires public authorities to maintain adequate inventory controls and accountability systems for all property under the authority’s control; periodically inventory property to determine properties that can be disposed of; and no less than annually publish a report listing all real property of the authority, including full descriptions of properties that were disposed of during the reporting period along with the name of the purchaser. Furthermore, PAL §2897 outlines requirements of public authorities for the disposition of real property.

Additionally, in July 2023, the Executive announced several actions to promote housing growth, as part of what the Executive stated are efforts aimed at addressing New York’s housing problems, largely driven by a severe housing shortage. One such action was the issuance of Executive Order 30, which encourages and supports developing housing across the State, particularly multifamily, affordable, and supportive housing.

Key Findings

• ESD did not comply with PAL’s requirements to publish a report detailing its real property portfolio, including descriptions of properties disposed of during the reporting period. After the engagement of our audit, ESD officials created and published their real property portfolio report in December 2022, which included its inventory of real property and dispositions for the fiscal year ending incomplete iterations of its property list. Some of the changes to the real property portfolio were a result of expected shifts in ESD’s holdings, such as the disposition of properties over time. However, other changes resulted from inaccuracies and incomplete data that occurred because ESD has not established strong processes or procedures to obtain and ensure the reliability of the information it maintains on its real property portfolio. Due to the lack of established processes and procedures, the risk remains that the published listing may continue to be unreliable.
• As of June 2023, ESD reported it owned 130 properties—of those, 71 (55%) are vacant. Notably, three of the vacant properties, former correctional facilities (Downstate, Bayview, and Lincoln), are located in or near New York City and, according to ESD, have potential for use in developing additional housing (including affordable housing). Additionally, 28 (39%) of the 71 vacant properties are located in Niagara Falls and all but one don’t have definitive development plans. ESD has issued requests for proposals for all three prisons to be redeveloped.
• ESD disposed of 10 properties below fair market value between April 2019 and May 2023. While each of the 10 disposals was completed in compliance with PAL’s requirements, certain below-market transfers for seven properties, disposed of by one of ESD’s subsidiaries, did not include sufficient information as to the anticipated economic benefits of the projects compared to the value received and the fair market value of the properties. Specifically, the subsidiary disposed of seven properties acquired as part of the second phase of the State’s Buffalo Billion initiative for $3 that were originally purchased for $1.36 million.

Key Recommendations

• Develop and implement processes and procedures to ensure ESD’s real property portfolio is accurate and required reporting and publishing requirements are met.
• Periodically assess vacant properties and identify solutions that maximize the economic benefits to the surrounding localities and the State, which may include, but not be limited to, collaboration with other State entities to align solutions with the State’s goals.
• Establish and implement policies directing ESD and subsidiary management to provide sufficiently detailed information for proposed transfers, especially those below fair market value.